Why we won't need coal

Last month, the International Energy Agency released a stunning report that suggested that the future of thermal coal exports could be threatened if the world ever decides to implement the policies to limit global warming to an average 2°C, rather than just merely talking about it, as they are doing in Durban this fortnight.

The coal industry laughed, suggesting such a scenario was highly unlikely. But what if technology took the decision out of the hands of politicians, as seems increasingly likely with the plunging costs of renewables, particularly solar PV, across the globe? And what does that mean also for Australia's energy infrastructure, and the tens of billions of dollars that will be invested in the coming decade on the basis that business will continue as usual?

New forecasts from China suggest the cost of solar PV in that country will fall below that of coal-fired generation within 10 years. From that point, or even before, says Wu Dacheng, the vice chairman and secretary general of the China Photovoltaic Society, the country's energy build out will be dominated by cheaper renewables.

China, which has only just introduced its own feed-in tariff for solar PV, is anticipating massive growth, and has already upgraded its official forecasts to 2020 from 30GW to 50GW. But it concedes that 100GW of PV is possible and may even be overshot. Wu himself said earlier this year that China would reach 5GW in capacity by 2015, but it is now likely to reach that in 2012.

As Abengoa's Scott Frier noted, FiTs are not necessarily the cheapest form of incentive, but they are devastatingly effective in unleashing the forces of greed and pushing down costs as developers try and squeeze as much capacity within those metrics. And the Chinese are not fettered by established industry vested interests trying to hold this back. In China, the government is the vested interest, and they have already been ruthless in their closure of inefficient power stations.

Wu told Climate Spectator in Sydney on Wednesday that solar PV is already cheaper than peaking prices in some areas of China, and will match parity with commercial and industrial supply in 2014, will reach retail parity in 2018 (households pay less for electricity in China than industrial users), and match wholesale price parity by 2021, when prices will be around 0.6 yuan/kWh.

His forecasts were reinforced by Martin Green, the executive research director of the world-leading Photovoltaic Centre of Excellence at UNSW, who says solar PV is likely to fall below the cost of coal in Australia (wholesale grid parity) before the end of the decade. He points out that most studies, and much of government modeling, are based around solar PV having a cost of $3.50 a watt. He says it is already down to just over $1/watt and will likely halve again to 50c/watt by 2020.

This has broader implications for energy grids. Green and other experts say much of the infrastructure spending on poles and wires is based around the assumption of business as usual: that coal will continue to be the cheapest and the central source of power. “I don’t see anyone discussing a national grid centred around renewables, but they should be,” says David Mills, the founder of solar thermal technology firm Ausra, and one of the leading experts in solar technology. “We're about to spend so much money on the grid, shouldn’t we thinking about what we are going to be powering it with?“

Mills last year released the first version of his ground-breaking research that showed that the entire US grid could be powered by just wind and solar thermal, and he provided an update on that research at the Solar 2011 conference on Wednesday. Mills challenges the very concept of baseload power, the sort provided by coal and nuclear.

“People say we need baseload plans, but we don’t,” he says. Instead, grids can work perfectly well with a mixture of inflexible supply (wind that blows whenever it wants), and flexible supply (solar thermal with storage). Mills has yet to release the financial modelling for his scenario, but notes that wind is already cheaper than new-built coal in the US, and solar thermal with storage, and used as a peaking plant, will be competitive with peaking gas.

Mills did not factor in PV in his scenario, but it would have the same impact as wind. As wind and PV fills up the energy stack (they go first because they have the lowest short run marginal cost – wind and solar radiation is free), what is needed to complete the requirements is flexible generation. Coal doesn't fit the bill.

The first impacts of this have already been seen in South Australia, where wind has provided more than 20 per cent of annual output last year and much higher on occasions. In Germany, where wind and PV capacity amounts to 45GW, Statkfraft has announced this week that it may close two gas-fired power stations, amounting to one gigawatt of capacity, because of this impact. And this in a country which has just shut down half its nuclear fleet and will soon close the rest.

A UNSW team of Ben Elliston, Mark Diesendorf and Iain MacGill has just released its own study of how Australia could power its entire grid on renewables. And like Mills, they also see solar with storage as a type of peaking plant. “The whole concept of baseload becomes redundant,” Elliston told Climate Spectator. “It’s worse than redundant, it gets in the way.”

The UNSW study, based on simulations of Australia’s energy needs in 2010, found that the entire supply could be met by a mix of solar thermal with storage, wind, solar PV, existing hydro and peaking gas plants running on biofuels. Only six hours of the year fail to meet the NEM’s reliability standard, all in evening peaks in the winter months.

Elliston says that one of the biggest impediments is the build-out of long-life assets – or the lack of long-term signals. “The business-as-usual market approach, where we plan at the margin, is not going to get us there. We need to start a new strategy now, which means not building new coal-fired power stations, and building  transmission lines in the right place to build renewables .”
 
The authorities, and the utilities, do not seem to be listening. Indeed, Rick Brazzale, the head of Green Energy Trading, took up this theme when he told the conference that the Australian Energy market Operators’ annual statement of opportunities report, which gives forecasts of demand and is used by the industry to plan its expenditure, showed that non-peak demand would continue to rise in the coming decade, even though the experience of the past three years showed that PV and energy efficiency initiatives had caused it to stop, or even retreat.

Mills notes how the rollout of PV and electric vehicles could dramatically alter the way consumers use the grid. With utilities expanding time-of-use pricing – at 42c/kWh or more in peak periods in NSW, nearly twice the cost of PV – consumers were more likely to use their own solar arrays and the battery in their EV to reduce their demand on the grid. As British Telecom found out when raising phone charges to justify its land network, people use it less – forcing prices to go even higher to recoup the cost of investment. The same trend is likely to occur in energy, Elliston says.

So, if coal no longer has a place in the energy stakes of the future, is Australia then impoverished by its lack of thermal coal exports and doomed to take the cheapest PV imports from China?  No, says the UNSW’s Green – he says more than half of the economic value of solar PV remains in its installation and commissioning, which is all local. And he says Australia has a unique opportunity to become a solar technology hub for the Asia Pacific region.

China may have the biggest manufacturers of solar PV, but they are relying on partnerships with Australian universities such as UNSW for their R&D, and their ability to remain at the cutting edge. And, says Green, there is also a great opportunity in education and training. Education is already Australia’s third largest export earner with $18 billion of sales last year. Cleantech such as solar could be a sizeable component of that sum.

John Grimes, the head of Australian Solar Energy Society, agrees. “The public has a perception that that solar is expensive, that it has failed,” he says. But there is in fact a seismic shift happening globally and it is all about China, which has flicked the switch on domestic consumption.

“This presents threats and opportunities. Threats are what we need to manage, but we should be pursing the opportunities.” Grimes says Australia should be pursuing a more strategic partnerships with China – like that between UNSW and Suntech, the world’s biggest solar PV maker. “Australia can leverage off the enormous manufacturing juggernaut that is China and generate maximum benefit to the economy.”

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