Will Australia ever give up on coal power?

Australia is highly dependent on cheap coal for electricity but the country urgently needs to reduce its CO2 emissions in accordance with targets set in the Paris COP21 deal. To meet its commitments the government is looking to deploy large-scale ‘clean coal’ power plants - but is it enough and why isn’t the country ready to ditch coal altogether?


Blistering sun beats down on miles of dusty orange desert, while the wind blows above waves that crash against 25,760km of uninterrupted coastline – on the face of it, Australia is the perfect place for a renewable energy revolution.

Yet polluting coal still accounts for 63% of the country’s energy production and carbon-free renewables make up a meagre 13.7%, according to the Department of Energy and Environment. These statistics include energy generation for all of Australia, including off-grid and generation by industry and household PV systems.

In 2015, the government signed the Paris COP21 Agreement, pledging to reduce its carbon emissions, and subsequently updated its Renewable Energy Target programme.

New targets state that by 2020, 23.5% of Australia’s electricity generation should come from renewable sources. Some states are more ambitious, for instance, in South Australia the target for renewable energy is set at 50% by 2025, while Victoria is 40% by 2025.

For now, however, Australia is still reliant on coal. This is primarily because it is a cheap generator of electricity, and as the third-biggest producer of coal in the world (even though 90% of this is exported) the country has it in abundance.

The average wholesale prices of electricity generated by coal in Australia are around A$50-A$60 per MWh. Comparative costs of renewable energy are around A$70-A$120/MWh and for gas, around A$70-A$120/MWh.

Meeting targets – is there the will?

Global P&U partner at EY Australia, Matthew Rennie, insists the political will to increase Australia’s stake in renewables is “very much there”, although he thinks that meeting the 2020 target will be “difficult”.

“Recent auction results in the Middle East of around US$29/MWh and Mexico for $45-$60/MWh, show that developers, constructors and financers of renewable power stations are willing to reduce prices, and are able to as projects get bigger in scale,” says Rennie.

"At those prices there is certainly a will; we have already started down the road of bringing renewables into the mainstream part of the baseload power."

“At those prices there is certainly a will; we have already started down the road of bringing renewables into the mainstream part of the baseload power.”

The government has set down its targets. The 2020 Renewable Energy Target, which received bi-partisan support, requires renewable energy to be bought by utility retailers regardless of the price.

This regulation has helped support many new renewable energy projects And, according to the Clean Energy Council, the renewable energy sector is experiencing unprecedented levels of investment. Around $5.1bn worth of investment and 3,000 jobs have already been guaranteed for projects scheduled for construction this year alone. This includes 20 projects with 2,250MW of new large-scale renewable energy, all of which are wind or solar.

So why has it taken Australia so long to develop its clean energy resources?

Rennie says delays have been due to builders of renewable power stations being unable to exact the terms of contracts demanded by retailers.

“In Australia, retailers are supplying customers that have very short-term contracts, and so renewable energy developers that need ten-15 year deals to get financing have struggled to reach agreeable terms on the lengths of the contracts,” he explains.

“Recently, there [have been] much more innovative financing structures, with both parties starting to work towards getting contract structures that are financeable, and therefore more projects are coming out of the pipeline,” he adds.

Federal support for renewables appears to be paying off, but the Clean Energy Council is concerned about what happens after 2020, the deadline for the Renewable Energy Target.

Clean Energy Council chief executive, Kane Thornton, said in February that, despite the falling cost of renewables, some form of policy support will likely to be necessary after the end of the decade, due to the energy market being dominated by old coal-fired power stations.

“Without clear federal energy and climate policy beyond 2020, the level of new investment in clean energy will likely fall and be reliant on state and territory policies. Our preference has always been for strong and stable national energy policy, but there is a policy void beyond 2020,” he said.

Nuclear power could help the government meet its clean energy commitments faster, but Australia has no nuclear capacity and is not considering investing in any, mostly due to the high upfront capital cost and the typically long-term agreements required from retailers.

The argument for clean coal

Rather than fully focus on renewable energy projects such as solar or wind, many in government are focused on the potential for ‘clean coal’, also known as high-efficiency low-emission coal (HELE).

HELE coal-fired power plants are a “key first step along a pathway to near-zero emissions from coal with carbon capture, use and storage (CCUS)”, according to the World Coal Association. It adds that, once deployed, HELE technologies can reduce greenhouse gas emissions by around 20%.

Clean coal is a perfectly viable way of producing electricity,” agrees Rennie, “There has always been a home for coal-fired power within the generation stack because it provides cheaper electricity to large numbers of people.”

Investment in HELE power stations, incorporated with the latest carbon capture storage, seems an obvious choice for a country that has an abundance of coal reserves and a long-term interest in keeping its coal mining industry in business.

"Clean coal is a perfectly viable way of producing electricity."

However, not everyone is convinced by the merits of HELE and the issue of clean coal has often erupted into a political argument between the incumbent government and the opposition.

After suggestions that with a fund for clean energy the Clean Energy Finance Corporation should be able to finance clean coal, opposition Labour Party politician Mark Butler was quick to trash the technology.

“The government’s so-called clean coal is twice as polluting as gas-fired power, as well as being more expensive than renewables and gas,” The Guardian reports Butler as saying. “New coal plants are inconsistent with Australia’s obligations under the Paris Agreement, to have a net zero emission energy system by mid-century,” he added.

The new coal power plants the government is promoting as clean, emit around 700kg to 750kg of CO2 for every MWh of electricity they produce.

There are also concerns over whether clean coal plants, without government subsidy, would be particularly cost-effective or easily financed, as they need to be built at a larger scale and with longer contracts than renewables.

“If you are going to build a clean coal power station it needs to be very large and so the contracts need to be long term,” says Rennie.

“Presently, there is a greater propensity towards renewable energy projects rather than cleaner coal, but if there was not much price differential between them, I think that would resolve itself,” he adds.

The future of Australian energy

 Even so, renewables have their limitations. Sunshine and wind are intermittent and in the future will need as yet commercially unavailable, large-scale energy storage for mass deployment.

Furthermore, Australia is prone to extreme weather events. In September 2016, South Australia suffered a significant blackout after a series of tornadoes severed high-voltage power lines, setting off a catastrophic chain of faults, which resulted in an interconnector being cut-off and eventually all generators across South Australia being forced to go offline.

When investigating the failure of backup systems, the Australian Energy Market Operator (AEMO) concluded that South Australia’s reliance on renewables played a significant part in producing the outage, as windfarms had shutdown for security reasons.

 Such events will need to be mitigated before Australia can rely heavily on renewables.

The reality is that the country will rely on coal in its energy mix for decades, not least because it’s a top producer, but also because the price of electricity will always be a political issue. 

But the biggest barrier to its large-scale deployment is cost; however,  research and development will likely change this in time.

When considering the future of Australia’s energy mix, Rennie says he applies two lenses: “The first is a technological lens – what is available? And the second is, what is the cost – what does this generation do to the delivered cost of the energy?”

“For now, coal-fired power is extremely cheap and is a way of producing bulk power [for] the community at a low price. The real problem is migrating from coal and what that does for pricing and system security.”

While it is likely that Australia will be one of the biggest adopters of clean coal when the technology matures, prices are falling and it is becoming more economically viable every year.

Therefore, until clean coal catches up, Australia will see an acceleration in its green energy revolution before it sees widespread adoption of clean coal – but there is little doubt there will always be a place for coal, clean or otherwise, in the future energy mix.