Australia’s Coal Conundrum: Economy, Climate at Odds

Coal has long been a lifeblood for Australia. The country is the world’s largest exporter of metallurgical coal used to make steel, and it’s the second-largest exporter of coal for use in power generation, supplying much of Asia. Government data shows the coal industry directly and indirectly supports more than 150,000 jobs, and in recent years has contributed more than $60 billion in economic impact annually. Coal-fired generation accounts for as much as 60% of the country’s electricity, even as renewable energy’s share of electricity output continues to grow (topping 30% last year), with renewables far outpacing both gas-fired generation and hydropower.

The coal industry faces headwinds, though, as Australia joins much of the rest of the world in developing decarbonization strategies to hit climate targets—in Australia’s case, a goal of net-zero emissions by 2050. The public debate about climate change has grown louder after major wildfires in Australia in 2019 and 2020. Prime Minister Scott Morrison’s government has been criticized for moving too slowly to close coal-fired power plants and build more solar and wind farms; current leadership has said they want to be cautious with that transition in order to mitigate an energy crisis in the country that has led to blackouts in recent years.

“There is tremendous public pressure on the coal plant operators to close plants,” said Andrew Waite, director, Sales & Business Development, Southeast Asia for Babcock & Wilcox. “This pressure is coupled with a market that’s quickly changing with the rapid rise of cheaper renewable energy, which is expected to be greater than 60% of grid generation by 2030. The market reality of this rapid rise in renewables and storage is the economics of coal-fired power plants are under significant pressure by these cheaper renewables.”

Waite told POWER, “The drivers for the transition from coal to other fuels for power generation, including renewables like solar, wind, and hydro, depend on the market. In September 2016, South Australia experienced a blackout as a result of storms and high temperatures. Due to recent coal plant closures at the time and lack of energy storage for renewables, the blackout was more widespread and longer in duration than previously experienced and power could not be restored for most of the day. Since then, additional coal plant closures have become politically unpalatable.”

A buildout of cleaner energy options is slowed by the economic impact of moving away from coal, the recency of the 2016 blackout, and more power outages in the past few years. Though no new coal-fired power plants are expected to be built, the Queensland Resources Council has said several new coking coal mines will open over the next five years. Steel industry experts have said the promise of “green” steel remains years away; some have said at least 40% of the steel produced in 2050 could still be made by burning coking coal, in a steelmaking process that today accounts for about 8% of all carbon dioxide emissions worldwide. Officials have said that mixing biomass with coking coal would help reduce emissions, as researchers continue to look for cleaner technologies.

“Many electricity markets across the world are undergoing a paradigm shift in how they operate, as penetrations of low-cost renewable generation increase,” said Lara Panjkov, senior manager, Market Development and Growth at Fluence. Panjkov told POWER, “Australia has plenty of wind and sun at its disposal so it can provide consumers with ultra-low-cost electricity when these are available. At times when they are not, fast-responding, flexible resources can balance out the grid.”

Panjkov said Fluence is providing a 150-MW/150-MWh energy storage system “to support the transition to renewable energy at the site of the former [1,600-MW] Hazelwood Power Station in the Latrobe Valley, Victoria. There is still lots of work to do for regulators, governments, and industry to ensure that we have enough flexible resources like energy storage to prepare for imminent coal plant retirements. We have the opportunity to make the most of a technology we already have today to transform the way we power Australia.”

The Australian Energy Market Operator (AEMO) forecasts Australia’s power demand will nearly double by 2050, in large part due to electrification of transportation, with gasoline and diesel-powered vehicles giving way to electric cars, trucks, and buses. AEMO has said Australia’s current pipeline of power generation and energy storage projects totals 138 GW, more than double the country’s current generation capacity of 59 GW. The agency said renewable energy installations account for 86% of the proposed new projects.

1. Origin Energy in February said it would close the 2,800-MW Eraring coal-fired power plant in 2025, seven years ahead of its previously scheduled retirement. Courtesy: Commonwealth Scientific and Industrial Research Organization

AEMO expects more than half the country’s coal-fired power generation capacity to close by the end of this decade, and also said it’s possible all coal-fired plants would be retired by the early 2040s. Closure announcements for some major coal-fired units occurred in February; Origin Energy said it was set to retire its 2,800-MW Eraring black coal plant (Figure 1) in 2025, seven years ahead of schedule, and replace it with 700 MW of energy storage at the site in New South Wales. “Origin’s proposed exit from coal-fired generation reflects the continuing, rapid transition of the national energy market,” Frank Calabria, Origin’s CEO, said in a statement. “The reality is the economics of coal-fired power stations are being put under increasing, unsustainable pressure by cleaner and lower-cost generation, including solar, wind, and batteries.”

“I believe Australia is well-positioned to transition away from coal power plants,” said Patrick Lee, CEO of PXiSE Energy Solutions, a company with extensive experience working in Australia. “While the move to clean energy won’t happen overnight, the Australian government has laid the groundwork to prepare clean energy sources to take the place of coal. They’re being smart about it—they’re not approaching this as a simple 1:1 replacement where battery storage will replace coal plants, which would be very expensive.”

Lee told POWER he sees Australia “tackling the issue with three layers to fill the gap that coal plants will leave. First, adding battery storage, which can be done at the coal plants and other strategic points of the network. Doing this can help maximize the efficiency of the coal plant’s remaining life while taking advantage of existing transmission infrastructure. Second, enabling the grid so they can partner with utilities to integrate large scale renewable assets and including large number of solar PV [photovoltaic] and storage assets behind the meters; and third, through market enablement by AEMO’s DER [distributed energy resource] Marketplace, continuing to incentivize independently owned and distributed energy assets to participate in the wholesale energy market to improve the investment economics. By combining utility-grade energy storage and customer assets with intelligent grid control software, Australia can leverage all these assets as a holistic system, rather than siloed power plants of the past, and prepare the grid for the loss of coal power plants or sudden loss of renewable resources without causing major disruption. Progressive energy policy, the adoption of cleantech solutions, and support for a renewable marketplace will all help make Australia a clean energy leader and more prepared than most countries to wean itself off traditional power sources like coal.”

Arij Van Berkel, vice president, group director of the Energy Research Team at Lux Research, told POWER the vast economic footprint of coal in Australia—“the Australian economy relies on coal mining for about 10% of its GDP [gross domestic product],” he said—complicates the energy transition. “It will not be easy to completely phase out coal power for that reason. Closing its largest coal-fired power plant with a capacity of 2.8 GW early is a good start and a wise decision,” said Van Berkel, adding, “Australia will not have an issue finding alternative generation capacity for that 2.8 GW.”

Van Berkel said replacing that generation “can be done in time [within three years] through a combination of gas-fired power, solar power, and batteries. Getting an early start to phase out coal power makes for an easier roadmap. In addition, Australia must take the time to convert its economy away from coal mining. That is harder to accomplish and the country has less control over the rate at which this will happen.”

AGL, founded in 1837 and Australia’s largest electric utility, on Feb. 10 said it would accelerate the timetable to close its two largest coal-fired power plants. The company already plans to close its 2,000-MW Liddell plant in the Hunter Valley in New South Wales (NSW) in April 2023, and said the 2,640-MW Bayswater plant in NSW will close between 2030 and 2033, rather than in 2035 as previously scheduled. The 2,210-MW Loy Yang A power station in Victoria will be retired by 2045, at least three years earlier than previously expected. Graeme Hunt, CEO of AGL, at an investors meeting said, “The path to net zero [emissions] will be the defining challenge of our era. Companies that don’t adapt, that don’t innovate, and don’t set themselves on this path will be left behind.”

AGL already plans to split its power generating business by June 30, with Accel Energy serving as the electricity producer, and AGL Australia acting as the power retailer. AGL recently rejected a multibillion-dollar takeover bid from Brookfield Asset Management Inc. and Mike Cannon-Brookes, a technology billionaire; Brookfield and Cannon-Brookes had said they would move to close AGL’s coal-fired plants more quickly if they were leading the utility. The consortium in a statement in late February said they were still “optimistic that an agreement can be reached.”

Cannon-Brookes, co-founder of software developer Atlassian Corp. and ranked as Australia’s fourth-richest person, said of a takeover: “If successful, this will be one of the biggest decarbonization projects in the world. This proposal will mean cheaper, cleaner, and more reliable energy for customers.” The consortium has said they would develop at least 8 GW of renewable energy projects to replace 7 GW of AGL’s coal-fired generation, enabling the utility to be net zero by 2035.

2. The Anglesea Mine in Australia operated for 50 years, serving Alcoa of Australia. The mine closed in 2015 and is undergoing rehabilitation. A project to turn the site into an eco-tourism location, including an immersive educational center, is ongoing, part of the government’s plan to provide economic support to areas dependent on coal mining. Courtesy: Creative Commons / John Englart

The Greens, a political party that supports ecological stability among its principles, recently proposed a $19 billion plan to diversify the economy of towns that have relied on fossil fuels, specifically coal mining (Figure 2). The party said government should subsidize the wages of coal workers who transition into new jobs, and said coal miners could stay in mining but begin harvesting cleaner metals, or critical minerals. The Greens said government could pay half the wage of a new job in a “non-polluting industry,” outside the coal, or oil and gas, sector.

Adam Bandt, leader of the Greens, in a statement said, “Australia is sleepwalking into the closure of the coal industry, but every single worker is being told by the Liberal and Labor parties that they have nothing to worry about. We owe coal workers a debt of thanks for powering our country. We don’t need to choose between taking urgent climate action and supporting coal communities. We can do both.” Bandt continued, “There are enormous opportunities in developing critical minerals and green metal processing. Australia doesn’t need to shut down the mining industry, we’ve just got to get out of coal.”

Waite said maintaining a reliable supply of electricity, while recognizing the need for more renewable energy, is driving Babcock & Wilcox’s efforts in Australia. “One of the big issues Babcock & Wilcox is working on is how to help redesign and upgrade the remaining coal fleet to manage ramping up and down more efficiently to act as backup to renewables like wind and solar, which have been growing tremendously,” Waite said. “The renewable and thermal power capacity are there to meet energy demand… [but] until energy storage systems such as batteries are able to meet demand when solar or wind are unavailable, coal and gas will play an important role. We’re focused on helping our customers in Australia with upgrades and replacement parts to keep their plants running, reduce emissions like NO _x, and make them better able to cycle in response to the load demand.”

Didem Cataloglu, CEO at DIREXYON Technologies, a Montreal, Canada–based financial modeling group, told POWER: “The accelerated closures of several coal plants in Australia are creating a significant gap of nearly 5,000 MW of reliable generation in the National Electricity Market (NEM), according to Angus Taylor, Australian Minister for Industry, Energy and Emissions Reduction. While this gap is considerable, it is also creating a comparable window of opportunity to boost the country’s renewable energy transition in the coming years and to [reach] reduced carbon emissions targets by 2030. Energy supply requirements are already being diligently forecasted. This gap is, therefore, already well on the way to being successfully bridged, judging by the growing pace of Australia’s renewable installations so far. The closures will be revving up government action on funding additional renewable energy projects, as well as garnering sufficient resources [skilled labor and materials amid supply chain disruptions] to complete these projects.”

The NEM, for its part, is preparing for more change in Australia’s power generation market, as political leaders debate what that should entail. “In October 2021, the NEM shifted from 30-minute to 5-minute settlement, which provides strong price signals for faster-responding, flexible technologies,” said Panjkov. “Flexible resources, like battery-based energy storage, are key enablers of the renewable energy transition as they help make the grid more reliable and secure. Storage is already playing a major role of managing grid frequency via Frequency Control Ancillary Service markets. Two new Fast Frequency Response markets, commencing in October 2023, will unlock even more value for grid stability. As coal plants retire, it will be increasingly vital to store electricity and then shift it to when it’s most needed. And finally, more advanced applications of storage are emerging, such as providing synthetic inertia, a service once only thought to be provided by large rotating machines—like coal plants.”

—Darrell Proctor is a senior associate editor for POWER (@POWERmagazine).