The fight between backers of coal and gas is intensifying amid bidding for Western Power’s 320MW power procurement contract, as Joe Poprzeczny reports.
Western Australia is in the fortunate position of having two abundant energy sources – coal and natural gas.
However, a down side is that their backers inevitably get locked into complex encounters involving government – and associated protracted lobbying of ministers, government advisers and MPs – to help ensure their energy source is adopted when extra generating capacity is needed.
WA’s extensive coal reserves run the length of the coastal plain, from Geraldton to Cape Naturaliste, including around Collie.
Because of Collie’s strong mining union links and its tradition of returning a Labor member in state elections, coal has had an inside running when Labor governments decide to expand generating capacity.
The last time this occurred was in 1993. The Harman Report recommended using gas but complex manoeuvres by the late energy czar Bruce Kirkwood, mining and power station operator unions, and several Labor and even non-Labor MPs reversed that decision, so a 300MW coal-fired station was built instead.
Coal’s dominant role was inevitably helped during last century because for decades wood was its only substitute challenger.
But the tapping of the North West Shelf’s huge gas reserves had ended this by the 1970s.
By 1990, simple or open cycle gas turbines were meeting peak power demand.
And even more efficient combined cycle plants for baseload power were soon to be introduced.
Coal, and therefore Collie, after nearly a century, thus faced a formidable rival that threatened to, and eventually did, erode its long-standing monopoly status.
By 2001 about 700MW of electricity was gas-fire generated, with coal producing much more than double that.
What this meant was that gas, in just 30 years, managed to gain nearly 15 per cent of WA’s generating market.
Strong proponents of the new energy source, such as the Australian Petroleum Production and Exploration Association (APPEA), launched attacks against coal. And coal’s backers fought back.
Griffin Coal and Wesfarmers-owned Premier Coal combined by launching a campaign dubbed ‘new coal for the next generation’, which claimed coal was essential for WA’s future, and what it called ‘new coal’ had the potential to provide electricity at half a cent per kilowatt hour cheaper than gas.
“Realistically, WA has no choice since objective economic, social and environmental data shows gas is more beneficial than coal as a fuel for electricity generation in WA,” APPEA director Barry Jones said.
Such unequivocal statements were backed by tougher claims.
Mr Jones cited four potential economic benefits:
• gas has a price advantage over coal;
• the capital cost of gas-fired stations is lower per unit of electricity generated than coal-fired stations;
• the operating cost per unit of electricity generated is cheaper for gas than coal; and
• the delivered cost of electricity is as cheap as, if not cheaper, for gas than coal.
He said environmental benefits included:
• gas meant lower greenhouse gas emissions;
• gas created fewer pollutants; and
• gas allowed greater flexibility in operating arrangements, thereby allowing the state to maximise its use of renewable energy.
And, Mr Jones said, social advantages arising from gas generation included: that it made a substantially larger contribution to community revenue than coal; that gas generated substantially more job opportunities for WA; and gas had created a new set of service sectors that supported its use.
These arguments are formidable but coal’s backers were undaunted.
They argued it was wrong to see coal as an energy source of the past, adding that its use was expanding worldwide and that coal, at the point of burn, was being made environmentally more efficient.
They also argued that to fairly compare coal’s emissions output level with gas it was necessary to take a holistic, that is, an overall, view.
By this they meant that all emissions resulting from the extraction, piping and burning of gas should be aggregated before comparisons with coal were made.
Collie, it is pointed out, was closer to Perth and WA’s south-western transmission network, so was strategically less vulnerable to mishaps and even terrorist attacks. The single Dampier-to-Bunbury pipeline (DBP) was seen as being vulnerable and could leave south-western consumers exposed to what Melbourne suffered because of Esso’s 1998 Longford gas plant mishap, with Victoria left having limited power reserves.
About 1.3 million Victorian homes and nearly 100,000 businesses were affected. Lost export earning reached $200 million. Stand downs and production losses across Victorian and later interstate reached $1.3 billion.
Sceptics who favour coal initially queried the extent of WA’s offshore gas reserves, an argument that’s been shown to be difficult to sustain as ever-bigger reserves are found. Others have contended that gas was best shielded against local usage because WA had adequate coal reserves. The contention was that gas was better suited to be an export earner.
It’s also been argued that gas was too valuable a natural resource to simply burn when it could be used for a range of other purposes, including the manufacture of fertilisers – to boost food production – and in the plastics sector.
And finally it was pointed out that by 2001 the 70-30 per cent coal-gas split was satisfactory and should remain at those proportions.
Last week, coal lobbyists won a little-publicised coup when one of its long-time parliamentary backers, and now Liberal energy spokesman, Dan Sullivan, cast doubt on whether the gas sector was institutionally capable of ensuring its benefits ripple through energy market in the longer term.
“I have learned in recent weeks that there is the potential for a major problem with the DBP,” he told parliament. I cannot divulge any details but it relates to the current [gas] procurement process.
“I am from the South West and I am a great supporter of the coal industry.
“We all know that gas will play a role of paramount importance in the development of a competitive electricity industry. One of the keys will be to ensure that the pipeline remains available on equal terms to all operators.
“That is akin to the infrastructure that the Electricity Networks Corporation will be operating on a monopoly basis.
“The worry at the moment is that the conglomerate [which includes Alinta as a shareholder] that owns and operates the pipeline could end up with a competitive advantage and that may be pricing disparities. If that happens, at worst, it will deter competition, especially at generation level, and at best it will load up operational prices for operators who are not on early enough.”
Now, what Mr Sullivan said may look like academic mumbo-jumbo, but it’s not.
For a variety of reasons, including the short-sightedness of the Court and Gallop governments, one of the DBP’s owners is Alinta, which also sells gas to southern consumers and owns the metropolitan gas distribution network.
And Alinta has signalled that it, with Alcoa, also a DBP shareholder, is gearing up to become a major electricity supplier, using gas (in competition with Western Power, other gas generating entities, and perhaps Griffin and Wesfarmers).
Alinta is thus well-down the road to owning, in whole or in part, large and strategic segments of various parts of the state’s energy market.
It is therefore set to become a vertically integrated company, like Western Power was before the Court government began breaking up the energy sector to ostensibly see introduction of competition.
What Mr Sullivan alluded to was that many northern gas producers and shippers, plus potential electricity generators, have indicated that they are uncomfortable with Alinta being so dominant in the gas retail, distribution, transmission and generating markets.
Alinta is extremely sensitive to such criticism, to being perceived as an over-arching monopolist, across the entire energy market that is ostensibly emerging as one that’s competitive.
It thus responds by pointing out that its DBP stake is regulated by agencies of the federal and state governments, such as the Australian Consumer and Competition Commission and WA’s Economic Regulation Authority.
Only time will tell if Mr Sullivan’s stated concerns were prescient. And if so, time will tell just how Alinta’s dominance of the gas and electricity markets helps or hinders the coal sector to fight off the formidable gas challenge.
