Xstrata gas deal sinks renewables hub
Hopes of building one of Australia’s largest renewable energy hubs in north Queensland appear to have been dashed after the Swiss-based global mining giant Xstrata signed a deal instead with AGL Energy to build a gas-fired power station in Mt Isa.
Xstrata had been mulling three strategies to ensure future energy supply for its Mt Isa mining operations: the extension of the current sole supplier, the gas-fired Mica power station (an idea it dumped a while ago); go for another gas-fired station; or participate in the CopperString project that would link Mt Isa with the grid at Townsville via a 1000km transmission line, and unlock a series of renewable energy projects, including wind, solar, biomass and geothermal found in between.
Xstrata decided on the “safe” option and went for more gas, and signed a deal on Thursday with AGL and pipeline group APA to build a 242MW gas-fired power station at a cost of $500 million, and a 17-year supply contract.
The decision by one of its major customers almost certainly signals the end of CopperString, which would have cost at least $1.5 billion, but was backed by state and federal funding, and of a multi-billion dollar renewable plan, including the $1.5 billion, 750MW Kennedy wind farm – which would have been the nation’s largest – and a host of other renewable projects. Among them were several solar thermal projects; another wind farm and solar plant at Mt Isa; a 400MW biodiesel and biomass plant using kapla trees being considered by another CSIRO spin-off called PhytoFuel; a 100MW hydro project, and a biomass project proposed by Samsung; and several geothermal prospects. In all, up to 3000MW of renewable projects were envisaged.
It may also place doubts on the future of some mining projects, such as the Guildford coal tenements, which will have to try and find an alternative source of energy, and may have to choose expensive and high-emitting diesel instead. And it reduces the case for more baseload power generation in north Queensland.
It also means that Queensland will likely struggle to meet its renewable energy target, as CopperString would have unlocked its best renewable resources. As it is, the state has only 12MW wind farm in the south and a single turbine on Thursday Island to show for its renewable efforts, apart from a whole host of solar PV on rooftops and the two largest solar thermal projects, including the Solar Dawn flagships project, that are on the drawing board.
Xstrata says it has based its decision around the reliability and cost of energy, and a spokesman said it relied heavily on a report produced in 2009 by former Port Jackson principal Rod Sims (now chair of the ACCC) to justify it on environmental and social criteria. However, Sims said in his report that given the variable nature of gas prices, it was impossible to decide which would be the most cost effective.
And Xstrata’s contention that gas is cheaper is also questioned by analysts. As Deutsche Bank noted in a report on Thursday night, the remoteness means that building a gas-fired plant will cost $2 million/MW, so the capex cost is no cheaper than wind, and that does not include project financing costs, or the cost of its gas supply.
Xstrata also says the Sims report found the gas plant would result in lower emissions, as the transmission line would connect it to the grid, which has a higher emissions profile. Proponents of CopperString believe that is laughable. Most of those dirty utilities are more than 1000km away. Someone forgot to mention if you build a bunch of renewable energy projects in between, the electrons that will most likely arrive at the mine’s plant will be emissions free.
Xstrata also says its decision will secure its operations and create long-term job opportunities, but the Queensland government also reconised that CopperString had numerous advantages: it was a crucial project to guarantee the future of existing and future mines, support regional development in north Queensland, create thousands of jobs, allow the north of the state to export energy to southern regions, and reduce the huge amount of losses on the network.
A report by BIS Shrapnel in 2010 concluded the case for a “clean energy corridor” was compelling. But it also noted the “chicken and egg” problem, and identified the risk of users dismissing the option because it was not the initial low-cost option, even though it was clear that over the long term, a renewable energy hub in north Queensland would lower the cost of energy for that region and for central Queensland. This was underscored by a study by Windlab Systems, the proposed developers of the Kennedy wind farm, which found it could cut wholesale prices by up to 9 per cent, and save a further 5 per cent from reduced transmission losses. In other words, the value of savings to consumers were three times the cost of renewable energy subsidies.
Given the government’s own description of CopperString as a “once in a generation opportunity," it now seems extraordinary that it should agree with the proposal by Sims, a noted economic rationalist, to allow “the market” – effectively Xstrata – to decide the fate of the project.
In doing so, it effectively outsourced the decision to a board room in Switzerland, which was only ever going to take Xstrata’s own operations and opportunities into account, not the state and nation-building opportunities and interests that existed elsewhere. There’s no doubt that this is a great deal for Xstrata, and a great deal for AGL and for APA, and that they all acted appropriately within their narrow scope of self interest and what’s best for their shareholders, at least over the short term. It’s just that it looks like a lousy deal for almost everyone else.
This is a problem that is going to be repeated across the country, unless some sort of political leadership emerges. The Pilbara mining province has already become an almost feudal system of energy and other infrastructure guided by the self interest of individual corporates, in cut-throat competition with their rivals, rather than a regional development plan. It has led to an incredibly inefficient system of duplicated and costly infrastructure. BHP Billiton, thankfully, has kept its options open as it assesses the various energy sources available for its massive Olympic Dam project. As we wrote here, it can see the bigger picture. More importantly, it can also see that what seems cheap now may not be so in the future.
Windlab’s Luke Osborne says the company is clearly disappointed, and did not believe that the decision was in the best long-term interest of the state. However, he is optimistic that the Kennedy wind farm would one day be developed, but on a much different timeline. “Life goes on. We’re working on another 40 projects around the world,” he says.
CopperString – a venture that included Leighton Contractors, and the vocal support of Bob Katter, among others – said in a statement that it would review the decision in the next couple of days. But the idea is dead for now.
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Comments on this article
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Xstrat sinks gas deal
Some people tend to think that wind energy is provided by windmills instead of industrial turbines. I think Xstrata is using common sense in using gas although in the USA now there is a coal powered energy station that is 99% emission free. Wind is not safe as workers and passersby have been killed. They do catch on fire and blades fall off. Fire is a big problem and in this country could be devastating. Solar power is also a problem as both types wind and solar cause CO2 emissions with their construction. At least less land ruined with hideous constructions and affecting farms.
Unparalleled morals
They are demonstrating the same outstanding qualities as they did in relation to Precious Metals Australia and the Windamurra vanadium mine in 2000.
A lot of the comments below miss the point that transmission lines are a long lived asset and their economics have to be assessed over their life. They are also made of Aluminium, so no copper highway.
While renewables are expensive today, anybody who has paid a utility bill recently will realise that there is an unmistakable trend and we shouldn't expect this to be true for long.
Xstrata will be happy, though. The gas will probably see them to end of MIM's resources.
Given the pace of development, renewables will likely be cheaper than gas and coal by the time the transmission line would be commissioned and only continue to gain advantage over the coming decades. Pity that the transmission line never got built.
As has been pointed out, the gas is finite and will run out sometime. What we are rarely told is the actual life of the resources. The reserve estimates always contain the qualification "at current rates of domestic use (usu. 100 years)" in the fine print. Just as the distribution is not uniform, the exhaustion date won't be either.
With gas seen as the clean, "green" alternative, the rates of use must rise dramatically, equally dramatically shortening the time to exhaust the resource. Judging by the reserves and use/export projections, this could be in the region of 25 years.
Form A Renewable Energy Company
If 1 million people really wanted to make a $4billion investment in renewables, all they would need to do is form a company, each putting in about $4,500. With that you could build your $4billion renewables project without even borrowing a single dollar. As shareholders the payback would be much better than bank interest.
So come behave like businesses .. get off your butts and do something.
If 10 million tax payers did it they would only need to put in $450 each.
If the government did it directly .. it would be up and running in not many years at all .. definitely 2020.
But hey .. that would be direct action! And we couldn't do that because that is what "he who should not be named" is suggesting we do.
For those who complain about the market making decisions .. keep in mind that is exactly what determines the carbon price in a carbon trading scheme.
green power companies
I would like to know if there are any power companies who are investing more in renewables than fossil fuels as I would like to use consumer power to vote with my feet. If companies see that people won't buy their product if it's dirty that could have an effect hopefully.
"unless some sort of political leadership emerges"
But we do have political leadership - it just isn't the leadership that Giles, or I, or must of us who subscribe to this web publication, want.
The great majority out their are not listening to any Labor government or opposition. That means, in this case, they are not listening to Anna Bligh's state government, nor the Federal labor Government.
What then are such governments to do? - go out on a limb and allow the Abbot led Coalition make them even more unpopular? There is only so much political "bravery' we can expect from any parliamentarian.
There seems liitle doubt that next year the Bligh state government will be turfed out, and anything "green" that they may have tried will be undone. And in 2013, the same will happen federally.
Abbott, with the assistance of various shock-jocks, and the Murdoch press, is able to define what we debate or dont debate. He is able to set the agenda.
And we cannot blame Tony Abbott, nor can we blame Rupert Murdoch, nor can we blame Alan Jones - it is we, the great Australian public, that is choosing to believe what it wants to believe.
The average person out there actually thinks they are doing it tough, that they're paying too much for petrol and electricity, and this climate stuff is probably rubbish, and "we'll all be rooned" unless we can kick these Labor governments out.
In the end, we really do get the governments we, collectively, deserve.
The real fight - Natural Gas vs Renewables
No bank is financing coal plants anymore. The real fight is natural gas versus renewables. And here is another example of dirty gas winning.
Gas is super dirty because it includes a huge amount of unaccounted for fugitive emissions that only a serious large scale and expensive scientific field test will expose. Meanwhile the gas companies submit EIS statements based on the American Petroleum Institute's data for regular wells / pipelines which do not reflect coal seam gas emissions at all. This industry is a disaster and needs regulating. If we don't do it now, import border adjustments will catch us out. This is not just private money, it's an appreciating dollar, it is government subsidies and a sell out of other sectors. Victims of the mining boom - the rest of us. Dirty Winners Coal and Gas companies
Baseload Solar - 24 hour solar power operating in Spain
76% capacity factor Torresol Energy Gemasolar is already operating in Spain. This combined with wind turbines would have setup the region for it's future energy needs for good with 30-60 years of renewable plants, fully recyclable at the end of their life and upgradable to high temperature working fluid when it comes available for combined cycle operation.
Torresol's Gemasolar is a 20MWe 76% capacity factor plant. NSW Coal plants only run at 63% capacity factor average.
So if you believe that NSW coal plants are baseload then obviously Gemasolar is baseload. Following Gemasolar Solar Reserve's 110MWe Tonopah Nevada plant has broken ground, the tower is under construction as are earth works, while in the factories tooling is occuring for Heliostat manufacture. And the order has been placed with UTC / Pratt & Whitney for the receiver
electricity supply
Idealists seem to forget this is a commercial undertaking, product users require a no break supply at an economical cost. Present economical technology dictates gas, coal,noclear or hydro. If renewables, wind or solar are incorporated they will need the backup of open cycle gas or hydro. Consider the no dams policy. Re copper string (More likely steel cored aluminium) design an overal plan and then if any new power lines are built in any section of the overall plan, build to that standard. Rational solution equals wishful thinking. Pie in the sky!!
Xstrata
At last comeone with common sense as wind farms are totally too expensive inefficient and only survive with subsidies. As for the rest I can see Xstrat realises the costs involve and have taken the right decision to invest in gas. The trouble with solar and wind is that they contribute to CO2 emissions with their constructions so Xstrata has listened to overseas countries who like Denmark are using other forms of energy to supply electricity and not using wind although the UK has provided solar to a lot of people free of charge. Wind does not blow all the time and depends on some other form for backup including gas or coal and now in the USA there is a new clean coal power energy station built and is over 95%( I think they actually said 99% efficient) with little emissions..
An alternative
Is our www.danvest.com distributed energy system
This is hugely disappointing, but...
This is hugely disappointing, but blame can hardly be laid at the feet of the corporations which made the final decision. They are obliged to make decisions in the interests of shareholders, not necessarily the planet.
The basic problem is the fact that even in 2011, CO2 emissions still have no price attached to them, despite the damage that they are known to be doing to the biosphere.
The first part of any solution to this problem must lie not in demonising the corporations but in ensuring that dumping of CO2 carrys a heavy price, appropriate to address the negative impacts - not just a "signal".
The second part of any solution must be to ensure that the lion's share of dumping charges levied on CO2 emitters is directed to CO2 avoidance.
Individuals like us can't tip the scales towards a low- or no-carbon future and neither can individual corporations, no matter how much they would like to help (or not).
So, the tax or dumping charge or whatever must be sufficiently large to bring about change. $23 is not enough.
The third part of any effective solution is to investigate and promote all of the low-carbon energy sources, rather than to wail about the problems of this or that specific proposal. Whilst nuclear options remain outlawed it is obvious to even the most casual observer that this fight is being fought with one hand tied behind the backs of those who seek to work for better climate outcomes.
Xstrata gas deal
The problem is that neither wind nor solar can provide the necessary power for 24hours per day. While fossil fuels are not inexhaustible they will have to be used until there are economic ways of storing renewable energy, such as reverse hydro.
The whole carbon debate has been built on a false premise that increased carbon dioxide in the atmosphere can cause significant global warming. It can't. Consider the arithmetic.
97% of available CO2 is in the oceans and only 3% in the atmosphere; 3.6% of atmospheric CO2 is anthropogenic; CO2 accounts for only 3% of the greenhouse effect (95% is due to water vapour); Australia's contribution is 1.28% of global; and the Carbon tax hopes to reduce this by 5%.
Do the multiplication. The answer is 2.1(E-8) or in other words 20 in one billion! The effects of our CO2 emissions are insignificant
Time to use the courts
Surely we are reaching the time where the public should throw a law suit at the Government for blatant misuse of public funds. Our taxes going to prop-up the industry that science says is 97 to one destroying our children's future.
Could not fail to win! So who is going to get this off the ground?
I agree...terrible shame and
I agree...terrible shame and unsuprisingly (this is dollar driven) short sighted. And one must question the Queensland Government's political will....
However you leave yourself wide open when you do not get your facts right. "As it is, the state has only 12MW wind farm in the south and a single turbine on Thursday Island". Wrong...what about Ravenshoe? And that (very small) hydro on the Barron? Minor mistake, but then leads one to question what other inaccuracies might be lurking.
End of Copper String
A line drawn between Mt Isa and Townsville can describe a North Queensland Region, with three main industries - tourism, agriculture (Including livestock) and mining.
Most energy needs in that Region are met by oil, gas or coal-powered electricity. Oil, fuelling all transport, is destined to become increasingly expensive as recovery costs increase. Coal releases serious greenhouse gas emissions. Gas is better but the environmental costs of recovering it and fugitive gas loss brings it much closer to coal than admitted.
The NQ Regional economy is so linked to oil and electricity that any increase in energy charges will especially impact on the NQ Region.
Renewable energy projects in Cooktown, Mareeba and along the Copper String would enable the Region to become near self sufficient electricity wise. Copper string also has/had the potential for geothermal and solar thermal generation.
So the decision by Xstrata, and government consent is contary to regional needs. It ignores the Mandated Renewable Energy Targets (MRET) which is now being referred to as "aspirational" by one state government.
This is an extraordinary fail by the Queensland government - or is it a fail? The consequences are so easily seen that to support the Xstrata position could only have been intentional with some other unseen gain driving the decision-making process.
I do have a suspicion about that but I cannot air it in this forum. Suffice to say that the "winners" would be Xstrata and the incumbent "government". The losers would be everyone else.
How about the reliability and cost of a safe climate future?
The market does not take climate futures into account at all, nor the need for Australia to be 100% renewable by 2020. This decision is another great example of government abandoning its responsibility for our future, and another addition to global warming stupidity. A large part of the income will go overseas via XStrata, while a large part of the carbon emissions will help seal our global coffin.
This is Death by Fossil Fuels.
Public Interest / Swiss Profits
It's interresting hearing Bob Katter on Radio National this morning discussing this decision and the impact of foreign corporate influence on the health and well being of our regional areas:
http://www.abc.net.au/rn/breakfast/stories/2011/3334257.htm
Self-interest
So build the grid by Leightons, a world-wide coal mining contractor, to support more thermal coal mining and get renewables... or burn unnatural gas (is it CSG?) and diesel and likely still get more coal mining?
In any case, the grid should be built to unlock cheaper energy and hopefully avoid CSG. Xstrata/Glencore's self-interest shouldn't sink such an important project.
Big Corporations...
don't always get their strategy/policy right. Time will tell based on: domestic prices linked to international gas prices; rising electricity pricing; the real cost of gas GHG emissions and its carbon cost; the declining cost of technolgy (may see more stimulus in renewables shortly in china/south east asia etc as per the GFC in 2008 which aided the reduction in technology pricing); the political/consumer desire to pay for fossil fuel; Australia's GHG emission commitments and the impact of new scientific evidence requiring stronger action.
However, I do find it strange that they relied on Rod Sims' 2009 report (2/3 years out of date) who is known for his opposition to complementary measures if a national carobn price is introduced (which some believe will be through the lower house by next Wednesday). This neo-classical economic view interests me as my experience/research has not shown any part of the world were a carbon price alone is effective - it must be clothed with appropriate complementary measures until a level playing field is reached.
Time will tell: but, I am not sure their decision is best described as "safe"!!