MARKETS

Brown coal a cheap power option

AUSTRALIA got an economic wake-up call earlier this week when it was revealed that cheap coal was...

Staff Reporter

The first event was the release of a study into preferred fuel sources with low-cost brown coal revealed as the big winner over the past year.

The next event, the budget, will drive home the point that the era of government subsidies which have propped up alternative energy dreams are coming to an end.

Brown coal’s return was revealed in a report by consulting firm Pitt & Sherry and, while it surprised some people and dismayed the environmental lobby, was actually one of the more predictable outcomes from an energy survey.

What it showed was that brown coal’s share of the national electricity market rose to a three-year high of 24% and that all forms of coal retained a 75% share of the national electricity market.

A variety of reasons were floated as to why brown coal had made a comeback after years of criticism. The end of the ill-conceived carbon tax was one explanation.

But what no-one really seems to recognise is that the most powerful force in the energy industry is the same force that runs through the rest of the economy: price.

Quite simply brown coal is the cheap option when it comes to generating electricity and when people have a choice between cheap and expensive the vast majority will choose cheap.

Distorting the system with government funds to make alternative sources of energy such as wind and solar more competitive is the primary reason why those industries have been able to blossom.

Next week’s budget will be a reality check for anyone reliant on any form of government hand-out – from middle-class pensioners to environmental extremists who believe that government should be allocating additional funds to alternative energy schemes.

The problem confronting the Australian government is no different to that confronting governments around the world – tough times.

In Australia’s case the end of the mining boom means the country has lost one of its few natural advantages over other countries in the Asia Pacific.

Attempts to find a replacement for mining as the industry which pays Australia’s way have, so far, proved to be fruitless and everything that has been suggested is decades away from filling the gap left by the decline in mining revenue.

Boiled down, that means Australia is not growing as fast as before and might even be on the cusp of the first recession in more than 20 years.

Money, once abundant, has become scarce and that means low-cost energy options will easily displace high cost energy options, which is a long-winded way of saying the return of brown coal in the Pitt & Sherry survey is not a flash in the pan.

Coal really is reclaiming its role as the “go to” energy source, but whether that boosts the profits of coal mining companies is another matter as what makes coal the cheap option is its abundance.

Adding to this optimistic view from The Hog that coal will continue to claw back its lost status as a key element in the Australian economy are two other recent developments.

The first was a political surprise. The second was a predictable, but nevertheless important, reminder from a man who had forgotten more about coal than most people would ever know.

On the political stage the new Queensland government, despite its left-wing credentials that normally infer a bias towards environmental issues, has won praise from the mining industry, with particular reference to its backing of plans for a series of coal developments in the Galilee Basin.

What seems to have happened is that the Queensland government has made a choice between jobs and dubious environmental campaigns designed to damage the mining industry.

On the international stage it was Ivan Glasenberg, chief executive of Glencore, who delivered his own wake-up call for people campaigning for an end to producing most forms of fossil fuel, especially coal.

Refusing to kowtow to the campaigners, Glasenberg delivered a robust reminder that the world needs all the coal it can get if it is to produce the electricity it needs at an affordable price.

Rather than being left in the ground because it has suddenly become “unburnable”, coal will probably boost its share of total global energy production.

“In fact, we anticipate that we will need to invest more capital in order to maintain our existing production levels and to stay abreast of world demand,” Glasenberg wrote in Glencore’s recently released sustainability report.

TOPICS:

A growing series of reports, each focused on a key discussion point for the mining sector, brought to you by the Mining Monthly Intelligence team.

A growing series of reports, each focused on a key discussion point for the mining sector, brought to you by the Mining Monthly Intelligence team.

editions

ESG Mining Company Index: Benchmarking the Future of Sustainable Mining

The ESG Mining Company Index report provides an in-depth evaluation of ESG performance of 61 of the world's largest mining companies. Using a robust framework, it assesses each company across 9 meticulously weighted indicators within 6 essential pillars.

editions

Mining Magazine Intelligence Exploration Report 2024 (feat. Opaxe data)

A comprehensive review of exploration trends and technologies, highlighting the best intercepts and discoveries and the latest initial resource estimates.

editions

Mining Magazine Intelligence Future Fleets Report 2024

The report paints a picture of the equipment landscape and includes detailed profiles of mines that are employing these fleets

editions

Mining Magazine Intelligence Digitalisation Report 2023

An in-depth review of operations that use digitalisation technology to drive improvements across all areas of mining production