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Exit Stage Left: Uncompetitive coal pushed out by cheaper renewables

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Australia’s largest coal power plant Eraring Power Station will close early. AGL

Exit Stage Left: Uncompetitive coal pushed out by cheaper renewables

Last week, the owner of Australia’s largest coal power plant announced the early closure of their plant and replace it with the largest battery in the southern hemisphere. According to the CEO of Origin Energy, “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”.

The same week, $100 billion worth of renewable energy investment was submitted for the government’s ‘renewable energy zone’, in the region where most of Australia’s coal power plants are located. The 80 investment projects included solar, wind, batteries and pumped hydro.

The economics of power now means that coal is uncompetitive, and certainly so in decades to come. For state-run Electricite du Cambodge (EDC) in Cambodia, coal power is almost double the price they pay for the auctioned solar power projects.

In this regard, Cambodia is in an enviable situation – only a third of planned coal power projects to supply the Kingdom are actually built or nearing completion. Just with these plants alone, Cambodia has more than enough supply of power. Which is lucky, because the remaining two-thirds of the planned coal projects may struggle to get finance. The risk of these projects being delayed or cancelled is high after last year’s announcements that China, Japan and Korea – on top of a host of other countries, private and public banks – were set to end support for coal power.

Strategically, a contingency plan if these projects can’t secure finance would be prudent for Cambodia. Modelling analysis completed for Cambodia’s electricity system shows that without this 3,100MW planned but not yet started coal power, electricity costs would be lower out to 2030 and 2040. Such a plan would have a balance of existing coal and hydro, with new solar, wind, non-mainstream hydro and fast acting gas and batteries.

The results show it is economically stronger for Cambodia – it would result in cheaper electricity, better energy security, more investment and green jobs. No need to pay every month to import coal or gas to burn for power, or worry about the volatility of global coal or gas prices. And it means keeping global brands operating in Cambodia trying to decarbonise their supply chains.

Like in Australia, investors are ready. Last year, $920 billion was invested in energy transition deployment and climate-tech companies, with Asia Pacific accounting for half of that and growing rapidly, according to Bloomberg New Energy Finance report for 2021. Investment in Cambodia will be helped by the new Law on Investment that signals support for green energy, as well as Cambodia-China Free Trade Agreement (CCFTA) and the Regional Comprehensive Economic Partnership (RCEP).

The international community is committed to help. Chinese President Xi Jinping last year said China would step up support for developing countries in green and low-carbon energy while ending support for coal.

In Cambodia, Agence Francaise de Developpement (AFD) is financing EDC millions to modernise their grid with EU support. The Asian Development Bank (ADB) is supporting the Cambodian government with their power planning, energy efficiency policy and developing a pipeline of investment support, as well as technical support for the challenges of integrating variable solar into the grid.

JICA has been a long supporter of the Ministry of Mine and Energy (MME) and EDC. The International Energy Agency has reached out to support Cambodia – the IEA did an incredible job supporting Thailand to understand how to prepare and take advantage of lower cost variable renewable energy. Australia has helped MME and EDC develop a strategy and roadmap to take the incremental steps each year to be ready. Germany via GIZ and KfW are supporting efficient use of energy, network expansion and electric mobility. This month, the US Agency for International Development (USAID) have launched their Smart Power Program for Southeast Asia.

Cambodia is in a good position to leapfrog the challenges other countries are facing in getting out of coal and planning a balanced future. EDC and MME are well placed at the centre of the electricity system to make sound technology neutral economic decisions. In many developed markets, there is a separation of responsibility for procurement and dispatch of power, the transport of electricity through the grid wires and the sale to customers. In other countries, this can be challenging to work with all these stakeholders with different vested interests to adapt and take advantage of significant technology changes.

In Cambodia, EDC procures and signs agreements for the generation of power from independent power producers (IPPs); they do the same for grid infrastructure like transmission or distribution wires. EDC also manages the tricky balancing of electricity through its dispatch centre at the National Control Centre; and finally, EDC sells electricity to many customers (although most rural customers buy electricity from rural electricty enterprises (REEs). This means EDC can have full visibility and control of the system from generation through to users to keep the grid reliable and stable.

For example, EDC is in charge of dispatch of power. They know what is needed to keep the grid balanced at the millisecond, hour, day and seasonal level and they can procure the right supply and “grid balancing services” to meet those needs with more solar and wind. They can then ensure the availability of fast acting response from batteries, hydro plants, gas engines or from customers (that is, pay a customer to turn down their use). Or when EDC procures and signs a Power Purchase Agreement with an IPP (hopefully competitively) they can ensure their contracts have future fit clauses such as incentivising flexibility (to ramp up or down) or paying different prices depending on when there is abundant solar power or if the sun is down.

Cambodia has excellent solar and wind resources, over 10 times more than it needs. Solar, wind and batteries can be built quickly and incrementally – as Elon Musk proved to the world when he announced the world’s largest battery would be built in 100 days to meet South Australia’s grid balancing needs.

In Thailand, the electricity utility EGAT is currently procuring a hybrid of floating solar, hydro, battery and systems controls, building towards their goal to solarise all dams in the country.

The technology to balance the variability of solar and wind output at a site or a system level already exists and is being deployed around the world. The variability of output becomes challenging when its share of output goes above 20-25 per cent. To be clear, Cambodia is not at this point at all – according to the Electricity Authority of Cambodia, only six per cent of the country’s generation came from solar in 2021. This will more than halve when the new Sihanoukville coal power plant comes online. South Australia is already at over 55 per cent and on individual days it reaches 100 per cent.

Clean energy is usually framed for its benefits towards environmental and climate change mitigation. This month, Cambodia’s Minister of Environment Say Samal launched “Cambodia’s Long-Term Strategy for Carbon Neutrality. This was submitted to UN Framework Convention on Climate Change (UNFCCC) and makes Cambodia one of only two least developed countries to have submitted a strategy with a clear target for carbon neutrality by 2050.

Achieving this target depends largely on forestry and agriculture, with the emissions intensity from the electricity sector actually increasing. If the coal projects cannot proceed, a contingency strategy with a more balanced mix would significantly improve the chances of reaching these targets with stronger economic benefits for Cambodia.

Bridget McIntosh is country director, EnergyLab Cambodia


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