* Tight power supply-demand balance strains grid
* Variable wind, solar power needs better baseload back-up
* Market premium needed for baseload coal - industry
* Government considers helping fund "clean coal" plants
By Sonali Paul
MELBOURNE, March 9 The rise of wind and solar
power in Australia was supposed to be the death knell for coal
use in the world's biggest exporter of the fossil fuel, but the
shunned fuel is finding a new lease of life and may yet attract
subsidies to keep the lights on.
Growth in electricity demand and a drop in supply since 2014
have strained the Australian grid, triggering outages amid
heatwaves and storms. The worst - an eight-hour blackout in
South Australia last year - crippled industry for up to two
weeks and provoked public outrage.
Supplies are set to tighten with France's Engie SA
closing Australia's dirtiest power station,
Hazelwood, this month. That means the national electricity
market will need to replace about 10,350 gigawatt hours of
"baseload power" that can be called upon when the wind isn't
blowing and the sun isn't shining.
"That's our concern: this could get worse before it gets
better," said Matthew Warren, chief executive of the Australian
Energy Council, which represents generators.
More than half the shortfall will be needed from remaining
coal-fired plants and the rest from restarting mothballed
gas-fired power plants, the Australian Energy Market Operator
The pressure is now on the government to make it happen.
"The blackout in South Australia was a real wake-up call
when 1.7 million people went into the black," Energy and
Environment Minister Josh Frydenberg told Reuters in an email,
adding that security and affordability were the government's top
In the short term, the government and market operator will
have to change the way the market prices electricity to put a
premium on baseload power, generators and industrial users say.
Financial incentives are needed for one or more generators
to supply baseload power when needed, companies including Origin
Energy and BHP Billiton have said in
recommendations to a federal review into the security of the
national power market, due to be completed by mid-year.
"It needs to be enough to enable those (baseload plants) to
run. They may run more frequently or they need to be running on
reserves so they can start quickly," Origin Chief Executive
Frank Calabria said recently.
The upshot for consumers? Power bills will have to rise
further, in a country where household electricity prices have
roughly tripled since 2000.
Manufacturers, like steel maker BlueScope Steel,
already complain that Australian power prices are five to 10
times more than they are in the United States.
SUBSIDIES FOR COAL?
The clamour for baseload power follows the rise of wind and
solar to make up 7 percent of Australia's generation mix as of
2015, backed by government subsidies.
Coal-fired power has fallen to around 63 percent of
Australia's total generation as of 2015, government data show,
down from around 80 percent in 2000.
None of the country's major generators - AGL Energy
, Engie, Origin or Hong Kong's CLP Holdings
unit EnergyAustralia - wants to build new coal-fired plants, as
their customers and shareholders push for cleaner energy.
So beyond new market mechanisms, the government is now
considering helping fund construction of new high efficiency-low
emissions (HELE) power plants.
The Queensland Resources Council has called for a new HELE
coal-fired plant in north Queensland to help keep a lid on
electricity prices, which are hurting two alumina refineries and
have already led mining giant Rio Tinto to cut
output at an aluminium smelter.
"We've got to have baseload capacity. And at the moment the
only answer to that is coal," said QRC chief executive Ian
Macfarlane, highlighting the lack of major hydro opportunities,
opposition to nuclear power and a shortage of available gas.
While many see battery storage as the ideal solution to
stabilising wind and solar power supplies, affordable
utility-scale storage is not expected to be available anytime
To bridge the gap, Frydenberg says the government could
revise the mandate for its Clean Energy Finance Corp to allow
funding for carbon capture and storage (CCS) technology. The
technology is costly and controversial, consuming a lot of power
to inject carbon dioxide deep underground.
Waratah Coal, owned by former mining magnate Clive Palmer,
has since sought funding from the agency for a A$2.4 billion,
900 megawatt power plant with CCS, a project that has been stuck
on the drawing board for years.
"HELE should definitely be considered as part of the
Australian energy mix. Coal is cheaper than gas and is in
abundant supply," New Hope Coal Chief Executive Shane
Stephan told Reuters.
Japanese and Korean firms that build HELE plants stand to
benefit if the government promotes ultra super critical boilers,
which run at very high temperatures, so need less coal for each
megawatt hour of power and emit less carbon dioxide.
But CCS would also need subsidies, as generators currently
do not see it as affordable.
"At this stage we don't believe CCS is an economically
viable option for the Yallourn power station," said a
spokeswoman for EnergyAustralia, referring to what will be
Australia's dirtiest power station after Hazelwood shuts.
(Additional reporting by Jane Chung in Seoul, Yuka Obayashi in
Tokyo, James Regan in Sydney and Florence Tan in Singapore;
Editing by Lincoln Feast)