Exit Stage Left: Uncompetitive coal being crowded out by cheaper renewables

Last week, the owner of Australia’s largest coal-fired power station announced the early closure of its plant and replacement with the largest battery in the southern hemisphere. According to the CEO of Origin Energy, “The economics of coal-fired power plants are under increasing and unsustainable pressure from cleaner, lower-cost generation, including solar, wind and batteries.”

In the same week, $100 billion in renewable energy investments were submitted for the government’s “Renewable Energy Zone”, in the region where most of Australia’s coal-fired power stations are located. The 80 investment projects included solar power, wind power, batteries and pumped hydropower.

The energy economy now means that coal is not competitive, and certainly in the decades to come. For state-owned Electricité du Cambodge (EDC) in Cambodia, coal-fired power is almost double the price it pays for auctioned solar power projects.

In this respect, Cambodia is in an enviable position – only a third of the coal-fired power projects planned to supply the Kingdom are actually built or nearing completion. With these plants alone, Cambodia has a more than adequate supply of electricity. Which is fortunate, as the remaining two-thirds of planned coal projects may struggle to secure funding. The risk that these projects will be delayed or canceled is high after announcements last year that China, Japan and Korea – in addition to a host of other countries, private and public banks – were on the verge of to end their support for coal power.

Strategically, a contingency plan if these projects cannot get funding would be prudent for Cambodia. Modeling analysis performed for Cambodia’s power system shows that without this planned but not yet started 3,100 MW coal-fired power, electricity costs would be lower through 2030 and 2040. Such a plan would balance between existing coal and hydropower, with new solar, wind, unconventional hydro, and fast-acting gas and batteries.

The results show that it is economically stronger for Cambodia – this would translate into cheaper electricity, better energy security, more investment and green jobs. No need to pay monthly to import coal or fuel gas for electricity, or worry about the volatility of world coal or gas prices. And that means global brands continue to operate in Cambodia trying to decarbonize their supply chains.

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

The international community has pledged to help. Last year, Chinese President Xi Jinping said China would step up support for developing countries in green and low-carbon energy while ending its support for coal.

In Cambodia, the French Development Agency (AFD) is financing millions of EDCs to modernize its network with support from the EU. The Asian Development Bank (AfDB) supports the Cambodian government in its energy planning, energy efficiency policy and the development of an investment support pipeline, as well as technical support to meet the challenges of the integration of variable solar energy into the grid.

JICA has long supported the Ministry of Mines and Energy (MME) and EDC. The International Energy Agency has reached out to support Cambodia – the IEA has done an amazing job helping Thailand understand how to prepare for and take advantage of variable renewables at lower cost. Australia has helped MME and EDC develop a strategy and roadmap to take incremental steps each year to be ready. Germany, via GIZ and KfW, supports efficient energy use, grid expansion and electric mobility. This month, the United States Agency for International Development (USAID) launched its Smart Power program for Southeast Asia.

Cambodia is in a good position to leapfrog the challenges other countries face in phasing out coal and planning for a balanced future. EDC and MME are well positioned at the center of the power system to make sound, technology-neutral economic decisions. In many developed markets, there is a separation of responsibilities for the supply and dispatch of electricity, the transmission of electricity through network cables, and the sale to customers. In other countries, it can be difficult to work with all these stakeholders with different vested interests to adapt to and take advantage of significant technological changes.

In Cambodia, EDC purchases and signs agreements for power generation from Independent Power Producers (IPPs); they do the same for network infrastructure such as transmission or distribution cables. EDC also manages the delicate balancing of electricity through its dispatch center at the National Control Center; and finally, EDC sells electricity to many customers (although most rural customers buy electricity from Rural Electric Companies (REEs). This means EDC can have visibility and control systems, from generation to users, to maintain network reliability and stability.

For example, EDC is responsible for dispatching electricity. They know what is needed to maintain network balance at the millisecond, hour, day, and season level and they can procure the appropriate provisioning and “grid balancing services” to meet these needs with more solar and wind power. They can then guarantee the availability of a fast-acting response from batteries, hydroelectric plants, gas engines or customers (i.e. pay a customer to refuse their use). Or when EDC purchases and signs a power purchase agreement with an IPP (hopefully competitively), it can ensure that its contracts include future adjustment clauses such as the flexibility incentive (to increase or decrease) or pay different prices depending on when solar power is plentiful or when the sun is down.

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

In Thailand, the electric utility EGAT is currently purchasing a hybrid of floating solar, hydraulic, battery and system controls, towards its goal of solarizing all the dams in the country.

The technology to balance the variability of solar and wind generation at a site or system level already exists and is being deployed worldwide. Production variability becomes difficult when its production share exceeds 20-25%. To be clear, Cambodia is not at that stage at all – according to the Electricity Authority of Cambodia, only 6% of the country’s generation came from solar power in 2021. This will decrease by more than half when the new coal-fired power plant in Sihanoukville is commissioned. South Australia is already at over 55% and on some days it is at 100%.

Clean energy is generally designed for its environmental and climate change mitigation benefits. This month, Cambodian Environment Minister Say Samal launched “Cambodia’s Long-Term Strategy for Carbon Neutrality. This has been submitted to the United Nations Framework Convention on Climate Change (UNFCCC) and makes Cambodia one of the only two least developed countries to have submitted a strategy with a clear objective of carbon neutrality by 2050.

Achieving this target largely depends on forestry and agriculture, with the emissions intensity of the electricity sector actually increasing. If coal projects cannot continue, an emergency strategy with a more balanced mix would greatly improve the chances of achieving these goals with stronger economic benefits for Cambodia.

Bridget McIntosh is Country Manager, EnergyLab Cambodia

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