coal future use, page-6

there are essentially three routes the private genco's could follow.

Firstly, to pull down the old plant and build gas fired. Baseload turbines are available, not much different from intermediate cycle plant. (See Origin Energy's discussions about Mortlake, Golden Plains or their NZ Spring Gully plants.)

Issues are firstly getting the cash, after having written off the plant and paid back the debt, and secondly what price the gas? Gas is currently $3ish per MJ ($8 in WA) and international parity about $7-10. Best efficiency is currently 8-10 MJ per MW so the fuel cost will become between $30 and $70, vs a current fully absorbed cost for the brown coal stations of $35 ish.

So that doesn't look attractive, but is the route that the stations are currently following with their compensation track, especially if they can get time to build the cash position to change over.

Second option is the tough it out route. Coal is needed, these stations can't be shut down until replacements are built blea blea.

But, that route doesn't support the business vlauations they need to comply with their debt covenants (as per any asset business) and so they loose anyway. Becomes a BBP situation.

The private owners abandoned this 5 yrs ago.

Clean coal or reduced emissions route. An intermediate and a long term situation. Intermediate is reducing the specific emissions rate (kg CO2 per MWh) faster than the permits drop away and use the gap to continue running while building a cash balance (above) to pay off the debt and prepare for gas generation.

Tactically, (say post 2030) sequestration needs to be at a cost and technical level that competes with gas. For brwon coal, IF it can be dewatered cost effectively, and the remaining emissions (at black coal levels) sequestered, then it might compete. Strategically, will that be enough - what will the market share of emitting technologies be anyway?

So, (if the above is correct) dewatering is strongly an intermediate solution for brown coal generation as part of the thermal generation market share. Issues then become delivery of the technology, capital cost per annual tonne and operating cost per tonne.

Delivery has been debated here, but is a race between ESI, White, GTL, MTE, Lurgi, Evergreen, Exergen and a couple of others.

IMHO, ESI is a little toward the middle / rear, even given the Tincom deal proceeds.

Capital cost per annual tonne. Well, if the coy can get the 12-18m per 150kt they are suggesting they are in advance of the middle position, IMO.

If it is at the $50m per 150kT in Fozards report, IMO they would be in arrears of GTL and Exergen (at that rate) possibly also White, almost on a par with MTE.

Opex per tonne, should be on a par with Exergen and favorable with most, although we haven't seen the detail in (or any of) the Arup report, so jury is out (a little).

Issues for ESI, then, get a plant built. Show us the numbers. Until then, is just another competitor in a very crowded and competitive field.

f111