coal frenzy grips europe

GRAHAM LLOYD THE AUSTRALIAN JANUARY 11, 2014 12:00AM

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IT'S been a black Christmas for green thinkers as Germany, the world leader in rooftop solar and pride of the renewable energy revolution has confirmed its rapid return to coal.

After scrapping nuclear power, Germany's carbon dioxide emissions are back on the rise as the country clamours to reopen some of the dirtiest brown coalmines that have been closed since the reunification of east and west.

China, meanwhile, last year approved new coal production of more than 100 million tonnes and has plans to add another 860 million tonnes by 2015.

Even more sobering, according to the International Energy Agency, is the fact that in the next decade India will overtake China as the principal source of growth in global energy demand.

In its medium-term coal outlook published last month the IEA said rising demand for coal was the "never-ending story".

In short, "coal once again exhibited the largest demand growth of all fossil fuels in 2012", the IEA said.

Despite rising demand, the world remains awash with coal, meaning in many places lower prices have pushed out gas, which is considered to be a cleaner source of energy.

The figures confirm the green dream of weaning the world off fossil fuels remains far from reality.

More significant for Australian policymakers currently facing hard decisions about what to do about renewable energy subsidies and the mandatory Renewable Energy Target is the story behind the headline figures.

A structural transition has been under way in global energy markets for several years that has far-reaching social, economic and environmental ramifications.

Countries such as Germany that have been most outspoken about climate change mitigation are reporting increasing carbon emissions and rising energy costs.

The US - derided by environmental campaigners as too slow to respond to the climate change challenge - has reduced its carbon emissions significantly while simultaneously lowering energy prices, fuelling a much needed resurgence in manufacturing.

The divergence has come about largely because while Europe has pushed headlong into renewables with generous public subsidies, the US has harnessed new technology to unlock vast resources of unconventional oil and gas.

This meant in 2012 the US spent about one-third as much as the EU on renewable energy subsidies, $21 billion against $57bn, according to IEA figures.

It all adds an ironic twist to the campaign mounted against the US by European nations for its refusal to sign up to the Kyoto Protocol to cut carbon dioxide emissions.

The EU's flagship climate response, its carbon trading market, has been embroiled in controversy, corruption allegations and a collapse in price.

Meanwhile, technological innovation in fossil fuels has allowed the US to greatly reduce its carbon footprint, albeit with great environmental controversy over the use of hydraulic fracturing, or fracking, to unlock unconventional supplies.

Against the backdrop of the global financial crisis, the divergence is even more stark.

The significance of the energy market transition now under way was outlined by IEA executive director Maria van der Hoeven when she released the organisation's World Energy Outlook in November.

She said an increased share of global exports of energy-intensive goods by the US was the "clearest indication of the link between relatively low energy prices and the industrial outlook".

"Conversely, the shares of the European Union and Japan both decline relative to current levels," she said.

For decision-makers trying to reconcile economic, energy and environmental objectives, Ms van der Hoeven said it was essential to be aware of the dynamics at the heart of today's energy market.

And the evidence is hard environmental bargaining to simultaneously force renewables into the marketplace while removing carbon-free nuclear has produced a serious problem for German and Japanese policymakers.

German policymakers buckled in the face of public pressure following the Fukushima tsunami and nuclear plant disaster which has yet to be brought fully under control.

Germany's competitive position on energy has been further compromised by a Europe-wide reluctance to embrace unconventional gas.

As a consequence, German carbon emissions are rising, energy costs are soaring, electricity consumers are revolting and industrial users are making the hard decisions to move production to less expensive locations - including the US.

The past week has seen a media

focus on Europe's building "coal frenzy".

Germany will build 10 new power plants for hard coal, is opening new coalmines practically every month and, worryingly for climate change activists, is increasingly turning to lignite, the least efficient, most polluting form of coal.

"From Germany to Poland and the Czech Republic, utilities are expanding open-pit mines that produce lignite," Bloomberg reports.

"Alarmed at power prices about to double US levels, policymakers are allowing the expansion of coalmines that were scaled back in the past two decades."

The IEA forecasts lignite demand worldwide will rise as much as 5.4 per cent by 2020.

No one is suggesting it is the end of the road for renewables.

In fact, the IEA forecasts the share of renewables in total power generation will rise from 20 per cent in 2011 to 31 per cent in 2035, as they supply nearly half of the growth in electricity generation.

China is expected to see the biggest absolute increase in generation from renewable sources, more than the gains in the EU, US and Japan combined.

But to reach the penetration forecast by the IEA, global subsidies will need to rise from $101bn in 2012 to $220bn in 2035.

For renewables, the squeeze is both financial and technological.

New battery technology for mass storage - the critical link for renewables - is improving.

Nature magazine this week reported on a breakthrough in "flow technology" batteries that could use low-cost, readily available chemicals to store large amounts of electricity to back up renewables.

But even with penalties for carbon dioxide emissions, the costs of storage are still many times those of baseload generation from coal.

The scale of the "intermittency" problem for renewables - and the problem it presents for policymakers and energy consumers - was outlined in Die Welt, which reported that Germany's wind and solar power production effectively stopped in early December.

"More than 23,000 wind turbines stood still," it said. "One million photovoltaic systems stopped work completely.

"For a whole week, coal, nuclear and gas power plants had to generate an estimated 95 per cent of Germany's electricity supply."

The doldrums are the flip side to the triumphant statements from renewable energy companies when production figures spike in times of favourable weather.

This is a primary reason why political support for renewables is starting to wear thin. Indications are a Europe-wide squeeze is on, with the European Commission reportedly preparing to order an end to price subsidies for wind and solar by the end of the decade.

According to Britain's The Telegraph, the commission, which oversees the European single market, is preparing to argue that the onshore wind and solar power industries are mature and should be allowed to operate without support from taxpayers.

Frustration is also increasing at the costly failure of several multi-billion-dollar offshore wind farm developments which had once been widely touted as the future of renewable power.

Unfolding events in Europe and the US are of particular interest to Australian policymakers amid a review of climate and energy policies.

Viewed against the tectonic shifts taking place globally, Australia sits on the cusp. Some powerful voices are arguing that Australia has squandered its longstanding natural advantage of low-cost energy - due to its abundant coal reserves - and is not doing enough to secure an achievable position of becoming an energy superpower of the future.

The domestic industrial price of electricity is about 20c a kilowatt hour, more than double the cost in the US.

Tony Abbott's chief business adviser, Maurice Newman, has blamed misguided climate change policies in part for the downturn in domestic manufacturing.

The Prime Minister has this week supported calls for a proper investigation into whether wind farms have health impacts on nearby residents.

It all adds up to the renewable energy industry's worst nightmare.

While the renewable industry is calling for no change and greater certainty for investment, sections within the government, led by long-time Queensland Nationals senator Ron Boswell, are calling for the Renewable Energy Target to be scrapped completely.

According to Boswell, moving from a fixed amount of 45,000 gigawatt hours to a "real" 20 per cent target for renewables in the national energy market would only lower the annual cost of renewables from $5bn to $3.7bn a year by 2020.

"We can't afford to follow the example set by Germany, which now has some of the highest power prices in the world, in large part due to its headlong rush into renewables," Boswell says.

"We should instead learn from the lesson set by the United States, which has power prices over three times cheaper than ours."

If Germany's aim has been to lead by example, the ugly truth is the future is likely to look a lot like the past: coal.