Coal’s share of electricity generated in Australia has reduced as more renewables such as wind, solar and hydro enter the energy market.
As a result, renewable and gas generation set the price in Australia’s electricity market.
Coal is not the problem here and it is misleading to suggest otherwise.
Over 85 per cent of all saleable coal mined in Australia was exported in 2021-22.
Australian coal generated $112.8 billion in export revenue in 2021-22, up 188 percent on 2020-21, driven by ongoing tight global markets.
At a price cap of $70 per tonne of coal the government is considering, as reported in the media, most mines dedicated to a power station will not be able to meet the costs of production.
The vast majority of coal production for domestic use is mined at sites dedicated to the domestic power-stations and serviced by dedicated supply infrastructure, such as conveyors from the run-of-mine plant to the power-station fuel stacks. Each generator also has specific needs around coal quality, ash and energy content and trace elements.
Only one power-station in NSW shares coal export infrastructure, with a rail siding enabling delivery of coal from the mine to the power-station using common rail infrastructure.
Pricing of coal for domestic power-stations depends on the commercial relationship between the mine and the power station reflecting the cost of mining and transport. It is supplied under contracts with price, quality and volume conditions with terms measured in years.
It is worth noting that the energy security issues that emerged in early June were as a consequence of mechanical failures in generation taking out almost half the available generation capacity in the market, not a shortage of coal.
Specifically, the electricity price and supply security crisis in June was the result of a shortage of electricity generation when mechanical failures forced more than 10 generator units across Victoria, NSW and Queensland to shut down.
This drove the electricity price escalation in Australia which resulted from a shortage of electricity supply, not a shortage of coal or high international coal prices as a result of the Ukraine-Russia conflict.
