Inexpensive, secure electricity? coal vs. clean energy Coaltrans Lampang 23 มกราคม 2548 Chris Greacen Palang Thai www.palangthai.org

Two (rather wrong) arguments for coal “Electricity from coal is cheap” “Using coal increases Thailand’s fuel diversity, lowering risk to economy”

“Electricity from coal is inexpensive” Production cost (baht/kWh) Need to add baht/kWh on axis With externalitiies included, coal is more expensive than all sources except fuel oil and solar.

“Electricity from coal is inexpensive” baht/kWh Note – coal = lignite, but externality is for coal With externalitiies included, coal is more expensive than all sources except fuel oil and solar.

Externality costs Average of results from European Union studies Calculated for European context Separate study needed for Thailand Externality costs in these studies include: Health impacts Crop losses (acid rain) Damage to buildings (acid rain) Do not include: Global warming Lost eco-system services Source: EPPO commissioned study: Energy for Environment, 2003 ”รายงานการศึกษาขั้นสุดท้าย โครงการศึกษาแนวทางการสนับสนุนการผลิตไฟฟ้าจากพลังงานลมและพลังงานแสงอาทิตย์”

Coal fuel price risk Thailand relies increasingly on imported coal Imported coal price is volatile Volatility passed through to consumers (Ft charge) Traditional methods used by planners to determine electricity cost ignore fuel price volatility Risk-adjusted prices for coal are much higher than for clean energy

Increasing use of imported coal % increasing as domestic lignite is of low quality Imported coal accounts for over 25% of all coal use in Thailand.

Imported coal price volatility Coal is 60% indexed to oil price. Oil goes up, coal goes up.

Risk-adjusted electricity costs (in USA) Adjusted using Capital Asset Pricing Model (CAPM) – a widely used tool in corporate finance Production cost (baht/kWh) Traditional approaches to estimating cost of electricity generation assume that the risk of fuel price is the same for all fuel types. This may have made sense 50 years ago when the main options were coal and oil, but t does not make sense today comparing renewable energy to fossil fuels. Standa Source: Awerbach, Shimon. 2003. “The true cost of fossil-fired electricity”. Power Economics. May; Awerbuch, S. (2003). “Determing the real cost: why renewable power is more cost-competitive than previously believed.” Renewable Energy World 6(2): 52. http://www.jxj.com/magsandj/rew/2003_02/real_cost.html

Electricity from coal is “inexpensive”… only if externality costs are ignored AND If fuel price risk is ignored paid by Thai people, especially in Mae Moh With externality costs and fuel price risk included, coal is 1.3 + 1 + 7.25 = more expensive any renewable source, probably even more expensive than solar electricity. paid by Thai people, “FT”

Imported coal indexed 60% to oil price “Using coal increases Thailand’s fuel diversity, lowering risk to economy” True for domestic lignite Not very true for imports Imported coal indexed 60% to oil price Price per BTU of coal has risen 153% from 2538 to 2544. This is less than gas, which 237%, but much higher than renewable energy, which on average has risen little. In contrast, renewable energy costs, in general, have been decreasing over this time.

“Using coal increases Thailand’s fuel diversity, lowering risk to economy” Price per BTU (year 2538 to 2544) coal up 153% Fuel oil up 207% gas up 237% Renewables, DSM… down (except rice husk) Imported coal prices are negatively correlated with GDP Coal prices 60% indexed to oil prices Oil price rise dampens macro-econ growth by: Raising inflation Raising unemployment Depreciating baht EIA estimates that US$10 increase in oil prices decreases global GDP by 0.5%. $255 billion damage Price per BTU of coal has risen 153% from 2538 to 2544. This is less than gas, which 237%, but much higher than renewable energy, which on average has risen little. In contrast, renewable energy costs, in general, have been decreasing over this time.

พลังงานหมุนเวียนนำมาใช้ผลิตไฟฟ้าน้อยมาก 0.6% จากพลังงานหมุนเวียน Diversify in direction of clean energy ข้อมูล ปี 2546 ที่มา: กฟผ. แผน PDP 2003

Wind/RE Lowers Mexico Generating Cost

Two arguments for coal “Electricity from coal is cheap” Only if ignore high externality costs (health, crop losses, etc.) AND ignore fuel price risk “Using coal increases Thailand’s fuel diversity, lowering risk to economy” Coal prices indexed to oil prices, and both go up when economy goes down. Clean energy offers better protection against risk

If any one of these is then coal is expensive Proposals Planning needs to follow least economic cost (taking into account costs to society), not just financial cost. Discount rate used in planning needs to reflect risk. This is done in all businesses except electricity (where risk is passed on to consumers). Currently EPPO uses arbitrary discount rate (5 to 12%). Risk-adjusted would be lower than this. Price risk (Ft charge) should not be passed on to consumers. If any one of these is then coal is expensive

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“There are big reserves” Much of this is low-quality lignite. Worldwide there is a lot of coal, but not clear there is enough air. More than 20% used already

Risk and Return for Portfolios of Risky Assets