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

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

3. “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.

4. “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.

5. 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”

6. 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

7. 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.

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

9. 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 “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.

10. 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 = more expensive any renewable source, probably even more expensive than solar electricity.
paid by Thai people, “FT”

11. 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 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.

12. “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 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.

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

14. Wind/RE Lowers Mexico Generating Cost

15. 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

16. 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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18. “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

19. Risk and Return for Portfolios of Risky Assets