All posts by Greg

By Greg Ferrett

With renewable energy now less expensive than coal to generate of power in more than 60 countries (Business Insider – 20 April 2016) it makes me wonder why we are investing so much money developing expensive coal cleaning and emissions storage technologies.

 

With all the hype, and plenty of emotion, around both sides of the debate I thought might try and put this into perspective.

Coal, no matter how much we dislike it, still generates most of the power we use in Australia. In the 2016 update the Office of the Chief Economist stated Coal was used to generate 63% of our electricity, Gas 21% and renewable sources about 16%

Replacing all coal with renewable energy sources is our goal.

We need, however, to come to terms with the fact we will continue to burn coal, the dirtiest and most polluting of all fossil fuels, for some time into the future. Coal, when burned, produces poisonous gasses and enormous amounts of carbon dioxide. In the short-term we still need to do something about the poison we are putting into the environment.

What is coal?

Coal is a fossil fuel composed primarily of carbons and hydrocarbons. I suppose it is a bit like a solid version of oil. Extracts from coal is used to make plastics, tar and fertilisers. One of coal’s derivatives, a solidified carbon called coke, burns so hot it is one of the only things industry can use to melt iron ore and create steel. But most coal, however, goes into power production. Power companies and businesses with power plants burn coal to make the steam that turns turbines and generates electricity.

When coal burns, it releases carbon dioxide and other emissions in flue gas. Some clean coal technologies purify the coal before it burns. One type of coal preparation, coal washing, removes unwanted minerals by mixing crushed coal with a liquid and allowing the impurities to separate and settle.

Other systems control the coal burn to minimise emissions of sulphur dioxide, nitrogen oxides and particulates. Wet scrubbers, or flue gas desulfurization systems, remove sulphur dioxide, a major cause of acid rain, by spraying flue gas with limestone and water. The mixture reacts with the sulphur dioxide to form synthetic gypsum, a component of plasterboard used in building.

Low-NOx (nitrogen oxide) burners reduce the creation of nitrogen oxides, a cause of ground-level ozone, by restricting oxygen and manipulating the combustion process. Electrostatic precipitators remove particulates that aggravate asthma and cause respiratory ailments by charging particles with an electrical field and then capturing them on collection plates.

Gasification avoids burning coal altogether. With integrated gasification combined cycle (IGCC) systems, steam and hot pressurised air or oxygen combine with coal in a reaction that forces carbon molecules apart. The resulting syngas, a mixture of carbon monoxide and hydrogen, is then cleaned and burned in a gas turbine to make electricity. The heat energy from the gas turbine also powers a steam turbine. Since IGCC power plants create two forms of energy, they have the potential to reach a fuel efficiency of 50 percent [source: ­U.S. Department of Energy].

Where do the emissions go?

Carbon capture and storage, perhaps the most promising clean coal technology, catches and stores carbon dioxide (CO2) emissions from power plants. Since CO2 contributes to global warming, reducing CO2 release into the atmosphere is critical. In order to discover the most efficient and economical means of carbon capture, researchers have developed several technologies.

Flue-gas separation removes CO2 with a solvent, strips off the CO2 with steam, and condenses the steam into a concentrated stream. Flue gas separation renders commercially usable CO2, which helps offset its price.

oxy-fuel combustion, burns the fuel in pure or enriched oxygen to create a flue gas composed primarily of CO2 and water sidestepping the energy-intensive process of separating the CO2 from other flue gasses.

pre-combustion capture, removes the CO2 before it’s burned as a part of a gasification process.

After capture, secure containers store the collected CO2 to prevent or stall its re-entry into the atmosphere. I suppose this is a bit like how we need to store radioactive material for thousands of years – just with CO2 it is probably only hundreds of years. Currently there are two storage options being researched, geologic and oceanic, which will have to contain the CO2 until peak emissions subside hundreds of years from now. Geologic storage involves injecting CO2 into the earth. Ocean storage, a technology still in its early stages, involves injecting liquid CO2 into waters 500 to 3,000 meters deep, where it dissolves under pressure.

Why bother?

So back to the original questions. “With renewable energy now less expensive than coal to generate power why we are investing so much money into developing expensive coal cleaning and emissions storage technologies?” I suspect, as the cost of renewable energy generation continues to fall and the cost of energy production and storage of emissions from coal increases market forces will naturally make coal redundant for power generation.

The key reason to invest in the technology today, as I see it, is to keep emissions from coal manageable while renewable alternatives take over.

Of course, you never know, they may come up with a way to burn coal without emissions. I suspect not.

Is your finance choice eating up your savings in solar power?

A well designed finance solution for a renewable energy project should find you paying less per month than you are now for energy – and for nothing down! Even more important, if you are a tax paying organisation, you could pay significantly less using finance than cash.

Solar03

What is so special about renewable energy?

Energy is the lifeblood of your organisation. Moving to a renewable energy source has the capability to fundamentally change the cost structure of your business and perception of your business in the eyes of your customers. It is a long-term investment requiring the assurance of fixed rate funding, removing the risk of owning obsolete equipment and managing complex tax and rebate outcomes.

Traditional finance options are great for traditional purchases like cars and real estate. When it comes to renewable energy your traditional financier or broker may not take into account government rebates, asset specific tax rulings, engineering requirements and other complexities.

ASM Money, being specialists in renewable energy finance, work with our financiers to provide you with the best finance solution for your business.

What are the most common finance options to consider?

Generally speaking, asset finance options for renewable energy include;

  1. Operating Lease (rental),
  2. Cash and
  3. Chattel Mortgage.

Each is suited to different commercial circumstances, so when considering your options, you may want to talk to your accountant or tax adviser. Below is an introduction to these main types of asset finance.

Chattel Mortgage / Bank Loan

The Chattel Mortgage is a popular finance solution where you own the asset from the outset and your loan agreement is secured by a mortgage over the asset in much the same way as your home mortgage.

This is generally the most expensive way for a tax paying organisation to finance a renewable energy project. Using this finance solution four things happen;

  1. You lose the tax deduction of your current electricity bill (potentially increasing your company tax)
  2. Your repayments, replacing electricity costs, are not tax-deductible
  3. Only interest paid and depreciation (5%) remain as a tax deduction
  4. Loan liability is added to your balance sheet.

Chattel Mortgage

The main organisations who use the chattel mortgage for renewable energy projects tend to be ‘not for profit’ and community organisations as they can’t benefit from tax breaks.

Cash

Sales people will often push the idea of paying cash for a renewable energy project to get a speedy sales outcome. This may be OK for rapidly depreciating assets, however, If you are a tax paying business this is definitely not the ideal solution for renewable energy.

This is generally the second most expensive way for a tax paying organisation to finance a renewable energy project. Using this finance solution three things happen;

  1. You eliminate valuable cash resources from your business reducing flexibility
  2. You lose the tax deduction of your current electricity bill (potentially increasing your company tax)
  3. Only the depreciation (5%) is a tax deduction

Cash

The main organisations who benefit from using cash are where cash has been donated, fund raised or who have received a grant.

Operating Lease / Rental

An operating lease, often called a rental, is a contract that allows for your use of an asset, but does not convey to you rights of ownership of the asset. An operating lease represents an off-balance sheet financing of assets, where a leased asset and associated liabilities of future rent payments are not included on the balance sheet of a company (subject to changes in accounting standards being introduced).

This is generally the most cost-effective way, including cash, for a tax paying organisation to finance a renewable energy project. Using this finance solution two things happen;

  1. You replace one tax-deductible operating cost (electricity) for a smaller tax-deductible operating cost (operating lease payment)
  2. There is usually no upfront payment

Operating Lease or rental

The main organisations who benefit from operating leases or rental are organisations who pay company tax or organisations not allowed to borrow money or pay interest.

How can I calculate the differences for my organisation?

ASM Money developed a cash flow modelling tool specifically for renewable energy finance. If it was not included with this article simply email admin@asmmoney.com.au and request the cash flow tool and we will forward it to you.

This tool requires just three things;

  1. The estimated ex-GST price of your renewable energy project
  2. The term of the finance
  3. Your company tax rate

Once entered the spreadsheet will automatically calculate the cash-flow of your project for the term of the finance.

Examples

Note: these are finance calculations only and do NOT take into account your significant saving in electricity. They are based on Australian regulations.

A $40,000 project over 48 months should result in the following cash-flow for a tax paying organisation

A $150,000 project over 84 months should result in the following cash-flow for a tax paying organisation

Even over 84 months the cost of an operating lease is only marginally higher than cash

A poorly designed finance solution can quickly eat up savings you make on energy reduction. Call ASM Money today on 1300 080 163 to talk with one of our finance experts about the best option for your organisation.

The Great Smogs of London & China

By Greg Ferrett

Recent pictures of the great smog events in China reminded me of the Great London Smog from the 5th to the 9th of December 1952.

While the London smog finally dispersed, in those five days 4,000 people died as a direct result of the smog and, according to recent research up to 8,000 more deaths may be directly attributed to this event. In addition up to 200,000 people received mild to severe respiratory injuries. Mortality remained elevated for months after the fog. Perhaps we will never know the impact of the smog in China, however, I am sure it is similarly devastating to those living through it and the rapid response from Chinese authorities tells me they see making changes critical.

The London smog came about as a unique combination of weather patterns and pollutants, mainly coal. One of the key contributors to the pollution were the numerous coal-fired power stations located in the Greater London area, including Fulham, Battersea, Bankside and Kingston upon Thames.

Although London was accustomed to heavy fogs, this one was denser and longer-lasting than any previous fog. The smog was so bad public transport ceased, apart from the London Underground; and the ambulance service stopped functioning, forcing users to transport themselves to hospital. The smog even seeped indoors, resulting in the cancellation or abandonment of concerts and film screenings as visibility decreased in large enclosed spaces, and stages and screens became harder to see from the seats. Outdoor sports events were also affected.

Environmental legislation since the 1952 smog led to the virtual elimination of thick smog. This legislation prompted included plans to convert city based generation plants away from coal or moving them to the country, incentives for residents to stop burning coal and use cleaner alternatives such as gas and electricity. It also led to the UK building and operating 15 nuclear power stations which, thankfully, Australia will not be using. The last significant smog event in London occurred in December 1962.

Atmospheric scientists at Texas A&M University investigating the haze of polluted air in Beijing realised their research led to a possible cause for the London event in 1952. “By examining conditions in China and experimenting in a lab, the scientists suggest that a combination of weather patterns and chemistry could have caused London’s fog to turn into a haze of concentrated sulphuric acid.”(1)

The two events are not identical. In China, the combination of nitrous dioxide and sulphur dioxide, both produced by burning coal, with a humid atmosphere, created sulphates that made the atmosphere highly acidic. However, ammonia from agricultural activity has helped neutralise the acid, something missing from the London scenario.

Could this happen again? Yes, if the right meteorological and pollutants combine. The London scenario shows there is a direct relationship between combustible pollutants and weather so, with the relocation of power stations to the country and, better still, production of energy from solar hopefully these events will eventually become a thing of the past.

  1. Domonoske, Camila (2016-11-23). “Research On Chinese Haze Helps Crack Mystery of London’s Deadly 1952 Fog”. NPR. Retrieved 23 November 2016.