Why No One Is Building New Coal Plants in Australia

The energy transition has flipped the logic of the electrical grid. What mattered once – scale and steadiness – now counts against coal, and even against nuclear.

Introduction

Australia still sits atop vast seams of high-quality coal. There is no law banning new coal-fired power stations. On paper, a new coal plant would cost less to build than a nuclear reactor. Yet none are being planned. The reason lies not in regulation nor ideology but in physics, economics and finance. The modern grid rewards flexibility, not constancy – and both coal and nuclear are creatures of constancy.

From baseload to flexibility

Coal plants were engineered for a 20th-century load curve: demand rising with the morning shift, steady through the day, dipping at night. They deliver power cheaply only when running flat-out. The boilers take hours to heat, and stopping and restarting them damages metal and eats into margins. Typical ramping rates are sluggish – about 1–2 per cent of capacity per minute – meaning a 1 GW plant can take nearly an hour to move from half power to full output.

For decades, that was fine. The system needed unblinking baseload, and coal provided it.

That world has gone. Rooftop solar now sits on one in three Australian homes. Large-scale solar and wind add another 15 GW to the eastern grid. For much of the day, renewable generation meets or exceeds total demand. Wholesale prices collapse to zero or below as inflexible coal units keep producing into a saturated market. The grid’s challenge is no longer keeping the lights on but finding somewhere for the surplus to go.

In this environment, value has migrated from steady output to fast response. The system now prizes generation that can ramp up in minutes to cover the evening peak or a lull in the wind. Gas turbines, hydro schemes and batteries can do that. Coal cannot. Its thermal inertia – the same property that once made it stable – now makes it economically and operationally clumsy. A coal plant running only a few hours a day would still bear its full capital cost but sell only a fraction of its energy potential. Baseload has become a burden.

The economics of obsolescence

The numbers confirm the story. The CSIRO and the Australian Energy Market Operator estimate new coal power at roughly A\$130–180 per megawatt-hour; renewables with storage, A\$80–100 and falling. The fuel is free, the assets modular, and their costs keep falling as experience and scale drive down prices. Coal’s cost structure moves the other way: high fixed costs, uncertain utilisation and rising maintenance as ageing units wear out.

Finance is the coup de grâce. Investors are allergic to carbon risk and long payback periods. A new coal plant would need to run 40 years to make its money back in a policy environment promising to phase it out within 20. Few banks or insurers would underwrite such an asset. Those that might would demand premiums so high as to destroy its competitiveness.

Coal is not dying because it was banned, but because the grid no longer needs what it produces and investors no longer believe it can pay.

Policy and market reinforce each other

Australia’s electricity market is formally technology-neutral. Generators bid every five minutes; AEMO dispatches the cheapest. When wind and solar bid at zero marginal cost, they displace everyone else. The resulting price pattern – low or negative at midday, high only for an hour or two at sunset – makes continuous baseload operation unprofitable.

Public policy amplifies the shift. The federal Capacity Investment Scheme guarantees long-term revenue for renewables and storage, while every major state has its own roadmap for replacing retiring coal. None of these measures explicitly prohibit new coal. They simply make everything else cheaper, faster and less risky.

Queensland has recently pledged A\$1.6 billion to keep some coal stations running longer, proving that politics can still flicker even as economics extinguish the business case for new ones. But the market’s direction is unmistakable. Economics, not ideology, is closing coal’s path.

Why nuclear fares no better

Some argue that nuclear could replace coal’s baseload role while cutting emissions. Modern reactors can ramp output by 5–10 per cent per minute – several times faster than coal – but only within limits. Every change in power level alters reactor temperature and neutron flux, stressing materials and shortening life. The issue is not technical incapacity but economic futility: a multi-billion-dollar plant cannot earn back its cost if it spends half its life idling.

A nuclear plant is a capital-intensive, low-fuel-cost machine; its business model depends on high capacity factors, not high prices. While some reactors globally operate at 60–70 per cent utilisation, others exceed 90 per cent, showing flexibility in practice – but only when the system design supports it. In grids flooded with cheap solar during daylight and peaking demand confined to a few hours at night, nuclear has nowhere to earn back its investment. It cannot ramp as fast as batteries or gas, nor sell at premium prices often enough to offset its costs.

Supporters argue official costings overstate nuclear’s expense, but even optimistic projections leave it well above renewables with storage. And the much-touted small modular reactors (SMRs) inherit the same flaw. They promise quicker construction and better load-following, but running them to chase two-hour peaks would be like flying a 747 for a ten-minute hop: technically possible, financially absurd.

The flexibility frontier

Meanwhile, the technologies suited to the new grid are racing ahead. The cost of lithium-ion storage has fallen by 90 per cent since 2010. Large batteries now provide frequency control, voltage support and fast reserve – services once tied to heavy rotating turbines. Pumped-hydro schemes add multi-hour endurance; gas turbines supply seasonal backup.

The system still needs firm capacity – but not as continuous, always-on baseload. Flexibility, not permanence, is now the defining trait of reliability. Together, batteries, hydro and peaking gas can replicate the dependability once provided by coal, but with faster response and far lower emissions.

The National Electricity Market, once built around monolithic stations, is evolving into a modular orchestra of generation and storage. Its economics reward nimble, dispatchable capacity rather than continuous output. Both coal and nuclear are tuned to the wrong melody.

The investor’s arithmetic

From a financier’s view, energy infrastructure is a thirty-year bet on regulation and price. Coal fails on both; nuclear, on one and a half. Future carbon constraints are certain. Wholesale prices are volatile, with long stretches of zero marginal revenue. The risk-adjusted returns for either technology are unappealing.

That is why the firms that once built coal plants – AGL, Origin, EnergyAustralia – now invest in batteries, pumped-hydro projects and renewable portfolios. They are following the incentives of the market, not the instincts of nostalgia.

Beyond policy

Even if Australia were to withdraw from its net-zero commitments tomorrow, the economics of the grid would not revert. The fall in renewable and storage costs is structural, not ideological, and the abundance of cheap daytime power would still erode the case for new baseload plants. Wholesale prices would remain volatile and often near zero; coal would still struggle to recover its capital; nuclear would still face long construction times and high financing risk.

Markets, moreover, have long memories. Decades of capital flight from high-carbon assets cannot be reversed by a change of government or a slogan about energy sovereignty. It would take years – and more than a couple of election cycles – to convince investors that the political and carbon risks had truly vanished. Even without formal emissions targets, lenders and insurers would continue to price carbon exposure into their models, because the transition has become a global capital trend, not a local policy choice.

Australia’s energy evolution is no longer contingent on politics. The economics of abundance, not the ideology of climate, now drive the decline of coal.

The illusion of subsidy

Could governments simply buy their way back to baseload by guaranteeing returns to investors? In theory, yes; in practice, only at ruinous cost. A new coal station could be made financeable if taxpayers absorbed the market risk – guaranteeing a floor price or underwriting its debt – but that would not make it economic. The grid would still be flooded with low-cost solar, the plant would still sit idle for much of the day, and the public would foot the bill for its inactivity.

Markets would also discount the promise. Political guarantees last only as long as the government that issues them, and investors know it. A future administration could unwind the scheme, or international climate commitments could make it untenable. To convince financiers that policy risk had truly disappeared would take more than rhetoric – it would take decades of credibility.

In the end, a government could subsidise coal’s existence, but not its relevance.

The end of the baseload age

Coal and nuclear once embodied industrial modernity: large, steady, centralised and dependable. But the grid they served has changed shape. The new system values speed, flexibility and carbon-free power. It needs capacity that can respond in minutes, not hours, and that earns revenue from precision, not persistence.

Australia did not need to outlaw new coal plants; it simply evolved beyond them. And in that evolution lies the answer to nuclear’s dilemma too. Both technologies were built for a world that wanted energy all the time. The 21st-century grid wants it only when it needs it – and preferably wants it clean.

The baseload era is not ending because engineers forgot how to build big machines, but because the economics of abundance have replaced the economics of scarcity. That is why no one is building new coal plants in Australia – and why, if the same logic holds, no one will build new baseload nuclear either.