The federal government faces a multibillion-dollar blowout in the cost of closing dirty power generators due to the prospect of a future low carbon price and a Coalition win at the next election.
The Australian Financial Review can reveal that the government may even walk away from negotiations as power companies demand higher compensation to close down – a key plank of Labor’s climate change policy.
As the government spends $270,000 a day on a new advertising campaign to sell voters its carbon tax compensation scheme, the power companies negotiating with the government claim the likelihood of low carbon price will make them profitable for longer. And the longer the five power stations in Queensland, Victoria and South Australia can operate, the higher their value and the greater compensation they can demand to close.
It is estimated that if the carbon price falls to its floor price in 2015 of $15 from the projected price of $29, the value of generators could increase fourfold. If the Coalition wins the next election, it could increase their value by a factor of 10.
International carbon prices are as low as $5 today and it has recently been forecast the price of carbon in Australia could fall as low as $4 by 2020 – too low to drive a switch from coal-fired power to gas and renewables.
A senior government source said “it is fair to say they [the dirty power generators] have a very strong sense of their own value”.
“Despite all the talk of doom and gloom, it turns out things aren’t as bad,” the source said.
But as the negotiations for the power stations enter their last month, the Department of Resources and Energy is pushing back hard, arguing falling demand for power due to higher prices will bring forward the closure of generators.
The government has declined to say how much it has set aside in contingency reserve for the contract for closures. But yesterday Resources and Energy Minister Martin Ferguson warned the government might walk away from the negotiations if it was unable to secure a favourable price.