LABOR’S PLAN TO CLOSE some of Australia’s dirtiest coal fired power stations is teetering on the brink of being abandoned, or severely scaled back, according to industry insiders.
When it was announced in July last year as part of the Clean Energy Future Package, the ‘Contract for Closure’ program seemed like a political no-brainer – easy to sell, and with few obvious losers. Rather than wait for a carbon tax or emissions trading to do the job, Labor decided to simply buy out 2,000 megawatts the most emissions intensive generating capacity.
The promised pay-off was meant to be a quick and substantial cut in Australia’s carbon pollution, perhaps one or two per cent, with either gas or even renewables stepping into the breach.
But with brown coal booming and a lower anticipated carbon price, the asset values of brown coal generators are worth more than 12 months ago – and threaten to torpedo Labor’s scheme
Paul Hyslop, chief executive of economic consultancy firm ACIL Tasman says, “I think the parameters the government originally planned it around have probably changed substantially and the price they’re likely to have to pay to achieve it is probably a lot higher than they first thought.”
By 2020, Labor planned to progressively retire several of the smaller dirty generators, and at least one of the large brown coal operators – most likely Hazelwood or Yallourn in Victoria’s Latrobe Valley.
Federal Treasury assumed that the carbon price would rise to around $29 by 2015. At that level, it represented a significant hit to the bottom line – and asset values – of the brown coal generators.
But with substantially lower carbon prices now projected, those assets are worth a lot more than what Treasury and industry calculated, just 12 months ago. How much more?
Paul Hyslop says, “It’s quite possible that the 2,000 megawatts that you were going to pay for a year ago, you might have to pay another billion dollars or more to get the same outcome.
“The government’s bank is obviously fairly big. They say they’ve money from the contingency reserve. But the question for the government I suppose is going to be, will they dip further into the contingency reserves to meet expectations or will they just walk away?”
In a worrying sign for Federal Labor, the Victorian Coalition government is openly doubting the bottom line of the scheme.