A new coal fuelled power plant currently being proposed for Victoria by energy technology company HRL could still be built under the government's carbon tax plans, Treasury modelling shows.
Government sources last night confirmed that detailed Treasury analysis found the HRL project – using new technology to dry and gasify brown coal to reduce emissions- could still be viable under a carbon price.
That is despite Treasury predicting an otherwise dramatic shift under a carbon price away from coal electricity generation that does not capture and store its carbon emissions in the coming decades.
It comes as International Power – owner of Hazelwood – gave the strongest indication yet it would seek a government buyout of the 40-year-old generator under the carbon price scheme.
In a statement from its London office on Monday night the company said a buyout ''could provide more certainty and reduce the overall impact of the (carbon) plan on the business,'' and it would continue to work with the government to consider a paid closure of Hazelwood.
Prime Minister Julia Gillard yesterday confirmed money had been put aside in the federal budget's contingency reserve to pay for the retirement of 2000 megawatts of coal-fired electricity generation, but refused to say how much had been committed.
The Government is also expected to dump an election commitment to impose mandatory emissions standards on new coal-fired power plants, with Energy Minister Martin Ferguson saying ''we will need to undertake an assessment of the role of emissions standards in the context of an environment where there is a carbon price''.
Opposition Leader Tony Abbott said yesterday the Coalition would consider ways to ''clean up'' Latrobe Valley power plants such as Hazelwood under its $3.2 billion direct action climate policy, but it could not cost jobs or increase electricity prices.
Treasury modelling released on Sunday found no new commercial scale coal-fired generators would be built – without carbon capture and storage – under almost all carbon price scenarios looked at.
But the HRL proposal could still be viable as it is not considered commercial scale, rather a ''demonstration'' project of gasification technology that reduces emissions from brown coal fuelled electricity to levels similar to a modern black coal generator.
HRL also has pledges of $150 million in federal and state government grants for the project if it meets certain conditions. It wants to generate 600 megawatts of electricity through the project, but a recent Environment Protection Authority decision only approved 300 megawatts.
HRL is appealing that decision, with a directions hearing in the Victorian Civil and Administrative Tribunal set for Friday. It will be heard alongside a separate appeal by Environment Victoria, which is challenging EPA approval of the project. Environment Victoria spokesman Mark Wakeham said ''while the price on carbon will increase HRL's operating costs by about $50 million per year, unfortunately it will not guarantee that the coal-fired power station does not go ahead as reflected in the Treasury modelling''.
A representative of HRL did not return calls yesterday.
In May The Age revealed the four big banks had rejected financing for the project, casting doubt on HRL's ability to attract the funding it needed.