Blog | 2nd May, 2012

Gillard's clash with coal power tricks

With the clock ticking towards the federal government’s June 30 deadline for contracts for closure, the brinkmanship is beginning in earnest.

In just eight weeks the government needs to conclude negotiations and sign contracts for the closure of around 2000 MW of our dirtiest power stations while giving workers and communities in affected regions confidence that they will not be hung out to dry.

It’s a tough but critical task. After all, without any power plant retirement there will be very little investment in new power stations, minimal emissions reductions and we’ll continue to flog outdated and highly polluting power stations until they fall apart due to a lack of investment in maintenance.

The five power stations that are negotiating closure are all at the table voluntarily – no-one’s twisting their arm. However, that doesn’t mean that they won’t be trying every trick in the book to maximise payments under contracts for closure.

This week we saw HRL, owner of the Energy Brix power station and an attached brown coal briquette factory, threaten that the carbon price alone could close its briquette factory in July if it was not successful in its contracts for closure bid. That’s an interesting threat: pay us to close or we close early!

It’s not the first time that HRL has played hard-ball in an attempt to extract more government grants.

Last month, the company put on hold its proposed 600 MW coal and gas fired power station in the Latrobe Valley following a VCAT approval which made development of the power station contingent upon at least 600 MW of brown coal being retired via contracts for closure. Given that HRL has been trying to attract finance for the power station, the only rationale explanation for putting the power station on hold is that it is seeking another extension of its $100 million grant from the federal government.

Close observers of climate politics will remember that in February energy minister Martin Ferguson granted one final extension to HRL to meet its project milestones for the Howard-era grant they received in 2007. That extension lasts until the end of June; making June 30 D-Day for HRL which has few business interests beyond its existing and proposed power stations and its briquette factory.

Perhaps the high stakes for HRL explains its shrill positioning. In South Australia, Alinta has been adopting a much more even tone as it explains short-term plans to turn Flinders and Playford power stations into peaking plant. Alinta has a much broader portfolio of assets so while the company is seeking a contract to close Playford, the contracts for closure process is not its one shot in the locker as far as its business is concerned.

So how should the federal government deal with the threats, claims and counter-claims as the negotiation window closes? Given the growing community scepticism about the ability of government (any government) to deliver environment and climate programs, they need to hold fast to their commitment to close around 2000 MW of polluting capacity, which is going to mean securing the closure of either Hazelwood or Yallourn with top ups from the smaller power stations. And they are going to need a convincing process, plan and program of regional development, redeployment and rehabilitation to assure affected communities that their interests are being protected.

The ALP must also re-prosecute the case for taking action to reduce greenhouse pollution. After all if it’s not about responding to dangerous and harmful climate change, why are we retiring polluting power stations?
Contracts for closure could be a chance for Labor to put the spotlight on the Coalition’s Direct Action policy.

Only last year Andrew Robb claimed contracts for closure as the Coalition’s idea saying: ”Despite all the fevered claims that Direct Action won’t work, the single biggest abatement measure in the government’s scheme happens to be a Direct Action proposal – namely, the closure of Hazelwood power station.” The Coalition needs challenging by the government, media and community as to how it will deliver emissions reductions given the lack of substance in their direct action policy.

Finally, the ALP has to secure a good environmental outcome that is coherent and can be understood by the community. One of the biggest problems that the government has run into with the clean energy future package is that the public can see the pain of the transition, but not the environmental benefit. However recent polling conducted by Environment Victoria in January found very high levels of support among Victorians for replacing our most polluting coal-fired power stations. Contracts for closure presents an opportunity to demonstrate that the clean energy future package will modernise and improve our energy mix.
This public support for power station replacement will disappear though if we are seen to be replacing polluting power stations with more polluting power stations. This takes us back to HRL and its maneuvering.
The worst decision the Gillard government could make would be to pay HRL to close their Energy Brix power station, and then also pay them to open a new coal-fired power station.

Emissions reductions would be minimal, genuinely clean energy projects would be locked out and some poor communications adviser would need to find a strategy to sell the unsellable: a plan to pay a company to both close and open a coal-fired power station, with government grants and closure payments representing the only source of finance to construct the new polluting power station. It’s a long way from our clean energy future.

The government needs to get it right on contracts for closure, and that means ignoring the rent-seeking and inflated compensation claims and looking out for the public and environmental interest. We’ll know in eight weeks whether they have delivered or not.

This opinion piece was published in the Climate Spectator.