The federal government has dumped a $100 million grant for a long-planned coal-fuelled power plant in the Latrobe Valley, in a move potentially spelling the end of the controversial project.
The decision is also likely to trigger the withdrawal of the lion's share of a separate $50 million state government grant.
Energy company HRL has proposed to build a $1.2 billion 600 megawatt power plant using new gasification technology that would reduce the carbon emissions from burning brown coal to similar levels of a modern black coal power plant.
Federal Energy Minister Martin Ferguson said yesterday the company had been given ample time – including an extension in February – to meet the conditions for the federal grant, which was first awarded by the Howard government.
''They had to the end of June, they hadn't met conditions by the end of June … I have therefore determined to cancel the potential grant of $100 million to the HRL project,'' he said.
Mr Ferguson said the grant conditions ranged from project financing to technology milestones, but would not detail specifics citing commercial-in-confidence reasons. He said the $100 million would not be reallocated to another program in his portfolio.
Victorian Energy Minister Michael O'Brien said he was getting departmental advice on ending the state's funding agreement for the project – first signed by the Brumby government – following Mr Ferguson's announcement.
''The state government must ensure that Victorian taxpayer funds are protected,'' he said.
Mr O'Brien said the Baillieu government remained committed to promoting low-emissions technologies for the future use of brown coal.
A copy of the original agreement between the state government and HRL, seen by The Age, suggests Victoria can terminate its $50 million grant if the company fails to obtain the $100 million in federal funding. But it is understood up to $20 million of the state grant may have already been given to the company.
Mark Wakeham, campaigns director with Environment Victoria, said the announcement was a major win in a campaign by green groups to stop a new coal-fired power station from being built in Victoria.
"This is likely to be the final nail in the coffin for the HRL proposal, and for all new coal-fired power stations across Australia,'' he said.
But Latrobe City Council mayor Ed Vermeulen said it was disappointing the plant was unlikely to be built. He said the HRL proposal would have been a step on the way to zero carbon dioxide emissions and made it less likely a major coal plant would be closed and replaced.
Representatives from HRL did not return calls last night.
The HRL proposal was awarded the federal grant in 2006, and planned to start operating at Morwell in 2009, but has been repeatedly delayed. The Saturday Age last year revealed the four major banks had rejected funding it, raising doubts about its viability.
The proposed plant would have largely run on synthetic gas derived from brown coal using new technology. It was estimated its greenhouse gas emissions would have been 46 per cent lower than Hazelwood – often described as Victoria's ''dirtiest'' coal plant – making it roughly equivalent to a modern black coal plant.
The decision came as Mr Ferguson rejected suggestions from unions and his colleague Workplace Relations Minister Bill Shorten the closure of the Kurnell oil refinery in Sydney could threaten Australia's energy security.
Mr Ferguson said independent work had shown refinery closures did not represent an energy security problem. Australia, he said, would move to access excess refinery capacity in Asia and make sure that import channels work efficiency.
31 July, The World Today, ABC
Project's woes raise questions about brown coal's future