News | 20th Feb, 2013

Coal bags carbon profit

20 Feb 2013
Tom Arup, The Age


Australia's highly emitting brown coal power generators will reap $2.3 billion to $5.4 billion in windfall profits from carbon price compensation, an analysis by a leading energy market expert has found.

While brown coal power plants based in Victoria's Latrobe Valley will get billions in compensation, the analysis suggests they have so far been able to pass on all of their extra costs of the carbon price – thus turning the compensation into pre-tax profit.

The analysis carried out by Bruce Mountain, director of consultants Carbon + Energy Markets, looked at half-hourly spot prices for electricity sold from four Victorian brown-coal fuelled power plants – Hazelwood, Yallourn, Loy Yang A and Loy Yang B – over the first six months of the carbon price.

Environment Victoria, which commissioned the analysis, demanded the federal government review the compensation for coal power plants.

Its campaigns director, Mark Wakeham, said: ''It is a terrible result for taxpayers and the environment if our dirtiest power stations like Hazelwood are becoming more profitable as a result of compensation payments.''

The government rejected the study as simplistic and partial. Climate Change Minister Greg Combet said it was based on an ideological opposition to brown-coal fired generation and investors in existing energy infrastructure.

In his study, Mr Mountain compared the spot price data with the corresponding period last financial year and concluded the four Victoria plants had seemingly been able to pass on their full costs from the carbon price through higher electricity prices.

Under the tax, the generators will receive billions of dollars in free carbon permits and cash over the next four years as compensation, with $1 billion cash already delivered. The compensation package has been valued at $5.5 billion to 2016-17, with Victorian brown coal generators to get about 90 per cent.

The analysis says if the four Victorian brown coal power generators can continue to pass on their entire carbon tax costs, then they can expect to accrue additional pre-tax profits of at least $2.3 billion over the next 15 years.

The pre-tax profits could rise to as much as $5.4 billion to 2027 in the unlikely event future carbon prices are not suppressed by fledgling global carbon markets. The total value of the future profits depends on the future value of the carbon price…

Read the full article >



Read the report here >