Energy company HRL announced yesterday that it was putting on hold its plan to build a new coal-and-gas-fired power plant at Morwell, Victoria following a decision by the Victorian Civil and Administrative Tribunal.

Late last month VCAT approved HRL’s plan to build a 600MWe project under its subsidiary Dual Gas — in May 2011 the Victorian Environmental Protection Agency had ruled that HRL was only allowed to build a 300MWe power plant — but stated that HRL could only proceed with construction when the federal government has entered contracts for the closure of other power plants under its Contracts for Closure program.

“VCAT in granting approval for a new 600 MWe project, has also imposed a new condition that effectively puts the future of the project in the hands of the Australian government and takes the commencement date out of the company’s control,”  said Paul Welfare, the general manager of Dual Gas, in a statement announcing a freeze on the project.

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The VCAT ruling stated:

“Construction of the works approved by this works approval must not commence until such time as the Australian government has entered into contracts under its ‘Contracts for Closure’ program (or through any similar program or commercial agreement) which provide for the closure by 2020 of at least 600 MWe of coal-fired electricity generation in Victoria.”

As the summary of the VCAT ruling explains, HRL made its objections known before the condition was placed:

“Although such a condition was opposed by Dual Gas, the imposition of such a condition on the works approval will more transparently demonstrate a nett [sic] reduction in overall greenhouse gas emissions from electricity generation in Victoria, and more clearly facilitate the transition to a lower emissions energy sector.”

But Welfare claims the decision could have wider implications. “This condition is a major concern for this project, and it is unclear what it means for the future of Victoria’s Latrobe Valley,” he said.

HRL also owns Energy Brix, which runs a power plant in the Latrobe Valley that is currently one of the five generators under negotiations with the government to close under the Contract for Closure program. The government expects to officially conclude negotiations by June 30 this year.

June 30 is the same day that the federal government funding for the HRL power plant is due to expire. It is this “considerable uncertainty” about the project that has resulted in it being placed on hold, said Welfare.

The federal government promised $100 million funding for the HRL project under the Low Emissions Technology Demonstration Fund. However the application for that funding closed back in 2006 and HRL has had its funding deadline extended several times in recent years.

Federal Resources and Energy Minister Martin Ferguson warned earlier this year that this would be the final extension for the funding. Victoria also promised $50 million in state funding, but $30 million of that is contingent on federal funding.

Dual Gas did not respond to calls for comment before deadline, but we will update if this becomes available.

Meanwhile, the NSW-government owned Macquare Generation announced that it had cut its asset values by a third yesterday — from $1.8 billion to $1.1 billion — in preparation for the implementation of the carbon price.

Macquarie Generation is the largest power generator in the country, and our biggest emitter, and expects its carbon tax bill to be around $460 million annually based on the carbon price of $23 per tonne. Last year it produced 20 million tonnes of carbon dioxide.

“If similarly sized writeoffs are taken at the other two NSW government-owned generators, Delta Electricity and Eraring Energy, this would wipe another $1 billion off the value of government-owned assets due to the federal government’s new tax,” reports Brian Robbins in The Sydney Morning Herald.

Crikey will soon be launching a series examining how businesses and industry are responding to the implementation of the carbon tax. Stay tuned.

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Peter Fray
Peter Fray
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