Sep 7, 2012

Labor called generators’ bluff, so how hollow is its policy?

Contracts for closure dealt with a (empty) threat by coal generators that the lights would go out. Now questions need to be asked whether Labor's policy is empty.

In May I wrote that the government's contracts for closure process was going to fall significantly short of getting agreement on closure of 2000MW of coal generating capacity. Sure enough that's what has transpired as the government has found the price for closure too high.
The reason why is the owners of Hazelwood (International Power -GDF Suez) and Yallourn (TRUenergy) power stations could see the following events occurring that would ensure the power plants would continue to generate plenty of cash:
  • Their competitors’ costs are expected to rise substantially due to gas and black coal fuel prices increasing. The price of gas on the east coast of Australia is widely expected to double due to the installation of liquefaction facilities that can export the gas to high-paying Asian customers. And black coal prices (if the NSW government didn’t subsidise them) could also rise substantially to reflect buoyant prices available for thermal coal in export markets.
  • The carbon price will be extremely low or possibly even non-existent.  Back in 2008 when TruEnergy and International Power were crying blue murder about the introduction of a carbon price and trying to scare the wits out of people by claiming the lights would go out, the expectation was that the carbon price would start at $20 and then rise northward to about $40 by 2020. This would have squeezed their cash margins close to zero given past gas and black coal prices. But now the carbon price is expected to drop below $15 in 2015 and possibly stay there until 2020. What’s more if Tony Abbott gets his way, the carbon price would be zero.
Consequently, for TRUenergy and International Power to sign-up to a contract to close, they would need to see an offer with at least 10 numbers following a $ symbol. For the public service and energy minister Martin Ferguson, contracts for closure was never about claiming an environmental trophy, it was about keeping the lights on. The owners of brown coal generators had been very successful in scaring many people within both the federal and Victorian government that unless they received extra money, the financial stress from the carbon price would make them prone to abruptly withdrawal supply. So contracts for closure was dreamt-up, not as a way to accelerate the closure of Hazelwood or Yallourn (which is what the green movement wanted) but rather to get a firm agreement on an orderly withdrawal of capacity, with a timetable announced publicly well in advance. This would then encourage timely construction of new power capacity in anticipation of the gap in supply the closure would create. From the government’s perspective this meant it shouldn't need to outlay much money, after all the coal plants were going to close anyway due to the impact of the carbon price. Also it was a good way of calling TruEnergy and International Power’s bluff. You can't claim that you need billions of dollars for it to be worth your while to close your power plant in an orderly fashion, while at the same time arguing that you’ll be so badly financially damaged by the carbon price that you’re prone to shut the thing at any moment. In the end, the government would have realised that with electricity demand trailing-off over the past few years, there was no imminent threat that we’d be caught short of power plant capacity. And through the negotiations, both TRUenergy and International Power, in trying to justify billion dollar payouts, would have revealed financial data that showed their plants were unlikely to be abruptly closed. The government has therefore wisely put its chequebook away safe in the knowledge that lights going out are just empty threats. But one also has to ask is the government's "Clean Energy Future" an empty promise if some of the most emissions intensive power stations in the world can continue to viably operate out beyond 2020? One also has to ask if Tony Abbott thinks "this was always bad policy" to buy out coal-fired generators, then why did he take it as Coalition policy to the 2010 election? If Abbott can suddenly reject a policy he took to an election not all that long ago, why should we trust that he won't change his mind on the broader $10 billion Direct Action emission reduction fund? Especially when it's likely he’ll be faced with a massive budget black hole after taking office. *This article was first published at Climate Spectator

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10 thoughts on “Labor called generators’ bluff, so how hollow is its policy?

  1. Jimmy

    The govt walking away from paying the power companies ridiculous amounts of money to close power plants is a smart move as it was only bringing forward something that will happen naturally as the carbon price takes effect.

  2. Hamis Hill

    Another elastic band stretched tightly around that “Green” tail supposedly wagging the Labor dog.
    Should have dropped off quite nicely by this time next year. Slowly does it Marn.

  3. Steve777

    Abbott’s so-called ‘Direct Action’ policy was only ever a figleaf dreamed up before he knew he could demolish support for carbon pricing with a strident scare/disinformation campaign. He never talks about his plan. In spite of the Coalition’s bipartisan commitment to targat of a 5% reduction in Carbon emissions by 2020, expect both the target and ‘direct action’ to be quietly dropped if Abbott wins next year.

  4. gautillard dellron

    i’ve reached the conclusion that the planets pretty much screwed now. everyone’s too selfish and short sighted, or in the case of australians, too stupid and apathetic to do anything. pity i’ll be alive to experience the effects of it all, but my only consolation now is to see everyone else suffer. maybe i’ll vote coalition, just to make sure whats happening in queensland happens to the rest of australia. they deserve it.

  5. gautillard dellron

    nothing would give me more pleasure than seeing australia go into recession, and see everyone suffer because they voted for austerity when they didn’t need to. that would make my year.

  6. Mack the Knife

    The right wing commentariat including Crikey, ABC are so focussed at not focusing on the LNP that everyone of them seems to have forgotten that if the LNP win their entire first term will be with a Greens dominated Senate.

    A hung government will become a hamstrung one.

    Why encourage a guaranteed failure to be elected?

  7. Hamis Hill

    Abbott’s inevitable Recession will reduce emissions, just like Europe.
    Homeless former public servants don’t use very much electricity.
    And the Conservatives say The Greenies want to shut down the economy!
    Time for a cynical journo to write something on this ironic Milne-Abbott Coalition of shared objectives.
    The Nats don’t want Foreign Ownership, too bad, Abbott and Murdoch have guaranteed it.
    Nevertheless the Nats will roboticaly vote for their own destruction; sorry Mr Katter, it’s too late.
    That is what all this talking down of the economy is all about.
    Recession followed by a sell-out to the highest bidder.
    Remember Howard-Costello’s $1.25 Trillion of private debt on the non -wealth producing asset of housing? Unsustainable, the basic ecomomics behind the GFC.
    The Inevitable Abbott Recession Fire Sale fees all going to the usual suspects.
    Hey, nation-destroying parasites have to live too!
    ( They apparently lodge in the brain, reducing cognition, a political sympton of the Dumbing Down syndrome, you don’t see it? Must be working then)
    Prognosis: In the absence of a huge dose of reality within the next twelve months the patient will die.

  8. Frank Campbell

    Crikey (including Edis here) seem unwilling to confront the stark reality that the entire Gillard/Greens “climate” policy is unravelling. We now have a short-term carbon tax which will convince no capitalist “emitter” to do anything other than wait for its extinction in 2015 (or more likely 2013). The carbon tax is now a one-act farce. And now the continuation of “dirty” brown coal baseload is also guaranteed. This then exposes the MRET as an irrelevance, since brown coal power stations operate 24/7 regardless of how much wind or solar power is generated. Why the frack should people suffer the miseries of wind turbines and solar class-subsidies? Solar subsidies are being wound back worldwide, including here, but big capital eyes wind as permanent subsidy. Once entrenched, this massive rort is backed by major companies like GE, Origin, AGL etc. Given flat power demand, they’ll be ever keener to squeeze the last drop of gravy from climate millenarianism.

    The underlying dishonesty is that there is no admission that climate millenarianism is in steady long-term decline. The sociology of such cults is inexorable. But the hollow pretence remains that Armageddon is just a few decades hence. The progressive commentariat is acutely embarrassed, so responds in two ways (i) with shrill denunciations of “betrayal” by (for instance) the ABC and Fairfax. (Jones, Bolt and Murdoch, the sirens who allegedly lured the moronic public into “climate denialism”, are no longer the centre of Left/Green attention. ) (ii) Evasion. Most progressive commentators now keep their mouths shut about “climate”. Some are in homes for the bewildered, under false names.

    If the naked priest rules for a decade, there will be many recriminations. The Church of Latter-Day Greens has betrayed the environment- all energy went into the climate cult. Far from the apotheosis of the Greens predicted by many (not least Crikey), they will remain a sectarian rump- and probably decline. Rednecks and extractives have already rolled back hard-won environmental gains. Trotskyist turncoat Howes is now attacking the Greens and positioning unionism to back rapacious extractive capitalism (eg the Tarkine). It’s back to the 1960s. Whether or not Howes rides the union conveyor belt to a safe seat, he’ll be on BHP’s board in 25 years: fat, verbose and incorrigibly Rightwing.

    We need a new Green/Left and we need it now.

  9. gapot

    When the Federal government created the spot market for electricity they must have known the smart boys would try to make a quick buck out it. Just as they did in California they just about brought the state to a standstill in order to get the spot price up and make a killing. How much longer do we have to put up with this government corruption.

  10. shepmyster

    Mack the knife, you have fallen for the age old lie that both major parties would love everyone to believe. There is no doubt that operating in a hung parliament is difficult for all involved but hamstrung, I think not.
    This parliament has past more important legislation the previous two governments.
    The reality is that hung parliaments are forced to face up to issues they would prefer to ignore.

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