Receivers KordaMentha have announced that the 151 megawatt Redbank Coal Power station, in NSW, will be shut down, prompting the question as to whether Anglesea coal power station in Victoria, which Alcoa is looking to offload, will be next.
There are times when you make a call and get it badly wrong. So it is for me with Redbank.
I had claimed that when the power station went into administration, the banks would simply take it over, find another owner and it would keep on chugging-on. It was said to have the lowest operating costs of all the fossil fuel power stations in NSW, according to ACIL-Tasman (now ACIL Allen) data. In addition, the power plant is very young by Australian standards having only been commissioned in 2001. Also, there doesn’t seem to be any moral qualms holding back the major power companies from buying a number of highly polluting coal generators from the NSW Government, in spite of some being long in the tooth.
But the receivers have laid-off the majority of the staff and will be decommissioning the power station, selling its constituent bits. There will be no mothballed hibernation, it is dead.
After the receivers moved in things went as expected initially, and the plant kept operating pretty much as normal. But in August the power plant was taken offline; not unusual in itself, because power stations do experience breakdowns or require maintenance work, but the length of time it remained offline was unusually long.
The receivers had still not managed to find a buyer at this stage. At the same time the chart below, and our chart of the week, tells the sorry story of how baseload power price futures contracts have steadily declined since after the receivers moved in. These represent a contract for supply for 2015, and should have already priced-in carbon price repeal back in November 2013 with the Abbott Coalition elected to government. However, they have continued to steadily decline and now sit at levels which, correcting for inflation, are some of the lowest since the National Electricity Market was established.
Figure 1: Prices for 2015 calendar year baseload power contracts.
Source: ASX Energy
Sources have told Climate Spectator that the value of the power station's own power supply contracts with customers and coal fuel supply contracts were sold for a value that allowed lenders to recover almost all of what they were owed.
Still, one would have thought a relatively new power station, capable of running on dirt-cheap, off-spec thermal coal might still be of value to the market greater than its disassembled parts and contracts.
Yet an industry insider explained to Climate Spectator that Redbank was a little like a Citroen car. Its unique ability to run on coal mining rejects was a great asset in terms of fuel costs, but it meant some equipment was highly unusual. If something went wrong it could be very expensive to fix.
Given the depressed nature of wholesale power prices, and the prospect of expensive repairs and maintenance in the future, prospective buyers were probably wary. When the plant went offline the operators may have discovered some faults that were costly to repair. At this point creditors probably decided it wasn’t worth the hassle of holding out for a buyer given they’d be able to recover what they were owed via selling the contracts.
One might be tempted to think Anglesea power station could suffer a similar fate as Redbank. It’s current owner – Alcoa – is looking to exit and it is a similarly small size to Redbank. Importantly, it is far older – commissioned in 1969. Its location proximate to an iconic national park and a popular seaside holiday town also means it faces vocal community opposition to its continued operation. And power prices are even worse in Victoria.
But the unusual, Citroen-like nature of Redbank means one should be careful extrapolating that a similar fate awaits Anglesea.