Contracts for closure: A tale of two power stations

In July, Delta Energy announced it was closing the Munmorah coal power station on the NSW central coast.

News reports explain that the power station had been idle for two years. Delta CEO Greg Everett cited falling demand for electricity as an underlying factor in closing the plant, as well as the high international price of coal.

Everett also said the carbon price was the final straw, although Greg Combet replied that this was just part of the scare campaign being waged by Delta's owner, the NSW state government.

At the same time, the Hazelwood power plant in Victoria's Latrobe Valley – of similar vintage to Munmorah – is negotiating for financial compensation to close under the Federal “Contracts for Closure” scheme.

I was one of the organisers of the 2009 community protest that ignited the debate around closing Hazelwood, which has been dubbed Australia's dirtiest power station.

It was a controversial protest. There was civil disobedience, huge numbers of police and security, and many arrests. Hundreds of community members of all ages and demographics, both locals and from across the state, camped overnight and protested all day.

This protest in particular put the idea of closing coal power stations into the centre of the national discussion on climate change. That was a great step forward. Without it, the Contracts for Closure process probably wouldn't exist.

That's not to say that these contracts, when they finally are announced, are a straightforward win. The idea of compensating the private owners of these formerly public assets is a bitter pill for many of us to swallow.

This is quite obvious to many, on one level. Coal generators have profited from global warming. That's costs they owe the public. James Hardie isn't being compensated for asbestos, another dangerous mineral substance – in fact, James Hardie was forced to compensate its victims.

But compensating coal generators for closure is also complicated due to current trends in the energy market.

The falling demand for power means that these power stations are under severe financial pressure already. Hazelwood's operators recently stated they may not be viable under the carbon price anyway. It will be a disgrace should they bluff their way into large amounts of compensation for what may already be an unprofitable enterprise.

But compensating them for closure is also perverse when you look at a particular side-effect: a boost to NSW coal generators' revenue.

The falling demand for energy is real enough. Let's look at Bayswater, NSW's biggest coal power station and the pride of Macquarie Generation's fleet. Its 2010-11 annual capacity factor was only 59 per cent - it generated 13,661 gigwatt hours out of an annual capacity of 23300GWh (based on their 2660MW plant capacity).

In 2009-10, the total was 15,176GWh and the previous two years both higher still (although still a little under the “approximately 16,000GWh” claimed as typical on Macquarie's website).

Like the older, less profitable Munmorah plant, Bayswater is suffering from falling electricity demand. Reducing the cheaper Victorian brown coal generation from Hazelwood or Yallourn will be a gift to operators like Macquarie Generation.

Greg Hunt, the Coalition's climate spokesperson, said a “perverse outcome” of the Munmorah closure was that “NSW power stations with lower emissions are being financially punished by receiving no compensation compared with Victorian power stations.”

In fact, he's got it the wrong way around. The most perverse outcome of the contracts for closure is that taxpayers will not only be compensating operators – we are also paying to make almost-as-dirty NSW black coal generators more profitable.

A necessary evil, maybe. No-one expected the transition away from coal to be neat or painless, and partial reforms are often partially disappointing, even when they are also a win we can celebrate.

When we set out to protest at Hazelwood, we never intended to stop at closing one power plant. At the end of the tiring day of protest, after a sleepless night, the organisers discussed if we would put ourselves through it all over again next year. I think I half-joked that next year we'd have to come and protest outside the next one to be closed – probably Yallourn.

Since then, part of the campaign to close Hazelwood became the campaign to Replace Hazelwood (another part became the indomitable Quit Coal group).

“Replace” is an important qualification. In the byzantine system of the National Electricity Market, renewable energy competes favourably with coal and gas due to the merit order effect.

If closure of brown coal generators is met with an accelerated construction of renewables, of all types, the squeeze on the big coal power plants' profits won't ease off. Renewable energy is already crowding out coal in South Australia, where for the first time last year wind generated more electricity than coal, and now both power stations at Port Augusta are closed.

Other states (except Tasmania) are well behind SA in their renewable energy output. If we want to continue beyond Contracts for Closure to really replace coal, we have to push for greatly increased construction of new renewable energy. We don't want the next round of coal power stations that close to be able to claim vast sums of compensation.

We have technology developments on our side. As Victoria McKenzie-McHarg has pointed out, Australians installed 1700MW of solar power on our roofs over the past four years. That is more than the capacity of Hazelwood. Renewable energy is getting cheaper and ever more popular.

But some government support for solar and wind is still needed – and often lacking. Coalition parties in state governments are doing their best to obstruct wind and solar. The federal Renewable Energy Target, at 20 per cent by 2020, is far less than what would be possible just going by recent rates of solar and wind installation. It could turn out to be a limit as much as a support for renewables.

Our government needs to adopt a strategic framework of pro-actively replacing all the coal plants, not just the oldest and most polluting, with renewable energy. Until such time as it does, climate-conscious people have to counter the influence of the coal lobby. Not just by opposing outrageous demands for compensation, we must find the ways to get more and more renewable energy built.

Renewable energy deployment, engineering and manufacturing can also help to compensate those who actually deserve it. Workers and residents in the Latrobe Valley have borne years of high cancer rates from asbestos and coal pollution related to their main industry. They suffered the job cuts through the 1990s privatisation that gutted the regional economy. They don't deserve another jobs catastrophe.

In the case of Port Augusta in SA, and Collinsville in central QLD, a renewable solar-thermal power plant could be built locally. This revolutionary renewable energy technology would boost local jobs and economy as well as generating clean electricity.

In both towns, smaller coal plants are also bidding for Contracts for Closure, so the transition would make perfect sense.

This is a key part of the thinking behind the Repower Port Augusta campaign, which seeks to replace the coal generators there with baseload solar-thermal power and wind energy.

The operator at Port Augusta, Alinta, have stated its support for building a solar-thermal replacement. In this situation compensation (or financial assistance to deploy a new technology) takes on a very different hue.

Such an approach is not so easy at Hazelwood: the Latrobe Valley is neither particularly windy nor sunny. But the large engineering workforce and workshops there could certainly play an important part in the deployment of renewables, as part of an overall plan.

There's a compensation and transition package that we could all get behind without any regrets.

Ben Courtice worked in 2011-12 as the renewable energy campaigner at Friends of the Earth. He is currently the media co-ordinator at Beyond Zero Emissions.