Poor old coal: Australia's latest protected species

Yesterday, Rod Campbell, pointed out in this publication a rather troubling example of a broader problem where governments seem utterly unable to resist the temptation to intervene to help out coal generators encountering commercial difficulties.

No less than the head of NSW Treasury, Philip Gaetjens, wrote to the NSW Department of Planning urging the reopening and expansion of the Coalpac mines that would service Energy Australia’s Mount Piper and now mothballed Wallerawang power stations because:

Potentially significant risk exists for future NSW energy security, especially in regards to coal supply to Mount Piper and Wallerawang power stations. Very limited options exist for sourcing replacement coal to supply these generators.  

This is abject nonsense.

Firstly Wallerawang can’t be that vital to energy security seeing it has already been shut down. And Energy Australia themselves will tell anyone who’ll listen that there is a huge oversupply of power generation capacity in NSW and the National Electricity Market more broadly, even with Wallerawang out of operation. In addition, somehow Mount Piper is doing just fine even though the Coalpac mine isn’t even operating at present. What’s more, even if their proposed reopening proceeded it would only allow an additional six years of operation, and this would only meet part of the power stations’ needs, as clearly detailed in the Department of Planning assessment of the project.

This has nothing at all to do with energy security; it is simply a commercial issue. Energy Australia wants to get its hands on cheaper coal to improve the profitability of Mount Piper, which would otherwise have to buy coal from Centennial Coal’s mines at a price partly linked to export markets.

Now one probably shouldn’t be too concerned about this if it were an isolated case of a government official being duped by corporate interests. But this is most definitely not an isolated case.

We already saw under the former carbon price how privately-owned generators were given hundreds of millions in cash or free permits, supposedly to ensure energy security. Yet these plants were able, in most cases, to fully recover the carbon price via higher prices. And the carbon price has since gone yet they aren’t required to payback their windfall gain.

But this principle of coal power as a protected species still goes on.

In the recently released Energy Green Paper there is a disconcerting discussion on page-35 which entertains the idea that coal-fired power generators face barriers to exit/closure which may require some kind of government assistance to address, possibly by the removal of some regulations (but doesn’t mention what they might be). 

Now it is true that many coal generators face large clean-up and remediation costs if they were to close, and that this acts as a disincentive to close. But what’s the issue here that requires government to assist?

Across a wide array of industries there are requirements that sites be cleaned up and remediated if plants close. This is entirely appropriate because otherwise the community is left with the bill to clean-up what can be a very hazardous mess left behind by the operator. The Hazelwood mine fire – which burnt for several weeks, cloaking the residents of Morwell in harmful smoke and ash – illustrates what can happen if such operations are not properly remediated.

If the government wanted to resolve this barrier to exit they actually need more regulation and tougher enforcement of clean-up requirements, not less. Coal power station operators should be required to progressively contribute towards the clean-up of the site, not defer it until the date of closure. At the very least they should make progressive payments to a site clean-up fund, such that when the decision is made to close the site the money is already there to fund clean-up.

But nowhere is this issue of treating coal power stations like some kind of protected species more stark than the debate surrounding the Renewable Energy Target. Almost all private-sector owned power generation capacity was acquired after the expansion of the RET became official government policy in 2007 – no one can really argue they didn’t know.

Yet a range of government officials – and not just from the federal government – are pushing that the target must be watered down because a decline in electricity demand (which was also a public objective of government energy-efficiency policies) is hurting the profitability of existing coal, as well as gas, generators.

Yet not one of them has persuasively explained why this creates a problem beyond the commercial interests of the owners of the coal and gas generators. The Victorian Government makes the laughable suggestion that having too many power plants undermines energy security – something the responsible body for energy security, the Australian Energy Market Operator, has dismissed.

The AEMC’s John Pierce also suggests the RET be downgraded but, again, he and his organisation have not outlined the specific serious negative consequences it will create for either reliability or prices. Instead their objections seem to be more theoretical – that this might be the thin-edge of the wedge that ultimately leads to the UK situation, where government directly contracts for construction of new power stations. This seems to be an incredibly long bow to draw, given the UK is faced with the need to shut down ageing nuclear power plants and comply with EU pollution directives.

Government officials need to be a lot more wary of intervening when large power generators come complaining.