On 4 July 2019, the Senate referred the Coal-Fired Power Funding Prohibition Bill 2017 (the bill) to the Senate Environment and Communications Legislation Committee (the committee) for inquiry and report by 2 December 2019.
The bill was originally introduced as a private senator's bill by Senator Richard Di Natale in the 45th Parliament. It was restored to the Notice Paper in the 46th Parliament on 4 July 2019.
On 14 October 2019, the Senate granted the committee an extension of time to report to 31 March 2020. On 27 March 2020, a further extension was granted until 16 April 2020.
Conduct of the inquiry
In accordance with its usual practice, the committee advertised the inquiry on its website and wrote to relevant individuals and organisations inviting submissions by 14 August 2019.
The committee received 22 submissions which are listed at Appendix 1 of this report. The public submissions are available on the committee's website at: www.aph.gov.au/senate_ec.
The committee also held a public hearing on 6 November 2019 in Melbourne. A list of witnesses who gave evidence at the hearing is at Appendix 2.
The committee thanks all of the individuals and organisations that contributed to the inquiry.
Scope and structure of the report
This report comprises two chapters. The remaining sections of this chapter outline the purpose and provisions of the bill and provide brief background information. Chapter 2 examines the principal issues raised by stakeholders regarding the bill. The committee's overall conclusions in relation to the bill are provided at the end of Chapter 2.
Note on references
References to the committee Hansard transcripts in this report are to the proof Hansard; page numbers listed may vary between the proof and official Hansard transcript.
Purpose and overview of the bill
The bill would prohibit the Commonwealth Government (the Commonwealth) or an authority of the Commonwealth from funding the refurbishment, building, purchasing or assisting in the transfer of ownership of, a coal-fired power station. It would also enable financial assistance or support for the purposes of providing transition assistance to affected workers or managing the closure of a coal-fired power station.
The rationale for the introduction of the bill is to prevent the Commonwealth from providing financial support, either in the form of direct grants, acquiring an ownership share or providing revenue guarantees to new or expanded coal–fired power stations through mechanisms such as the Underwriting New Generation Investments (UNGI) program.
In his second reading speech, Senator Di Natale explained the bill's underlying purpose:
To ensure we transition to a nation that is powered by renewables, we need to do two things at once: rapidly introduce clean, cheap, reliable renewable energy into the system, and conduct an orderly retirement of coal-fired power stations. Renewables in, coal out.
The prohibition on the Commonwealth or an authority of the Commonwealth from providing support for coal-fired power stations would establish that the Commonwealth must not:
provide financial or other support to, or in connection with, the refurbishment or building of a coal-fired power station; or
purchase, or assist the purchase or transfer of ownership of, a coal-fired power station.
The bill would, however, allow for financial assistance or support for the purposes of providing transition assistance to workers affected by the retirement of a coal-fired power station. In addition, the prohibition on funding would not apply to the purchase, or the assisting of the purchase or transfer of ownership, of a coal-fired power station if the purpose is to assist in the managed closure of that station.
In order to comply with paragraph 51(xxxi) of the Constitution, the bill provides that the prohibition on Commonwealth support would not apply to the extent that it would result in the acquisition of property from a person otherwise than on just terms.
The bill also provides that the prohibition on Commonwealth support would have effect despite any current or future Commonwealth law unless the law expressly provides otherwise, and that this would not affect the bill's compliance with the acquisition of property on just terms requirement in the Constitution.
This section provides background information on the role of coal-fired power in Australia's electricity markets and the recent and projected retirement of coal-fired power stations, as well as a brief overview of recent policy developments including the Commonwealth's establishment of the UNGI program.
Role of coal-fired power in Australia's electricity markets
The National Electricity Market (NEM) and the Wholesale Electricity Market (WEM) in Western Australia are the largest electricity markets in Australia. The NEM covers Australia's eastern and south-eastern coasts and comprises five interconnected states: Queensland, New South Wales (including the Australian Capital Territory), South Australia, Victoria and Tasmania. The WEM supplies electricity to the south-west of Western Australia via the South West Interconnected System (SWIS). Together, both the NEM and WEM cover the majority of Australia's electricity demand.
There are currently 22 coal-fired thermal power stations operating in Australia (see Figure 1.1). According to the former Department of the Environment and Energy's Australian Energy Update 2019, the share of brown coal-fired generation fell by 17 per cent during 2017-18, primarily as a result of the closure of the Hazelwood power station in March 2017.
At the same time, the share of black coal rose by 3 per cent, with the combined share of coal at 60 per cent of total electricity generation. The total share of coal generation remained the same during 2018.
Retirement of coal-fired power stations
Twelve coal-fired power stations have closed since 2012. This includes the May 2016 retirement of Alinta's Northern power station in South Australia, removing 546 megawatts (MW) from the market. Then in March 2017 Engie retired its Hazelwood power station in Victoria, removing another 1600 MW of brown coal generation.
The Hazelwood plant was over 50 years old, and was Australia's most emissions intensive power station. The closure was especially significant given Hazelwood's size, supplying around five per cent of the NEM's total output.
Figure 1.1: Australia's coal-fired power stations
Source: Paul J. Burke, Rohan Best, Frank Jotzo, ‘Closures of coal‐fired power stations in Australia: local unemployment effects’, The Australian Journal of Agricultural and Resource Economics, 63, no. 1, 2019, p. 144.
According to the Australian Energy Market Operator (AEMO), it is expected that 15 gigawatts (GW) or 63 per cent of operational coal-fired generation will reach the end of its technical life and retire by 2040, as shown in Figure 1.2.
Figure 1.2: NEM coal-fired generation fleet operating life to 2040
Source: AEMO, 'Draft 2020 Integrated System Plan for the National Electricity Market', December 2019, p. 36.
Australian Competition and Consumer Commission's Retail Electricity Pricing Inquiry
On 27 March 2017, the Treasurer issued a notice requiring the Australian Competition and Consumer Commission (ACCC) to hold a public inquiry into the supply of retail electricity and the competitiveness of retail electricity prices in the NEM.
The Final Report was released in July 2018 and set out the ACCC's recommendations for reducing retail electricity prices and improving consumers' ability to participate in the retail electricity market. This included a recommendation that the Commonwealth operate a program to support new generation projects which met certain criteria in order to encourage new entrants into the market to promote competition and access to low-cost new generation.
The ACCC recommended that to qualify for the program project proposals must:
have at least three customers who have committed to acquire energy from the project for at least the first five years of operation;
not involve any existing retail or wholesale market participant with a significant market share (10 per cent or more in any NEM region);
be of sufficient capacity to serve the needs of a number of large customers;
be capable of providing a firm product so that it can meet the needs of customers.
Underwriting New Generation Investments program
In response to the recommendations of the ACCC's Retail Electricity Pricing Inquiry, the Commonwealth in October 2018 established the UNGI program to create an ongoing mechanism to support targeted investment in the NEM, aimed at lowering prices and increasing competition and reliability.
The Commonwealth called for registrations of interest for projects by 23 January 2019. The program received 66 submissions which were assessed against the objectives and eligibility criteria under the program.
The Commonwealth agreed to shortlist 12 projects, including:
six renewable pumped hydro projects;
one coal upgrade project.
The Commonwealth has indicated that further announcements on the projects would be made once it has reached agreements with individual project proponents.
On 8 February 2020, the Commonwealth also announced that it would be providing $4 million to support Shine Energy Pty Ltd’s feasibility study for a proposed 1GW high efficiency, low emissions coal plant at Collinsville in Central Queensland as part of its Supporting Reliable Energy Infrastructure program.
Reports of other committees
When examining a bill or draft bill, the committee takes into account any relevant comments published by the Senate Standing Committee for the Scrutiny of Bills (Scrutiny Committee). The Scrutiny Committee assesses legislative proposals against a set of accountability standards that focus on the effect of proposed legislation on individual rights, liberties and obligations, and on parliamentary propriety.
The bill has been considered by the Scrutiny Committee and the Parliamentary Joint Committee on Human Rights. Neither committee had any comment on the bill.