The energy sector under the carbon tax
This chapter provides an overview of the energy sector in Australia, its
role in the Australian economy, and importance to employment. The role of power
stations in regional employment is of particular concern in regard to the
introduction of the carbon tax and the proposed closure of brown coal-fired
The effect of the government package on the energy sector will also be a
focus of this chapter. In general terms the government package will lead to an
increase in energy prices for which it will attempt to compensate some households.
It will provide compensation and assistance measures to certain generators.
However, it will not adequately compensate regional areas and
communities for the effects of unemployment created by the closure of power
stations and cut backs to energy generation and coal mining in certain areas,
as distinct from the coal export industry. Nor, according to evidence put
before the inquiry, will it compensate all power companies for its effects
The government believes its package will change the energy sector in
Australia in quite fundamental and lasting ways. Apart from the closure of at
least two brown coal-fired power stations (to be discussed below), the Prime
Minister, the Hon. Julia Gillard MP, has asserted that:
The carbon price will
change Australia's electricity generation by encouraging investment in
renewable energy like wind and solar power, and the use of cleaner fuels like
These comments understate the significant challenges faced by
Australia's electricity generation sector in the short and medium term as it
deals with the implications of the carbon tax. They ignore the impact the
carbon tax will have on electricity prices and potentially on energy security.
The energy sector in Australia
Australia is the ninth largest energy producer in the world, and
accounts for around 2.4 per cent of world energy production. Around 68 per cent
of domestic energy production in 2008-09 was exported, with the remaining
amount going towards domestic consumption.
The Australian energy sector has been reliant upon the main Australian
produced fuels, which in 2008-09 included:
coal, which accounted for 54 per cent of total Australian energy
uranium, which accounted for 27 per cent;
natural gas, which represented 11 per cent;
crude oil and liquefied petroleum gas (LPG), accounting for 6 per
renewable energy sources, which accounted for 2 per cent.
The Australian energy industry has historically been highly dependent on
the availability of coal for the generation of electricity. Around 75 per cent
of Australia's electricity is from coal-fired generation, largely as a result
of the availability of low-cost high-quality coal.
It should be noted that Tasmania primarily depends on hydro-electricity for its
The coal and petroleum industries play a significant role in the
Australian economy, in 2008-09 contributing $68 billion to industry value
added, which accounts for 5.7 per cent of the Australian total.
A further $19 billion was contributed to the industry gross value added
by the electricity and gas supply industries.
The Energy Supply Association of Australia (ESAA) is the peak industry
body representing electricity and downstream natural gas businesses. It told
the inquiry that the businesses it represents :
... own and operate
some $120 billion in assets, employ over 52,000 people directly and contribute
$16 billion directly to the nation's gross domestic product each year.
According to information from the Australian Bureau of Statistics,
energy related industries employ around 103 000 people. A breakdown of the
areas of employment was provided by the Department of Resources, Energy and
Tourism in May 2011, and follows in Table 5.1.
Table 5.1 Energy-related industries
in Australia 2008-09
Oil and gas extraction
Petroleum and coal product manufacturing
The Senate Select Committee on Fuel and Energy noted the White Paper in
its interim report The CPRS: Economic cost without environmental benefit.
It also noted that the Electricity Sector Adjustment Scheme would provide
economic assistance through allocation of permits to the most emissions-intensive
The committee received evidence from ESAA at a hearing which highlighted
the significance of a well-designed and implemented carbon plan to the economy,
and the risk of a poorly-implemented system:
emissions trading scheme must be efficient, effective and equitable in the long
term and, importantly, must ensure a smooth and orderly economic transition in
the short- to medium-term. Failure to ensure an orderly transition could have
widespread and potentially long-lasting adverse economic impacts for Australia.
Carbon pollution and the energy sector
The energy sector is Australia's largest source of greenhouse gas
emissions, and Australia had the 'highest polluting electricity sector of all
OECD [Organisation for Economic Co-operation and Development] countries' in
2008, releasing an average of 0.88 tonnes of carbon dioxide emissions for every
megawatt hour of electricity generated.
This is in contrast to other developed nations such as the United States and
Canada, which produced 0.54 and 0.18 tonnes respectively,
though it is important to note here that both the US and Canada have access to
low emissions nuclear energy as part of their energy mix.
Figure 5.1 indicates that electricity generation is responsible for over
a third of Australian carbon dioxide emissions.
Figure 5.1 Australia's carbon emissions profile
Source: 2009 emissions from the National
Greenhouse Gas Inventory 2011, DCCEE analysis.
Treasury modelling further indicates that emissions from electricity
generation and other stationary energy sources – such as emissions from fuel
consumption for electricity generation, fuels consumed in the manufacturing,
construction and commercial sectors and in domestic heating – are expected to
increase by 8% and 33% respectively from 2010 to 2020.
Following the introduction of the government's climate change plan,
according to Treasury modelling, electricity generation and other stationary
energy sources would be responsible for 60% of emission reductions in the
period 2010 to 2050.
In addition, the government’s package made it clear that they intended
to shift electricity consumer’s behaviour at both a domestic and commercial
level by raising the cost of electricity.
It should be noted that there are hundreds and thousands of small and
medium businesses across Australia that will not receive assistance under the government’s
scheme. Many of these businesses are energy intensive and cannot become more
efficient. However, at the same time, they will not be in a position to fully
pass on their additional costs down the supply chain. These are costs that
these businesses will have to absorb.
The manufacturing sector in Australia is already struggling under an
uncompetitive exchange rate and a substantial drop in international
competiveness. The introduction of a carbon tax will compound these problems
Government assistance package
The Energy Security Fund
As part of the government's announced carbon tax plan, an assistance
package for the electricity industry will be established. This assistance
package incorporates a $5.5 billion Energy Security Fund, which is designed to
'smooth the transition and maintain energy security'. The Energy Security Fund
is comprised of two initiatives: one, payment for closure and, two,
transitional assistance measures.
Payment for closure
The first initiative deals with the government's proposed payment for
closure of 2000 megawatts (MW) by 2020. The purchase of 2000MW of highly
emissions-intensive coal-fired generation is intended to commence the
replacement of coal-fired energy assets with other, lower-emission alternatives.
The program will be implemented by the Department of Resources, Energy
and Tourism, which will call for expressions of interest from eligible
The source of funding for the program is discussed in Chapter 8.
The timeframe for the payment for closure program has been designed to
aid in the negotiation of the closure of Australia's most emissions-intensive
coal-fired generation capacity. The closure is intended to allow investment in
As stated in the government's carbon tax plan:
generation capacity in an orderly way will promote energy security. This is
because knowing when old capacity will shut down is valuable information for
potential new investors.
The role of market security was highlighted by the government in their
carbon tax plan:
confidence to investors is an important part of ensuring our transition to a
clean energy future occurs. Providing better information to the market about
when new capacity is required means that new investment will be made in a
timely manner, underpinning energy security.
Two plants were flagged for closure by the Hon. Martin Ferguson AM MP,
Minister for Resources, Energy and Tourism, at a Melbourne University
conference in June 2011 – the Hazelwood plant in the Latrobe Valley, Victoria
and the Playford plants in Port Augusta, South Australia. Mr Ferguson was
quoted in the media as saying that a carbon price would require the closure of
existing coal generators to encourage investment in lower-emission power
In a media release issued by the Australian Greens after the carbon tax
announcement, the Deputy Leader of the Australian Greens, Senator Christine
Milne, stated that the payment for closure scheme would 'deliver the first
steps in Australia's important and exciting transformation from coal to
The National Generators Forum (NGF) commented on the contracts for
closure program in its submission to the Department of Climate Change and
Energy Efficiency on the Clean Energy Legislative Package.
It accepted the government's rationale for the program and felt that it
'may give new investors welcome certainty on the timing of market demand for
new plant'. However, the NGF was critical of the fact that only four generators
meet the 'arbitrary' threshold of 1.2 t/MWh of power. This meant that the
tender process was not sufficiently competitive. The NGF argued that the
process should be based on the cost per tonne of abatement for closure of the
It also felt the government needed to release details of how the program
is to be implemented, including the timing of closures.
Funding for the contracts for closure is discussed in more detail in
Chapter 8 of the Report.
The role of the Hazelwood and Playford power plants in regional
employment will be discussed below.
Transitional assistance measures
The second initiative of the Energy Security Fund comprises the
provision of assistance to coal-fired power stations which are highly
emissions-intensive. The assistance will have conditions attached with regard
to security of supply and the transition to lower-emission energy sources.
Assistance will be provided to generators that stand to incur
significant asset value losses. The conditions attached to the assistance
measures include the obligation to meet system security requirements, and to
make public clean energy investment plans. The investment plans will be
required to include:
... proposals to
reduce pollution from existing facilities and to invest in research and
development and new capacity. Information on possible projects identified under
the Energy Efficiency Opportunities program will also be included in these
The assistance will be in the form of a limited free allocation of
carbon permits and cash, which will be allocated until 2016-17. The estimated
cost of this program will be $5.5 billion, which is around 23 per cent of the
expected liability for coal-fired power stations.
Problems with the compensation offered by the Energy Security Fund was
raised by representatives of Loy Yang Power in its submission to the committee and
its evidence on 16 September 2011. To give some perspective, Loy Yang Power
operates both a brown coal mine in the La Trobe Valley of Victoria and the
largest power station in the state.
It is not eligible for the contracts for closure program.
Loy Yang Power produces annual emissions of around 19.5 million tonnes.
A carbon price of $23 per tonne will impose an additional $450 million in costs
in the first year of the scheme alone.
That amount will, of course, increase as the cost of carbon per tonne increases
during the fixed price period.
In its evidence, Loy Yang Power indicated that the government's carbon
tax scheme will:
... place pressure on our
cash flows, make our refinancing of existing debt more difficult, may cause
compliance problems with financial services licences and may lower the
creditworthiness of the company.
Whilst the scheme will
ensure energy security in the short term, it falls short of appropriately
compensating generators for business value losses. ... Given the high carbon
intensity of brown coal electricity generation, such generators will not be
able to pass on their full costs of emissions. ... Over its whole-of-life
performance, our modelling shows that Loy Yang Power suffers a significant
deterioration in business value, which may impact on the operations of the
business in the medium to long term.
A new Energy Security Council will be able to advise the government on
support measures for strongly affected generators. This includes the provision
of advice regarding the offer of a loan to emissions-intensive coal-fired
electricity generators. This measure has been announced to ensure market
security and stability, and is in recognition of the 'difficult borrowing
conditions faced by coal-fired generators'.
The loan would be offered to a generator for the 'refinancing of
existing debt where a coal-fired generator needs finance but is unable to
obtain it from the market on reasonable terms'.
Brown coal-fired generators have been reported to have had difficulty in
securing funding for the refinancing of debts due to uncertainty in the energy
sector surrounding the impact of the carbon tax. Senior Vice-President of
Moody's Investors Services, Mr Terry Fanous, stated that the uncertainty has
lingered since the announcement of the carbon tax:
There are a number of
factors that will play out before the banks have all the elements they need to
make an informed decision ... The sector will receive strong compensation but
it won't perfectly neutralise the impact of the carbon price. There will be
residual concerns that lenders will have about the sector.
Loans would also be offered for the purchase of future vintage carbon
permits, for a limited time, and on terms which would encourage generators to
seek alternative, private finance.
Assistance for black coal-fired generators
As brown coal-fired generators are more emissions-intensive, it is
expected that they will claim the majority of the $5.5 billion Energy Security
Fund, while black coal-fired generators may not be eligible for any compensation.
State-owned black coal-fired generators will be strongly impacted by the carbon
tax without receiving any transitional assistance.
The NSW Minister for Resources and Energy, The Hon. Chris Hartcher MP, was
reported in the media to have said that the carbon tax would have a negative effect
on NSW government revenue.
This is also addressed in more detail in Chapter 8 of the Report.
Both Macquarie Generation and Verve Energy explained to the Committee
that they would not receive any benefits from the transitional assistance
measures. For example, Mr Skelton of Macquarie Generation, speaking after the
announcement of the government's package, stated:
... the brown coal
generators in Victoria actually are going to access reasonable levels (of)
assistance. They will say that it is not enough, and they have probably got a point
but we get nothing.
This view is supported by a submission to the Committee from the NSW
... the thresholds
for eligibility for all forms of assistance under the current scheme ... are
based on emissions intensity levels that are set too high to include any NSW
coal-fired generators. Macquarie Generation – which will be one of the biggest
losers in the country from the introduction of a carbon price - will not be
eligible for any assistance.
and analysis commissioned by the Victorian government:
A study by economic
consultants ACIL Tasman has concluded that the state's dirtiest power producers
are in line to get $5.22 billion worth of cash payments and free permits out of
a total $5.4 billion national compensation pool announced to ensure no
generator is forced to close so rapidly that it risks electricity supply.
Initial industry reactions
Energy Supply Association of Australia
Industry body ESAA expressed their 'mixed' reaction to the release of
the government's plan for introduction of a carbon tax. In a media release, the
Chief Executive Officer stated that while there were positive elements for the
future of the stationary energy industry, they have concerns about the
For nearly five years
esaa has called for the implementation of an efficient, equitable and enduring
emissions trading scheme.
today satisfy many of esaa’s principles for such a scheme, but important
questions remain to be answered.
But, it is
immediately apparent some significant issues remain for the industry.
The positive elements of the announcement, in the view of ESAA, centred
An improved set of
arrangements for the delivery of new renewable energy technologies and the
commitment for a single, national set of arrangements to address energy
efficiency obligations for energy retailers.
ESAA is, however, concerned with the aspects of the announced tax which
deal with the delivery of secure energy supplies in a competitive and stable
assistance may mean a few electricity generators are less financially impaired
compared to the Carbon Pollution Reduction Scheme, however, a significant
number of generators under this arrangement will receive nothing, but still see
their asset values diminished.
This sends an
unfortunate signal to investors about the security of investing in Australian
ESAA also expressed concern about the effect of the carbon tax on
profits, which it was believed could not be passed on, in full, to customers,
despite the government package including assistance to households. Commenting
on the Carbon Pollution Reduction Scheme, ESAA stated in its submission to the
Committee that 'without full costs pass through to retail prices, the viability
of retailers and the entire energy supply industry is at risk'.
National Generators Forum
The Executive Director of the NGF, Mr Malcolm Roberts, expressed a
concern regarding the possible expansion of the Energy Efficiency Opportunities
program. Mr Roberts was quoted in the media as saying:
The carbon price will
be the incentive for businesses to find energy efficiencies. Filling in forms
and paying consultants will not yield any more energy savings.
The NGF made more detailed comments on the exposure drafts of the Clean
Energy Plan legislation once they were released in a letter sent to all Members
of Parliament and its submission on the legislation.
Its criticisms, as highlighted in its letter, included:
the government's carbon tax plan will cost the generation sector
$40 billion, which will largely be passed on to consumers;
however, this will result in a change to the industry's emissions
of only 3.5% to 2020, based on Treasury's own modelling;
the starting carbon price of $23 per tonne is higher than prices
elsewhere but still well below the $60 per tonne which Treasury states is
required to lead to a switch from coal to gas fired power. This is an important
factor as, below $60, there is no environmental gain from the carbon price;
there will not be the certainty needed for long-term investment
because of the lack of emissions targets to 2020;
the plan offers no genuine assistance to electricity generators,
even though it requires generators to bear most of the burden of emissions
reduction by covering only 62% of greenhouse gas emissions. This is
particularly so for black-coal fired power generators in New South Wales,
Queensland and West Australia compared to brown-coal fired power generators in
Victoria and South Australia; and
the plan will force up prices by requiring generators to purchase
carbon permits in full and in advance for electricity covered by forward
contracts and should include deferred payment arrangements.
Energy Users Association of Australia
In a media release issued by the EUAA after the carbon tax announcement,
Executive Director, Mr Roman Domanski referred to the tax as a 'bitter-sweet
pill for Australia's energy consumers'.
A number of concerns were raised, particularly in relation to the delivery of
assistance to businesses.
Mr Domanski stated in the media release that the carbon price would
'significantly increase electricity and gas prices' which would impact on cost
of living expenses:
The EUAA estimates
that the $23 per tonne of CO2 carbon price will add around $20 per Mega Watt
hour to the price of electricity next year, an increase of around 50 per cent
on current wholesale electricity prices and at least 10-20 per cent on top of
retail electricity prices.
The EUAA also expressed concerns that rising industry costs would be
passed on to consumers, and that competitive business would be harmed:
The extra cost will
be passed on by businesses and find its way into higher consumer prices.
Businesses that compete internationally would be hard pressed to pass on the
extra costs and risk losing competitiveness, with flow-on impacts to investment
Mr Domanski continued that the flow-on impacts may extend to other industries,
which could include food processing, foundries, chemical and plastics
manufacturers and small businesses which are involved in the international
Evidence of electricity generators to the committee
Macquarie Generation is owned by the New South Wales government and is
the largest generator of electricity in Australia. On 22 July 2011, its Chief
Executive, Mr Russell Skelton, told the committee:
Even in the federal
Treasury modelling, they show a fairly substantial reduction in profitability
for both brown and black coal generators – and that is as a consequence of us
not being able to pass through the full cost.
Ms In't Veld stated that whether Verve Energy could pass on the cost
increase to customers depended on its bilateral contracts:
... there is
ambiguity in the clauses ... and at this stage we are not entirely clear on our
ability to pass on. We expect that we may not be able to pass it all on.
In the event that we
are able to pass on the increase in our production costs to our customers, this
would ultimately mean either an increase in tariffs or an increase in the
current state government subsidy to Synergy, the state's biggest retailer.
One point made by Ms In't Veld was that the effect of the government's
package on Western Australia, which is not part of the National Energy Market,
is potentially worse than on the other states for two reasons:
One, we need the coal
diversity for security reasons, so we need to retain coal-fired plant. Two, our
gas price is that much higher than the eastern states currently.
In relation to the profitability of Macquarie Generation, Mr Skelton
Since 1996 ... we
have paid $2.2 billion in dividends, taxes and guarantee fees to the New South
(The carbon tax) will
increase our costs in the first year by about $580 million. Based on all the
analysis and modelling that we have done, we are going to have to absorb a
fairly substantial proportion of that – somewhere between $115 to $230 million.
Obviously that means that our profit will reduce substantially and potentially
On the profitability of Verve Energy, Ms In't Veld, stated:
If a carbon tax came
in at $20 a tonne ... we would be subject to an annual additional increase in
our production costs of some $160 million. If it went up to $25 a tonne it
would be an over $200 million per annum increase in our production costs. That
would be an additional more than 20 per cent increase in our costs every year.
Based on the last financial year, she believed that a 20% increase in
prices would wipe out Verve Energy's profit.
Ms In't Veld explained that a carbon price between $20 and $30 would not
be enough of an incentive to transition to cleaner energy sources:
The modelling that we
have done and that others have done indicates that at the current coal prices
we have under our existing contract with Wesfarmers, and assuming a gas price
of about $8 a gigajoule, the carbon tax would have to be about $60 to $70 a
tonne before there would be any incentive for us to move from coal plant to
combined cycle gas plant.
She also doubted the environmental benefit of a $20 to $30 carbon price:
CHAIR: From what you have described for Western Australia, a
price on carbon—a carbon tax, as is envisaged—in the $20 to $30 range, we are
told, is going to push up the cost for you, but it is not actually going to
result in a reduction in emissions.
Ms In't Veld: That is correct; it will have no impact whatsoever.
CHAIR: You talk about whether you are able to pass those
costs on or not. If you are not able to pass those costs on, where does—
Ms In't Veld: That will mean that we will not have as much cash
available for maintenance and upgrades, which in the longer term does threaten
reliability—your plant starts to run down a bit. In the case of Verve Energy,
we are still carrying in excess of $1 billion in debt, so it will also mean
that we will neither be in a position to start paying down that debt nor be in
a position to pay the dividends to our owners, the state government. Also,
depending on how high the tariff goes, there could be potential impairment
issues, which would mean that we would need to be bailed out by the state.
Evidence given to the inquiry by Loy Yang Power in relation to the Clean
Energy Fund is discussed above. The important point to note is that Loy Yang
Power believes the government's carbon tax plan will affect its business
greatly, in ways other than its bottom line. Loy Yang Power did state that it
supported 'the establishment of a well-designed and well-implemented
carbon-pricing mechanism ... whilst maintaining investor confidence and
security of supply'.
Loy Yang Power's primary concern about the implementation of the carbon
tax is that it does not provide for deferred settlement of payments for carbon
permits. It estimated that an electricity generation business 'will need to
hold positions well in excess of $10 billion at any one time' to meet their
permit obligations. It described this situation as 'financially stressful for
all liable parties, prohibitive in some cases, and impossible in others, given
arrangements with financiers'.
Speaking outside the inquiry, AGL chief economist, Paul Simshauser,
stated that '[p]roject financing in Australia has become a lot more
We're a bit of an anomaly globally'. He believed that the ongoing uncertainty
caused by the fierceness of the debate over the government's carbon tax has
lifted debt costs for investors in the power generation industry. He is quoted
in the article as stating:
The cost of project finance
and the tenure of the debt just seems to be elevated in terms and cost and
shortened in terms of length compared to overseas. The fact that you do have
uncertainty over policy directions and there is a real cost in conflicting
Mr Simshauser felt this uncertainty would continue until the emissions
trading scheme began. He was confident, however, that Australia's power
requirements would be met, just that the cost of meeting them would increase.
Submissions on the impact of the carbon tax on the West Australian
energy market were received from Griffin Energy. Griffin Energy is a generator
and seller of energy, operating the Bluewaters Power Stations 1 and 2, the
first privately owned, coal-fired power stations in West Australia.
These are two of the newest and comparatively cleanest coal-fired power
stations in the country, built to replace the ageing Muja AB and Kwinana B
power stations, supplying about 18% of West Australia's power.
Griffin Energy agrees with Verve Energy's submissions that the West
Australian power industry will not receive assistance under the government's
clean energy plan, as it is a black coal-fired energy market.
As black-coal fired energy generators, West Australia's power stations are much
less emissions-intensive than east coast brown-coal power generators. There
has always been an understanding that power generators would be adequately compensated
for any loss of asset value arising from the imposition of a carbon tax.
This situation raises concerns about what Griffin Energy perceives as
some perverse policy outcomes that will be produced by the carbon tax in the
West Australian energy market. One is that it may lead to an increased
intensity in carbon emissions.
This is a particular
problem for West Australian energy security. As it is not a part of the
National Energy Market, there are no easily substitutable energy suppliers,
unlike on the east coast. As a result the West Australian government will be
forced to utilise the Muja AB and Kwinana B power stations.
Griffin Energy has
put the situation this way:
Based on the
expectation that no new private coal fired power stations will be built in the
WEM – a result of financiers struggling to overcome sovereign risk issues due
to existing investments being impaired by no (or inadequate) compensation – the
state government, by way of the state owned generation utility, is
recommissioning the previously retired Muja AB power station in Collie. Muja AB
is one of the oldest and most emission intensive power stations in Australia. Its
refurbishment will not improve its emissions intensity to any comparable level of
an efficient new technology coal fired facility and it will be brought back
into operation as one of the highest CO2 emitting power stations in the country.
In terms of emissions reduction and transitioning the economy away from older
emission intensive technology, this represents a perverse policy outcome.
that emissions from the Muja AB power station 'will be almost twice the level of the newest coal
fired facility in the Collie region'.
An even more perverse outcome may result from a combination of the
carbon tax and the lack of assistance to West Australia power generators.
The construction of the Bluewater power stations was financed before the
global financial crisis, through local and international project finance banks.
Those contracts were entered into with an understanding that federal and state
government policies would provide 'eligible coal fired generators (with)
assistance equal to a "disproportionate loss in asset value"'.
Based on that scenario, Griffin Energy states:
Without the assistance
contemplated at the time of contracting and securing finance, Griffin's
financial model will show that it is in breach of its debt covenants. It is
anticipated that foreign lenders will use the breach to be able to exit the
loan facility (and the Australian market more generally). Any new finance
arrangement (coupled with the carbon price) is expected to destroy any residual
equity value in the assets. The power stations – the newest in the country –
will effectively be the first in Australia to 'fail' under the carbon price
In August 2011 Griffin Energy made submissions about these issues,
directly to the government. It met with the Hon. Martin Ferguson AM MP,
Minister for Resources, Energy and Tourism, but was only able to meet with
advisers to the Prime Minister, the Hon. Julia Gillard MP, and the Minister for
Climate Change and Energy Efficiency, the Hon. Greg Combet, MP. It has
described the response it received from the federal government:
Upon laying out our
concerns the response we received was pretty standard across the board; we
don’t really care; this is the legislation; you may be an unexpected casualty
in the implementation of this legislation but we are not really prepared to
talk about assisting you.
The way one of the Treasury
officials put it to me ... the government’s policy is to transition the economy;
there will be casualties on the way to doing so and unfortunately you’re a
The Committee believes that the decision by the federal government not
to adequately compensate the West Australian power companies, in the same way
it is compensating their Victorian equivalents, ignores the fact that West
Australia is not a part of the National Energy Market, to that state's great
disadvantage. This has significant implications for the energy security of West
Australia, as well as being likely to result in an increase in its carbon
emissions, moving forward.
In Queensland, it has been reported that:
The State Government's
electricity-generating companies posed combined losses of almost $1.1 billion
in the 2010-11 financial year, almost all of it due to the Federal Government's
CS Energy, Stanwell Power
and Tarong Energy were forced to write down the value of their coal-fired power
stations by hundreds of millions of dollars because of the proposed $23-a-tonne
Treasurer Andrew Fraser
said the asset write-downs would be partially offset by a $490 million increase
in the value of gas and hydro assets.
The Queensland power generators are unlikely to receive compensation for
these losses from the government, for the same reason at their other,
Regional employment and small business
Witnesses and submitters to the inquiry expressed their concern
regarding employment in regional areas and the effect the carbon tax would have
on small business in Australia.
The effect on regional economies and employment levels is explored
below, in particular focussing on the Hazelwood power station and mine; and
Playford power stations, including Leigh Creek township.
Hazelwood power station and mine
The Hazelwood Mine in the Latrobe Valley produces around 18 million
tonnes of brown coal annually, which fuels the power station. The power station
has a capacity of 1675MW, and supplies up to 25 per cent of Victoria's
The plant currently directly employs 500 staff, and has 300 alliance
Mr Tony Concannon, Chief Executive of International Power, the owner of
the Hazelwood plant, has stated that a phased closure would be considered.
He also stated that International Power would enter into negotiations with the
government regarding the phased closure in order to remove uncertainty.
The job losses incurred through the closure of the plant would have a
significant impact on the local community and economy. The Prime Minister, the
Hon. Julia Gillard MP, was quoted in the media as saying that the government
would work with communities to lessen the impact of closures.
Senator Milne, Deputy Leader of the Australian Greens, stated in a press
release that the Greens would work to ensure that communities would be
The Greens, the
government and the independents are absolutely committed to making sure workers
and communities who currently rely on coal are helped through this
transformation with structural adjustment support of some $200 million.
Senator Milne stated that staff and communities directly affected by the
closure of Hazelwood power plant would be assisted:
Partial closure of
coal power plants like Hazelwood could begin immediately, with the necessary
support for workers and communities.
Playford power stations
The Playford power stations at Port Augusta are part of the Flinders
Power portfolio of Alinta Energy, along with the Northern power station. The
Playford stations have a capacity of 240MW. They make up the smaller capacity
stations of the portfolio.
The Northern and Playford stations, along with the Leigh Creek Coalmine,
township and railway, provide more than 30 per cent of South Australia's
The Playford stations were acquired in November 2006, but were
commissioned in 1963 and are fuelled by brown coal from the Leigh Creek
Coalfield, also owned and operated by Alinta.
The Leigh Creek township has a population of 600.
Alinta employs more than 750 people across Australia and New Zealand,
and operates ten power generation businesses.
Alinta also provides gas and electricity to commercial, industrial and retail
customers in Australia.
It has been reported widely in the media that Playford power stations are
likely to be targeted for payment for closure by the government. Alinta has
confirmed that it will put up the Playford stations for closure.
The South Australian Minister for Energy, Mr Michael O'Brien MP, stated
in an interview that the Playford B station would be decommissioned:
The Commonwealth have
actually made it quite plain that Playford B will have to be decommissioned. It
is actually one of two plants. The other is Hazelwood in Victoria. Those two
plants will be closed by way of a contract for closure.
Alinta have indicated
to me that the Commonwealth want the contract for closure for Playford B signed
relatively quickly and Alinta are quite happy with this because it means that
they can then get on with the work of procuring the replacement gas plant.
The Mayor of Port Augusta, Ms Joy Baluch, expressed concern regarding
the future of the town, and at the uncertainty residents face.
This Rann Government
and series of governments before have had at least 20 years to consider an
alternative energy, be it gas or thermal solar. But they have done nothing
The Chief Executive Officer of South Australia's Chamber of Mines and
Energy, Mr Jason Kuchel, highlighted the implications of the payment for
closure of the Playford stations:
In this case of
course it's not just about shutting down a power station but also about
shutting down potentially a mine, a rail and an entire town.
A small business owner from the Leigh Creek township has also expressed
concern for the future of the town stated:
I think people will
not like to see the demise of the town and who knows what's going to happen
down the track?
Because Leigh Creek
is here wholly and solely to get the coal out to send to Port Augusta it would
have a devastating effect on the town if it's not needed.
received a particularly well-researched and thoughtful submission from the Moe
and District Residents Association Inc (MADRA) addressing the snowball effects
of the closure of brown-coal fired power stations on its region. The
Committee has no reason to believe other regional economies where brown-coal
fired power stations are major employers would not suffer similar problems.
that the Moe region has an unemployment rate three times higher than the
Its submission went on to consider the probable effects of the closure of the
Yallourn and Energy Brix power stations, which are under discussion as part of
the contracts for closure program:
On the long held basis that each power
industry job has a multiplier effect in the regional economy of 2.6 other jobs,
we estimate that closure of these power stations will cause a minimum 4,000
total job loss within our region.
In MADRA's view, the government had not given any consideration to addressing
these expected job losses. Instead, it believes the government 'has channelled
its efforts into assuaging mining and other interests around Australia, even
though modelling of a carbon tax on those sectors has revealed little
significant negative impact'.
Accordingly, it rejected the government's plans to close brown-coal fired power
stations ' without any firm commitments to redeploy affected workers into new,
technology-based jobs created in this region'.
The committee takes the view that the introduction of the proposed
carbon tax puts Australia's energy security at risk.
The introduction of the carbon tax will increase the cost of electricity
for families and although the government has indicated that compensation will
be paid to families, those families whose livelihoods are lost as a result of
the loss of jobs will need more than the proposed $10.10 per week to cover
their increased cost of living.
The committee also considers that the government's compensation package
will not be sufficiently adequate for regional areas and communities that will
struggle with greater social displacement as a result of power statement
closures and cut backs to energy generation and mining.
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