Power cuts loom as financing fails

Australian
Monday 13/7/2009 Page: 1

ELECTRICITY generators are cutting back major maintenance work, raising the risk of California-style power brownouts, because of uncertainty caused by the federal government's carbon pollution reduction scheme.

Victorian generator TRUEnergy's managing director Richard Mclndoe said yesterday that with $950 million of debt to be refinanced this year and banks wary of the impact of the CPRS on the industry, the company had decided it could not justify the cost of major maintenance.

Mr Mclndoe said the company had cancelled work at its Yallourn coal-fired power station in Victoria's Latrobe Valley this year, saving $100m, and other generators were also cutting back. "We won't be doing any major overhaul this year," he told The Australian. TRUEnergy supplies gas and electricity to 1.1 million homes in Victoria, South Australia and NSW.

Mr Mclndoe warned the cutting back of maintenance budgets meant there was an increased risk of under-investment in electricity generation, which led to the California power crisis of 2000-01. "You had unsound policy there that led to underinvestment. These are long lead-time events and the longer you continue in this situation, the higher the likelihood of serious supply interruption."

He said uncertainty over the final form of the CPRS the bill is delayed in the Senate and the start date has been postponed until 2011 was also increasing market volatility, which made it harder to sell long-term electricity supply contracts. One of the big four domestic banks was already refusing to lend to coal-fired generators, and international players looked on Australia as a sovereign risk.

Energy Supply Association of Australia chief executive Brad Page said there was always an increased risk of "less reliable supply" when generators cut back on routine maintenance. "It doesn't take a lot for one of these plants to have an unanticipated failure," he said. He added that because of the national electricity grid, supply interruptions in Victoria could cascade and cause outages in other states. He noted that a power failure at a NSW Hunter Valley substation last week cut power across five states.

The ESAA warns that the government is not giving the industry enough help to adapt to the CPRS and remain viable. It wants a similar deal to the 15 to 20-year commitment to support that electricity suppliers in the US and Europe have been given. The government had offered what amounted to $3.5 billion in support when the industry needed $20 billion to survive the CPRS in its current form.

The whole thing is a recipe for financial stress in the coal-fired generation sector," Mr Page said. Victoria is most affected by the CPRS because 90% of its supply is generated from highly polluting brown coal. A spokesman for the Business Council of Australia said the treatment of the coal and electricity industries under the CPRS remained one of the areas where it had outstanding issues with the government. "Getting the detail right means ensuring the scheme doesn't reduce the competitiveness of Australian industry."

The council wants the CPRS bills passed by the end of the year so businesses can begin planning for the scheme's introduction. Climate Change Minister Penny Wong said yesterday the government should continue to move forward with action on reducing carbon emissions, despite Kevin Rudd's admission last Friday he held little hope that the UN's climate change conference in Copenhagen in December would lead to a global agreement on how to reduce greenhouse gas emissions.