State warned on power cuts ETS could close power stations, cabinet is told

Age
Friday 16/10/2009 Page: 1

VICTORIA could face widespread power disruptions due to the closure of two of its four brown coal power stations in the next decade as Australia reduces its greenhouse gas emissions, according to high-level advice before the State Government. The possibility, one of several scenarios outlined in confidential cabinet documents obtained by The Age, is consistent with a campaign by power generators to win more compensation under the Federal Government's emissions trading scheme. But it is at odds with analysis by federal Treasury and former government adviser Ross Garnaut, and was dismissed as "scaremongering" by energy analysts.

The cabinet documents suggest that the Hazelwood power station - often criticised as Australia's "dirtiest" electricity generator-could close as soon as 2013 under an emissions cut of 5% by 2020. The nearby Yallourn plant could follow in 2018. The two plants account for about 40% of Victoria's power and 30% of its emissions. Elsewhere, the documents consider two possibilities, should either or both stations close before 2015. Under the first, electricity prices would rise sharply to keep the plants running until new gas-fired power stations were built to replace them. The second would see "the lights go out" as Hazelwood and Yallourn either went into receivership, failed because of poor maintenance or shut down because of cash shortage.

Several energy analysts challenged suggestions there would be blackouts, and warned the Government's advice was being influenced by electricity generators' lobbying. "They have got these guys bluffed," one said. Bruce Mountain, director with consultants Carbon Market Economics, said the owners of coal-fired generators had contracts to fulfil, making it unlikely they would leave before replacement generation was ready. "I see no reasons for the lights to go out," he said. The Federal Government is proposing to give Victorian generators $3 billion compensation over the first five years of the scheme. The Opposition is expected to call for more compensation when it releases its amendments next week.

Mr Mountain said Hazelwood had been planned to shut in 2000 before being privatised by the Kennett government. Its possible life has subsequently been extended to 2030. "It is an old plant that has had its life extended many times and it has got an incredibly high emissions footprint." Energy Supply Association of Australia chief executive Brad Page, who wants greater government help for power plant owners, said several economic models had predicted the closure of Victorian power plants before 2020 under a 5% emissions target. He said it was impossible to say if the power supply would be affected, but talk of blackouts was "sensationalising". The documents describe the likely change in the energy system over the next decade. It is estimated the winding down of old technology could cut in half the use of coal-fired power.

As revealed in The Age this week, this would coincide with the development of an export industry, focusing on dried coal to burn in power stations and "coal-to-liquids" projects to create a substitute for oil. The energy shortfall would be made up through an expansion of gas-fired power - a "cleaner" fossil fuel with about 25% of the emissions of burnt brown coal - and by Victoria becoming more reliant on energy imported from other states. There would be a dramatic increase in wind energy. About 1200 turbines would be spread across the state's central and south-west regions, although this would provide only a modest share of the energy load.

Environment Victoria campaigns director Mark Wakeham welcomed the Government's consideration of a future beyond Hazelwood, but said it should not listen to scaremongering. "We need to get on with the job of making the transition." he said. A spokesman for TRUEnergy, which operates the Yallourn station, said the Government's compensation was insufficient and would have an impact on the reliability of supply. Energy and Resources Minister Peter Batchelor said the State Government was continuing to talk to the Federal Government about the final design of the emissions.