The power station offloaded by the NSW Government for $1 million suddenly has a future

Future: Delta Electricity's Vales Point power station at Lake Macquarie. The company has floated a plan to extend the life of the station from its expected closure in 2029 until 2049.
Future: Delta Electricity's Vales Point power station at Lake Macquarie. The company has floated a plan to extend the life of the station from its expected closure in 2029 until 2049.

DELTA Electricity would put up its hand for any Federal Government funds on offer as it considers the feasibility of a $750 million extension of Vales Point power station to operate until 2049, managing director Greg Everett said after the proposal was floated on Friday.

The Lake Macquarie coal-fired station offloaded by the NSW Government for $1 million in 2015 made a $113 million net profit in the past year on the back of high electricity prices.

But owner Trevor St Baker’s comments that Vales Point could be refurbished to run until 2049, rather than close as currently expected in 2029, have highlighted instability in the energy industry after the Federal Government’s failed National Energy Guarantee and in the absence of a national energy policy.

Mr Baker’s comments came only days after new Energy Minister Angus Taylor warned the Federal Government may force AGL to sell rather than close Muswellbrook’s Liddell coal-fired power station in 2022. The company repeatedly stared down the Turnbull Government over the closure deadline after announcing plans to replace Liddell’s power with a gas/renewables/pumped hydro mix and a Bayswater power station upgrade.

Delta’s Greg Everett said the feasibility of extending Vales Point so that it is still operating 70 years after it was commissioned had been under consideration for some time. A figure of $750 million was a “whole of life expenditure” and “how that’s funded doesn’t have to be dealt with immediately”.

But Mr Taylor’s support for expanding and upgrading ageing power stations to boost power supply and a government underwriting program for new energy projects keeps the door open for government subsidies or loans. And if such a program emerged Vales Point would seek government support because “whether to extend the life of Vales Point is not a trivial matter”, Mr Everett said.

Determined: New Federal Energy Minister Angus Taylor says he is not a climate change sceptic but he's prepared to force power generators to keep coal-fired power stations open.

Determined: New Federal Energy Minister Angus Taylor says he is not a climate change sceptic but he's prepared to force power generators to keep coal-fired power stations open.

He declined to comment about Mr Taylor’s threat to AGL and other power station operators that if they were not prepared to “keep that reliable power in the system (by not closing ageing power stations) then we’ll force you to divest”. But it would be “quite a bold step” for the government to force a power station owner to sell rather than close, Mr Everett said.

Changing emissions targets throughout the life of an extended power station would be assessed as they occurred, he said. In response to a question about Labor’s proposed 45 per cent emissions reduction target, Mr Everett said: “I wouldn’t comment whether it’s a killer (of the Vales Point extension plan) or not.”

Institute for Energy Economics and Financial Analysis director Tim Buckley said the idea of extending Vales Point was “somewhat pie in the sky”, but NSW was facing a “severe problem” with the expected closure of a number of ageing coal-fired power stations from 2030 and “the absence of a suitable strategy” to deal with it.

“Anything is possible. We do have a serious planning problem. In the absence of a plan can an extension of Vales Point get up? Yes, if taxpayers provide a capital subsidy,” Mr Buckley said.

“The way the government will package it is they will offer, say, a $600 million loan over 20 years at 3 per cent, but it’s going to be you and I, taxpayers, funding it on behalf of a couple of billionaires.”

Proposal: One of Vales Point power station's owners, Trevor St Baker, said the station could stay open until 2049.

Proposal: One of Vales Point power station's owners, Trevor St Baker, said the station could stay open until 2049.

Grattan Institute energy program director Tony Wood said Vales Point was already 40 years old and any extension plans would rely on an engineering assessment of what was possible.

“In theory it’s got another 10 years to run but 2049 is a lot further out,” Mr Wood said.

The lack of clarity over a climate change policy and emissions targets means “it’s hard to invest in this situation”, he said.

“What sort of emissions reductions over what period of time would be compatible with Vales Point staying open? 2049 seems a long way off to make a bet on things staying as they are.”

While it was logical that Delta Electricity would apply for any government program to extend the power station’s life, “you’d want to make sure Vales Point did not have a special deal with the government” such as extracting an exemption from emissions targets.

“The government should not be funding investments through low interest loans nor giving special exemptions. A special exemption from the emissions target tax would be a terrible idea,” Mr Wood said.

Australian National University centre for climate economics and policy director Professor Frank Jotzo said it was impossible to predict the timing of exit of any particular power station but “the economics of coal-fired power stations will deteriorate and they will continue to deteriorate simply because renewables are now the cheaper option”.

Future: AGL's Liddell and Bayswater power stations near Muswellbrook. The Federal Energy Minister has threatened to force AGL to sell Liddell rather than close it, as planned, in 2022.

Future: AGL's Liddell and Bayswater power stations near Muswellbrook. The Federal Energy Minister has threatened to force AGL to sell Liddell rather than close it, as planned, in 2022.

“It’s inevitable and inescapable that the transition to renewables is underway,” Professor Jotzo said.

It would be “very difficult to conceive there’s a case for a refurbishment of Vales Point to take the plant all the way to the 2040s and there’s significant carbon risk into the future” of emissions targets making coal-fired power unviable, he said.

“If you looked at this from an investor’s perspective you would have to put a very significant risk of a carbon penalty into this project. Talking about plans for it to operate until it is 70 years of age, given that the average age of power station closures has been 40 years, seems far fetched.”

It was interesting to compare the approach taken by AGL towards Liddell and Delta towards Vales Point, Professor Jotzo said.

“What’s obvious with AGL is that you have a diversified company that sees its future in the provision of energy services so it’s not wedded to any technology. They would go with whatever is most economically viable. The owner of Vales Point is interested only in coal generation and one plant, so the incentive there is to maximise profits. A company in that situation would have an incentive to lobby governments for grants to subsidise refurbishment of their plant.”

It would be “very bad public policy” for the Federal Government to “prevent or postpone the market-based closure of power stations by offering subsidies to keep them open”, Professor Jotzo said.

“There really is nothing to be gained for the consumer in keeping these old coal-fired power stations open,” he said.

In a paper released this week, Coal transitions in Australia: Preparing for the looming domestic coal phase-out and falling export demand, Professor Jotzo and co-authors Salim Mazouz and John Wiseman found government policy should support economic diversification in regions like the Hunter where coal is economically important.

Its research found a relatively small but persistent increase in unemployment rates in regions after coal plant closures.    

The paper predicted sharp falls in thermal coal demand from the late 2020s and early 2030s as a number of coal-fired power plants retire in quick succession.

It found government policy “must not stand in the way of the transition that is underway”.

“The coal industry represents large and concentrated economic interests, which when combined with the interests of local communities in coal regions can amount to a formidable force in favour of the status quo,” the ANU team found.

“There is a risk that policy designed to protect existing industrial structures could unnecessarily delay the transition and lock in high emitting installations for longer.”

This story Powering on: Delta Electricity’s plan for a 70-year-old Vales Point power station first appeared on Newcastle Herald.