Gillard declares war on the nation's electricity supply

Trying to stiff the power generators will just send them broke. And Victoria will be in big trouble. Its brown coal generators are both huge and produce very cheap power. Shutting them down will be a disaster, however you look at it. What are they going to replace it with? Are they going to build a black coal generator and ship in coal from interstate to run it? And where will the money come from? The costs defy the imagination

ENERGY Minister Martin Ferguson is staring down demands by the nation's dirtiest coal power plants for multi-billion-dollar payouts to shut down, declaring there is "no bottomless pit of taxpayer dollars" to finance Julia Gillard's clean energy plan.

Mr Ferguson's department has also revealed that money put aside in the taxpayer-funded contingency reserve to support the closure of highly polluting electricity generators will be allocated for after June 30, 2016 - a move that keeps the costs beyond the budget forecasts.

While the government will be asked to pay almost $3 billion to shut down Victoria's Hazelwood plant, the Department of Resources, Energy and Tourism has insisted in a new fact sheet on the plan that the payment made to close the power stations will be "modest".

"It refers to the fact that there is no bottomless pit of taxpayer dollars," Mr Ferguson told The Australian yesterday.

His department is responsible for implementing the strategy to retire 2000 megawatts of brown-coal power, which forms part of the Prime Minister's clean energy plan released last week.

The warning comes as the $120bn energy sector issues new demands for the government to increase its compensation package for the carbon tax, warning that the chance of blackouts is increasing and that energy retailers could go broke.

New analysis from the Energy Supply Association of Australia of the government's package, provided exclusively to The Australian, concludes that just eight or nine of 31 power stations that produce baseload power will receive assistance and finds that generators will pay $15bn more for carbon permits than they are getting in assistance in the first five years of the scheme.

The group also warns that a key plank of the government's package for electricity generators - emergency federal government loans to head off financial failure, but at rates above the commercial market - could be viewed cynically as a revenue grab by the commonwealth.

As part of its carbon tax package, the government has promised to set up an energy security fund that will give $5.5bn in free permits and cash up to 2016-17.

But this is skewed towards the most emissions-intensive generators - the privately owned brown coal electricity generators in Victoria and South Australia - and will cover only 23 per cent of their expected carbon liability during that time.

Figures from Macquarie Generation, which is owned by the NSW government, have suggested that a carbon price could wipe more than $2bn from the book value of its assets and add about $600 million to its yearly costs.

Macquarie Generation chief Russell Skelton said the firm had commissioned modelling on the impact of the carbon tax package on the business. But he said that because the allocation of free permits was skewed in favour of the privately owned brown-coal generators, revenues to the state governments could be crimped and prices increased.

"Taxpayers of NSW are effectively the owners of us. They see a reduction in revenues that their government has available," Mr Skelton said.

ESAA chief executive Brad Page warned that coal-fired generators could enter into fewer of the hedge contracts with retailers that are used to lock in prices and cushion against the massive price volatility in the high-risk spot market.

Instead, generators could sell power on to the spot market, where prices can reach $12,500/megawatt hour - well above the averages of $30-$40/MWh- to maximise their earnings.

This would increase electricity prices as the Australian Energy Regulator estimates that prices need to spike for only three hours a year to drive up the annual spot price by almost 10 per cent.

"It also means that competition is likely to be reduced as the independent, second-tier retailers can't get hedge contracts and either take risks that could see them go broke or are out of business anyway as they can't sell contracts without adequate hedge cover," Mr Page said.

He said this would be exacerbated by the government's decision not to allow deferred payment for permits as power stations would need a few years worth of permits, or about $10bn worth, in 2015 to back up generator-retailer contracts.

Mr Ferguson's department has released a series of fact sheets on the government's plan and, over the weekend, published on the internet a guide to the plan to pay 2000MW of the dirtiest power stations to close by 2020.

The guide on the so-called "contract for closure" states that the government will not reveal its expectations on the costs of the deal. It says there will be only a small number of power companies that will be able to apply, and adds that the government "must preserve its negotiating position to get the best value for money for the commonwealth".

However, it pointedly describes the plan as "modest" and states that a "certain amount" is in the budget contingency fund beyond June 30, 2016.

The government had previously insisted the fund was not a "rainy day" fund and it had dismissed suggestions the contingency fund would be used to support power companies.


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