17 June 2015

Replacing Hazelwood is urgent, but who pays for the jobs transition?

by David Spratt

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Replacing Hazelwood coal power station is a must: it is old, unsafe and dirty. Based on emissions intensity, it is the third-dirtiest coal power station in the world and the dirtiest in Australia, releasing around 16 million tonnes of greenhouse gases annually, almost three per cent of total Australian greenhouse emissions. 

The Hazelwood majority owner, Engie owns the third-most polluting coal-power station fleet in the world. The full – health and carbon pollution – social costs of Hazelwood totalling $900 million per year  are borne by the community, rather than the plant’s owners.

Expanding renewable energy requires coal-generating capacity to be removed from the market because oversupply is crowding out and preventing new investment. The Australian energy market operator says there are about eight gigawatts of surplus generating capacity across the national market, equivalent to five Hazelwood power stations.  This includes up to 2.2 gigawatts of brown coal generation that is no longer required in Victoria in 2015, which is greater than Hazelwood’s capacity.

Power companies have been lobbying government for capacity to be reduced, and senior Victorian energy department bureaucrats are aware of  the need to close coal power stations in order to roll out renewables.

The Victorian Government says it is committed to being a leader on climate change. Closing down excess coal generation is a key test of the government’s climate credentials. Coal-fired power stations are the world’s largest source of planet-warming carbon dioxide emissions. Victoria cannot make the necessary emissions reductions without addressing the operations of Hazelwood and/or Yallourn power stations.

A steady stream of local jobs can be created in the Latrobe Valley with the rehabilitation of mines and decommissioning of plant, which will require a significant workforce stretching well over a decade. The Latrobe Valley needs a strong jobs package and an economic transition plan and new industries because the move from coal to clean wind and solar renewable energy is now both urgent and inevitable.

But how is the transition to be organised and financed?  These issues are addressed in a Climate Action Moreland report "Replace Hazelwood Primer" released yesterday. The report includes a survey of mine repatriation issues, which will also be a focus of the re-convened inquiry into the 2014 Hazelwood/Morwell fire which lasted 45 days and had profound short- and long-term impacts on the health of people in the region.

The report also looks at a method of financing new industries in the Latrobe Valley. This chapter is reproduced here. 

Funding the jobs transition in the Latrobe Valley

From 2016, a steady flow of income from the electricity sector of around $100 million per year is available to fund new jobs and industries in the Latrobe Valley.  Here’s how.

As an inducement to Alcoa to establish an aluminium smelter at Portland, the Victorian Government in 1984 offered a large subsidy on electricity prices to run for 30 years, from the opening of the smelter in 1986 till 2016.

This superseded an older deal that had run since 1962. The discount was up to 50 per cent on prices available to other industrial users. The two smelters at Portland and near Geelong were using up to 25 per cent of Victoria’s power production. The Geelong refinery has already closed, and the deal expires next year.

The subsidy was pegged to the world price of aluminium: the weaker the price, the greater the subsidy. The value of the deal is secret, but has been estimated to have cost Victorians $4.5 billion.

Since the privatisation of the State Electricity Commission (SECV) in 1998, the deal has been financed by a land tax levy on the electricity distributors’ property under transmission lines. "The Age" reported in 2009 that:
Coupled with special levies and taxes on electricity consumers, imposed by the Kennett and Bracks governments to cover the subsidies, the public bill for the contracts by 2016 would be closer to $6 billion.
There are also reports that the deal cost $1.022 billion in subsidies in the period 1986-1995, and $915.8 million from 1997 to 2006.

In March 2010, Loy Yang A power station signed a contract to supply electricity to power the Portland aluminium smelters until 2036.

In 2014, Fairfax business editor Mathew Dunkley wrote that:
a useful starting point for the calculation would be the $100 million a year the government levies on the land under power lines to help pay the state’s liability to the global aluminium giant. Treasurer Michael O’Brien confirmed this in a statement, saying the average subsidy in the past three years was $90 million.
After privatisation, the deal was administered by the corporate shell of the SECV. In October 2013, the "Australian Financial Review" reported that Victorian State Government accounts for 2012-13 showed:
the government pocketed $350 million from the SECV as a special dividend. The SECV is a corporate shell that largely administers the state’s electricity contracts with Alcoa. This dividend stemmed from the SECV’s trading activities and was quietly banked against the 2012-13 financial year when the 2013-14 budget was announced in May. 
Since the SECV’s only significant role is collecting revenue, and paying, for the Alcoa deal, it seems in some years the profit was banked by the government. At the very least, this is a clear precedent for SECV revenues in excess of costs being passed back into the State budget.

Union sources say that the wages bill at Hazelwood is just over $100million a year. The evidence above suggests that the revenue-raising measures associated with the Alcoa subsidy are around the same amount.

When the Alcoa subsidy ends in 2016, there is a perfect opportunity for the monies of $100 million a year to be switched to new job and industry-creation initiatives in the Latrobe Valley as brown-coal generating capacity is reduced.