Yesterday the Australian Conservation Foundation and Environment Victoria called the bluff of the multinational power company playing a high stakes game over the future of power generation in Victoria.
For months electricity generators have been pushing for a massive increase in CPRS compensation. At the heart of their demand is a threat designed to make any politician go weak at the knees — electricity supply may be disrupted. Generators met with the government as recently as last week.
TRUenergy, owned by Chinese power giant CLP, owns several coal and gas-fired power stations in NSW and Victoria, including Yallourn in Victoria. It has aggressively criticised the government’s emissions trading scheme proposals from the outset, warning in July last year that the scheme would “effectively bankrupt” generators, and they wouldn’t be able to operate after December 31, 2008.
That, needless to say, failed to occur.
In July this year, as part of a growing campaign by power generators to claim the impact of the GFC and the CPRS would cripple them, TRUenergy declared it was cancelling $100 million worth of maintenance works at Yallourn. Since then, TRUenergy have continued to claim that the reliability of supply was threatened by the CPRS, which if legislated will not start properly until mid-2012.
Under the CPRS, TRUenergy alone will receive more than $700 million worth of free permits over five years. TRUenergy and other generators want compensation tripled to between $8 billion-$10 billion over five years for the sector.
There is industry speculation that TRUenergy has deliberately been more aggressive than other generator owners because it is considering leaving Australia, and accordingly can afford to damage its relationship with the Victorian and federal governments.
Earlier this week, TRUenergy switched from stick to carrot, saying it would invest in new gas-fired generators — doubling its Tallawarra facility in NSW and constructing a new plant in the Latrobe Valley — if its balance sheet “was not wiped out by the emissions trading scheme”.
The ACF and Environment Victoria yesterday wrote to the Australian Energy Regulator urging an investigation of TRUenergy’s claims that there is a systemic threat to power supplies (click on the letter for full document.)
Today there was another round in the game of bluff, with the generators leaking “confidential legal advice” to the AFR about the possibility of supply disruptions and even an “Enron-style contagion”.
Only the generators know their exact financial position and how much they are bluffing. The financial crisis has undoubtedly seriously affected their financing options. A senior Coalition figure tells of US investors who have simply crossed the Australian power industry off their areas of interest.
But yet again, there is a peculiar distinction between what large polluters say in their quest for additional compensation, and what they tell key financial stakeholders such as customers and shareholders. In its presentation to investors in February, TRUenergy simply said it estimated it would receive about 25 million free permits and would lobby to receive more. The CPRS was not even mentioned in CLP’s brief description of Australian issues to investors in September.
No mention of possible disruption to supply.
It’s a similar story from British multinational International Power PLC, which owns Hazelwood and Loy Yang B. In an interim statement to investors in the UK yesterday, International Power simply said about the CPRS “we will continue to engage with government on scheme design and implementation?”. That company has a $445 million tranche of debt due for rollover in February. “We are actively reviewing refinancing options, whilst closely monitoring developments on the proposed CPRS,” the statement said.
In a conference presentation in the US last week, a company representative said that it was “very actively engaged” on the CPRS but that the Australian market looked good: “significant improvement in results across the portfolio — improved availability, higher prices, price spikes from extreme weather events”. The most serious warning about the CPRS was the bland statement “clarity of CPRS required before further investment decisions can be made”.
Again, nothing about supply disruptions.
Yesterday TRUenergy appeared to back away from the threat to cut power supplies. The Age reported that, in response to the ACF/Environment Victoria letter, TRUenergy had said “at no point in time has the company believed or publicly stated that it may default on supply contracts”. That’s only two days after TRUenergy CEO Richard McIndoe said about the gas-fired power stations ”it takes over three years to permit and develop any new power station. If these developments do not go ahead, we see a very real risk of electricity outages in Victoria in the future”.’
Environment Victoria’s Mark Wakeham explained to Crikey that, even in the event of TRUenergy shutting down Yallourn, under National Electricity Market contracting arrangements, it would be required to source power to meet its contracts, including buying electricity on the spot market if necessary.
According to Wakeham, the broader concern is that the federal government may provide further compensation to incumbent electricity generators, thereby discouraging new investment in cleaner gas-fired power stations. “Origin is constructing a 552MW gas-fired generator at Mortlake in Victoria, with the potential to expand to 1600MW. Santos is considering gas-fired generators. Additional compensation for existing coal-fired generators means they can go on polluting at low cost, or use taxpayer funding to build their own gas-fired generators. Their competitors have to factor that in to their investment decisions.”
There is no doubt electricity generators face a much more difficult financial environment in the wake of the GFC and, to an extent, because of the CPRS. But TRUenergy appears to have significantly overplayed its hand by threatening to turn off the lights, especially given it has failed to tell investors or key customers that there is any such problem.
Why are foreigners allowed to own our vital resources in the first place?
Without an energy supply the country stops.
What happens to our energy should not be decided by non citizens.
That decision is better in the hands of the people of Australia directly.
Energy, water, food and transportation should not be at risk in a crisis which is where the present model of degradation will land us. Look at the US – they only produce dodgy business deals these days and little else and that is looking more and more a dying trade from what I can gather.
Doesn’t anybody care that decisions about what happens in a business rarely involve consideration of what is a fair thing for the host country when multinationals own stuff. The people chopping down the Amazon at the speed of Belgium per annum aren’t thinking about Brazil or its people. Nor are they thinking about the environment. And they are certainly not thinking about the good of the global community.
They are thinking only of what they stand to make from the deal that is going down today.
It’s too sick brothers! We should not be debating TruEnergy because they and all others should not own our energy and if it were put to a vote the people would throw it out.
Instead we are sold out by our governments with no regard for the future of the people they supposedly represent, the state they live in or the environment.
Our politicians sold the power assets to foreigners because they were advised by the neo liberal economists of treasury and the reserve bank that this was the only way that an economy can operate. These are the same people who are in awe of American Way that has once again resulted in a global financial meltdown that has required the usual taxpayer funded bailout.
One thing is certain however. If these power companies go broke the lights will stay on. This is for two reasons. The first is that the Victorian government Electricity Act of 2000 provides for step-in rights for the Government to operate the power system.
http://www.austlii.edu.au/au/legis/vic/consol_act/eia2000261.txt.
The powers given to the minister under this part of the act are such as to drain the blood from the face of the average Power Company CEO. The preliminary part of this provision is provided below. The second reason that the lights will stay on is that the people who actually run the electricity system are Australians, many ex SECV. They won’t be too keen on their lights going out so you can expect that they will continue working and running the system. The question of who will pay them will of course arise, however salaries and wages are a miniscule part of the cost of these systems. The government will find the money they always do. The biggest costs are the interest payments to the banks who are the ones who really own these assets. Nobody will feel particularly sorry for them.
PART 6—ELECTRICITY SUPPLY EMERGENCY PROVISIONS
Division 1—Emergency provisions
95 Proclamation that this Part applies
s. 95
(1) If it appears to the Governor in Council that—
(a) an event has occurred, or is about to occur, which may endanger an undertaking of a distribution company, a transmission company or a generation company or a person who supplies electricity to another person or materially affect the safe, economical or effective supply of electricity; or
(b) the available supply of electricity is, or is likely to become, less than is sufficient for the reasonable requirements of the community—
the Governor in Council may by proclamation declare that this Part is to apply.
(2) The proclamation must be published in the Government Gazette.
(3) The proclamation takes effect on the date of its publication.
S. 95(4) inserted by No. 32/2001 s. 28(7).
(4) The Governor in Council may at any time revoke a proclamation.
This is exactly what an emissions price is intended to achieve.
Let the old coal-fired power stations run down and replace them with a diverse array of lower-carbon technologies including gas-fired power stations.
Since the portfolio is diverse — ranging from wind farms to small gas generators in urban areas and from traditional power stations to solar hot water panels and roof insulation — it actually benefits the stability of the grid, in the same way as diversity benefits the risk profile of an investment portfolio.
This whole episode should be regarded as a very successful beginning to the CPRS, before it is even legislated.
Achieved despite its pandering to rent-seekers and polluters.
I wonder what the treasury received from the sale compared to what these private companies have already received after the sale and still look to gain from the treasury in handouts. I can’t imagine we’re ahead.
RichW – foreigners, usually SGOs own telcos (Optus), TV to the lumpen (shares in Foxtel), have too many fingers in desal, mining, oil (a Thai company for chrissake is spewing crap in the NW Shelf) nd so it goes. Bring on the treason trials, apologies to loonies such as Brian Wilshire.