Not amused in Victoria

Victoria had its chance to pursue large-scale, zero-emission electricity generation in the 1980s and the then Labor government rejected it.

The concept was to develop a 2,400MW nuclear power station at Portland in western Victoria at a cost of $3 billion. It was the last major consideration of a nuclear power option in Australia.

The dominant electricity utility at the time was the government-owned State Electricity Commission, which preferred in any event to stick to burning brown coal in the Latrobe Valley, having initiated the study by British consultants, but the newly-elected Cain government made sure the debate was over by legislating to prohibit the construction and operation of nuclear power plants, a law that still prevails today.

As things stand, replacing the 11,000 gigawatt hour annual output of Hazelwood power station, the object of environmentalists’ deepest ire, with zero emissions generation would require some 2,000MW of wind farms – and back-up open-cycle gas plant, fossil-fuelled of course.

If the Portland nuclear plant had been built, Hazelwood, and perhaps Yallourn, would long since have been history along with about 40 per cent of Victoria’s electricity-related emissions.

In fact, Victoria’s reliance on brown coal power has risen about nine per cent since 2000 and by some 14,000 GWh a year since the late 1980s.

Hazelwood is back in the news this month because the recently-elected Baillieu government , under cover of federal budget day, has walked away from talks initiated by the Brumby administration with International Power Australia on closure of two units at Hazelwood power station on the grounds that even a portion of the shutdown costs would be too expensive for State taxpayers.

Energy Minister Michael O’Brien claims the previous government had no plan for baseload replacement of the Hazelwood units and supply “would likely have come from electricity imported from other States and generated from black coal.”

The Baillieu government has also signalled that it will cap the current State’s solar bonus scheme, introduced by Labor, at 100MW.

The choler of the environmentalists has been heightened this weekend by Loy Yang Power, in the course of supporting the Latrobe Valley generators’ needs for compensation under the Gillard government carbon scheme, saying that it expects to operate its brown coal plant until 2048 providing it is not brought undone by the tax.

Why the green movement should splutter and fume over the 2048 date when the current federal Department of Climate Change stationary energy emissions review points out that greenhouse gas output of Australian power stations will rise from 203Mt today to 259Mt in 2030 under present and proposed policies is an interesting point.

The DCC forecast is also directionally in line with the federal government’s energy assessment that fossil fuels will still be responsible for 80 per cent of Australian electricity supply in 2030.

How this outlook fits with the promises by Gillard, Combet and other federal ministers to “do something about climate change” is for them to explain, although they show no signs of being willing to do so and are under no Opposition or media pressure to do it.

It is clear, however, that, unless the Gillard government can come up with a plan to close the Hazelwood and Yallourn power stations in Victoria without hurt to the State community, it has Buckley’s chance of reaching its 2020 abatement target – about which Gillard recently wrote to the Business Council demanding its support.

Meanwhile the federal and Victorian governments have to wrestle with the fact that demand in the State, the third largest consumption region in the country, is growing at 1.2 per cent a year (and peak demand at 2.2 per cent).

Victoria’s population is expected to rise by about 600,000 people this decade. The State has had 63,600 new homes approved since January 2009.

Electricity industry load forecasts see consumption in the State rising by about 10.5 per cent between 2010-11 and 2018-19, with summer maximum capacity needs going up almost 17 per cent.

As Engineers Australia has pointed out, Victoria has about 9,600MW of capacity, of which 80 per cent is brown coal-fuelled, and its summer peak demand now reaches 10,500MW.

In other words, the State is relying increasingly on importing power. “A deficit, with continually increasing population,” it says, “means that power will become very expensive if buying electricity from interestate or, in the extreme, brownouts in suburbs could occur.”

Building peaking gas plants in western Victoria will help address this issue, but most of the proposed capacity is on hold until the policy environment is settled.

The federal government has been warned repeatedly by the Victoria’s privately-owned generators that premature closure of plant in the State and neighbouring South Australia, which also relies on brown coal for substantial supply, could create an acute security situation in the southern market and potentially cascade in to problems for retailers across the east coast.

The fragility of the situation was underlined by a report in Melbourne “Herald Sun” newspaper in April, claiming that the China Light & Power-owned TRUenergy, which includes the Yallourn power station in its portfolio, may be floated. The paper quotes Hong Kong analysts as complaining that more than a quarter of CLP debt is tied up in assets in Australia, but they are not returning a quarter of the company’s revenue.

The point is that there are forces at work here operating beyond Australia’s borders and they will be making hard-headed decisions about investment in this country once the full nature of the Gillard carbon plan is revealed.

Gillard’s problems with regard to Victorian supply are underlined by the federal government’s decision in early May to commission a study by KPMG, Lazard and lawyers Mallesons Stephen Jaques of the impact of a carbon price on generation.

This is in addition to the study already commissioned by Martin Ferguson from Deloitte to investigate generation investment uncertainty nationally.

Put politicially,as the opinion polls show, the Prime Minister, clinging to minority government, is already in enough trouble north of the Murray without upsetting supporters in her home State by casting doubts over actual supply of power as well as adding to their electricity bills.

The fact that studies about impacts on generation are still needed just weeks before the carbon price is to be announced and years after the government’s planning began says volumes about the competence of the federal Labor regime’s processes.

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