COVER STORY Hazelwood closure will push up power prices in Victoria
by Peter Westmore
News Weekly, November 5, 2016
The foreshadowed closure of the Hazelwood power station in Victoria, which generates around a quarter of the state’s base-load power, will remove one of the low-cost electricity producers in the state, push up electricity prices, and make Victoria vulnerable to power disruptions like the recent blackout in South Australia.
Hazelwood is one of three brown coal-fired power stations in Victoria, the others being Loy Yang and Yallourn. It is also the oldest, having been commissioned in the 1960s, with construction continuing into the early 1970s, and is therefore the least efficient.
It was specifically designed to operate on the Latrobe Valley’s prodigious quantity of brown coal, and it has contributed to the extraordinary reliability of low-cost electricity in the state.
The Hazelwood power station.
Energy from brown coal is one of Victoria’s great success stories. Under the guidance of Sir John Monash after World War I, Victoria pioneered the use of wet brown coal for electricity generation, using technology that he had seen used in Germany.
The Hazelwood power station is capable of producing 1600 megawatts of electricity, but its viability is threatened by the priority given to “alternate energy” sources such as wind and solar, which are far more expensive to produce.
Base-load power stations produce low-cost energy, but to be profitable, need to run 24/7. The priority given to alternative energy by government policy means that this is no longer the case.
Since the Kennett government privatised Victoria’s electricity system in the 1990s, Hazelwood has been majority-owned by a French utility, now known as the Engie Group.
Since then, the company has substantially downsized the workforce, replacing many employees with contractors, and also spent around $800 million in replacement of boilers, rotors and turbines, and reduced dust emissions by 80 per cent.
The Hazelwood plant has been long targeted by extreme environmentalists who have demanded that the Victorian Labor Government close it down.
The Greens, Environment Victoria, Greenpeace and the Australian Conservation Foundation have all demanded that the Hazelwood power station be closed, allegedly because of its contribution to global warming. In fact, its contribution to global carbon dioxide is negligible.
Adopting the policy of the South Australian Labor Government, Victorian Labor Premier Daniel Andrews has worked at making it uneconomical for Hazelwood to survive, then blaming the owner for its closure.
The Premier said it was a commercial decision, while his Energy Minister, Lily D’Ambrosio, told the Melbourne Herald Sun (October 24, 2016): “Speculation is continuing but the fact is, no decision has been made, certainly not one that has been made public. ... These are decisions that are made by businesses on the other side of the world.
“We’ve had conversations with Engie over the weeks, but again, I say that no decision has been made, none that have been shared with anyone publicly.”
State Treasurer Tim Pallas, who visited Paris recently and spoke to Engie executives, confirmed that closure was imminent. He said that the Government was preparing “for a scenario where Hazelwood may close”.
Mr Pallas said the costs of keeping the mine running were a “considerable concern” for Engie but that no government bailout was offered to keep it open.
The Labor Government’s reckless indifference to the security of supply of electricity in Victoria is only matched by its indifference to the 1,000 workers who will lose their jobs as a result of the closure, adding to the employment crisis in the Latrobe Valley.
With the imminent closure of the Ford, Holden and Toyota manufacturing plants in Victoria, the state’s economic prospects are set to descend in a spiral.
If the Victorian Government were to give priority to the output of base-load power stations, which provide the cheapest and most reliable electricity, the Hazelwood power station would remain viable. Without that guarantee, it will close.
The closure of Hazelwood will cut the supply of base-load power in Victoria, pushing up wholesale electricity prices, which are currently among the lowest in Australia (at about 5¢ per kilowatt hour).
A number of gas-fired power stations around Victoria can, in part, replace Hazelwood’s lost power, but Victoria’s power supply will be put at risk by extreme climate events such as storms or prolonged hot weather.
The news for South Australia is even worse. As a result of the recent closure of its own coal-fired power stations, there is now inadequate base-load power in the state, and electricity is routinely imported from Victoria via the national grid.
Due to interconnection through the national grid, the impact of the closure of Hazelwood will be felt around the country.
Peter Westmore is national president of the National Civic Council.