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AGL bought Liddell for nothing – what will it cost Turnbull?

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One of the late billionaire Kerry Packer’s famous quotes about business was that you only get one Alan Bond in your lifetime, a reference to his ability to sell the Nine Network to the late entrepreneur for a small fortune and then buy it back at a fraction of the price.

But for Australia’s big energy utilities, the procession of Alan Bonds keeps on coming … and coming and coming and coming – in the form of the nation’s politicians. Prime minister Malcolm Turnbull’s Coalition government is just the latest in a long series of political patsies to turn up at their doorstep.

The proposal to extend the life of Liddell in increasingly looking like a proposal of breath-taking stupidity – a decision that would do the exact opposite to its stated purpose of boosting reliability and lowering costs. It would kill innovation and new investment, and lead to huge questions about probity and markets.

AGL has made a big deal about its decision to get out of coal, but the reality is that it only just got into this dirty but profitable business.

The giant Loy Yang A brown coal generator in Victoria was bought in 2012 and the Bayswater and Liddell coal generators in NSW in 2014. And while it plans to close Liddell in 2022, when it turns 50, Bayswater won’t be closed until 2035 and Loy Yang in 2048.

It’s not exactly a rush to the exit, and as Turnbull and now the Murdoch press are pointing out in their confected horror, AGL is making a lot of money out of the coal business.

But they are able to do so largely by the actions of the Coalition government – the killing of the carbon price, the investment freeze as it sought to do the same to the RET, and its refusal to address market failures where the incumbents are able to charge $6 million for a single megawatt of capacity.

Now that there is a market signal – because of the high prices caused by Coalition policy – for innovative solutions, Turnbull and Co are trying to kill those with a crude intervention driven only by the fossil fuel ideologues in the party.

But here’s the thing. AGL bought Liddell for an effective price of zero from the NSW Coalition government. Thats right: zero. The total price for 4,600MW of Liddell and Bayswater was a knock down $1.5 billion.

Given AGL valued Bayswater at $780 million and the cheap coal supply (just $1.50/gigajoule) arranged by the NSW government at $768 million (Subsidy? What fossil fuel subsidy), AGL’s valuation of Liddell started and finished with a big fat O (see table below).

As we noted in this story The 2,000MW coal generator that the NSW government sold for $0, AGL were quickly boasting about this table below:

agl-liddell

 

As we noted in this story The 2,000MW coal generator that the NSW government sold for $0, AGL were quickly boasting about this.

But what if someone wanted to buy it now? Estimates of how much it would cost a buyer to upgrade the decrepit Liddell to keep it running for another 5 years vary between $500 million and a $1 billion.

In its current state it hardly meets AEMO’s definition of a reliable generator and would probably be the last thing it would turn to in the case of a power emergency.

liddell heatwave

In fact, Liddell is more likely to be the cause of a power emergency because of what AEMO describes as the potential for ageing coal generators to fail in the heat – and in last summer’s heatwave, Liddell was missing 1,000MW of its capacity due to problems with boiler tube leaks.

(See graph above, the red vertical line shows the day in question – only two units were operating and had been operating in the previous days.

Liddell monthly average copyHere’s some more facts about Liddell. On average it only operates at around half of its capacity, as this graph above shows. Sometime it is a lot less.

Liddell output graph

When Liddell’s four units operate at the same time.

But here is a particularly damming statistic, on the table to the right. Liddell rarely operates with all four units running – just 18.5 per cent of the time (this average from 2013 calculated by Dylan McConnell from the Climate and Energy College in Melbourne)

Even more striking, the amount of time it operates all four units at levels of 400MW (their capacity is actually 500MW) is just 0.44 per cent of the time. It probably makes Liddell less useful to the market operator than the solar panels on Turnbull’s Point Piper mansion.

Local Labor MP Joel Fitzgibbon is not kidding when he says of Liddell: “It’s 45 years old … it’s clapped out. It’s now the most inefficient and dirtiest power generator in the country.” And yet Turnbull and the Coalition is citing this a solution.

On top of the refurbishments, there are also the rehabilitation costs – AGL recently estimated these at a total of $898 million, for both Liddell and Bayswater, so let’s consider half for Liddell.

It’s unlikely that any sort of buyer – such as Delta’s Trevor St Baker, who picked up Vales Point from the NSW government for $1 million – would want to be lumped with a half billion rehabilitation costs. So that’s where the  Turnbull government may have to step in.

That money is used to try and return the site as close as normal to its original state, and removing building and infrastructure, and remediating disturbed land.

But AGL is also looking to have a tender for what could follow at Liddell, and there is no reason something like a solar plant could not be built, as has occurred around the now closed Collinsville and Northern power stations. AGL has said that Liddell’s output could be replaced by wind, solar, battery storage and pumped hydro.

But that whole process is now put at risk by Turnbull’s extraordinary intervention.

Apart from delivering all the selling power to AGL – and any other coal-fired operator who might sniff an opportunity to announce an early closure – he is effectively killing off planned investment in the technologies that might have replaced it.

The very idea that there would be a one on one negotiation on this would appear to be a breach of probity rules. Why not have an auction? Oh, but isn’t that what AEMO has actually proposed.
 As one senior developer told RenewEconomy: “This is throwing the energy market into chaos. Forward markets and prices are constructed on the planned forward closures… the government has again just sent the market into  chaos making investment decisions impossible again.”
“This is being done for totally political reasons and there is no logic whatsoever in this.  If the government is seriously concerned about future supply run a reverse auction for new capacity starting 2022… they won’t as they know that the new capacity won’t be coal capacity.”

It’s so true. Turnbull and the Murdoch media have mocked the idea of using things like demand management, and battery storage. But here’s the rub. Such technologies would not just be cheaper and cleaner, but faster and more reliable. It’s a quadruple bottom line that appears to be beyond this government.

  

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  • Joe

    Gotta hand it to Big Mal. Everyday he is looking more and more…a ‘Dumbass Leader’.
    But when you’ve got taxpayer money to piss around with why not prop up the odd old Coaler. The Liberals and Rupert’s newsrags, the champions of the free market, now complaining about about ‘profits’… Oh dear. You just have to laugh at these fools.

    • Goldie444

      Turnbull has some experience in buying back old ‘clapped out’ infrastructure. After paying a fortune for some old ‘clapped out’ copper from Telstra and turning that prize into new infrastructure, way not try the same process on an ‘old coaler’ like Liddell.
      After all its not his money!

      • Thucydides

        Yes, there’s a bit of a pattern repeating itself here. When put under the political pump, 1) disavow prior principles, 2) close ears to any expert advice, 3) think up own imaginative solution from first principles, 4) announce it next morning, 5) blame Labor and Greens when the inevitable happens.

  • Malcolm M

    If any government funds need to be voted for this, how will he get this through the senate ? Would Nick Xeonphon agree to this without a comparable deal for South Australia ? Would Bob Katter and Pauline Hanson agree to it without a similar deal for Queensland ?

    Why is it a Commonwealth issue ? South Australia is using State funds to address its power problems. Why shouldn’t the NSW government be using its own funds to solve this problem ? There is already a Federal intervention with Snowy 2, which would mainly benefit NSW. Why should NSW get well over its share of Commonwealth funds ?

    • John Saint-Smith

      Well the NSW government sold Liddell to AGL. Why would they want it back again? Curiouser and curiouser!

      • Joe

        Yes, the Great NSW Privatisation….everything is sold or is up for sale.

        • Andrew Thaler

          and when it all goes pear-shaped, tank payer money is used to buy it back again.
          Rinse-repeat.

    • Leslie Nicholson

      ironic aint it, the SA government get railed every chance the feds get a chance for addressing the power short fall they suffered last summer. ok i agree diesel gen sets are not ideal, but it will give SA’s power system time to build the capacity that it needs. if the feds bail out liddel will they do the same for other old plants? NSW may need those gen sets anyway, in recent times it has been a net importer of power via Vic and QLD, the much publicly whipped sa exports a fair bit of the time recently

  • Andrew Thaler

    I think you will find Liddell is not a clapped-out as claimed, and while it might be 50 years old in total.. a lot of it was related over the last 20 years. When I was an apprentice there in the early 1990’s the coal handling plant was totally rebuilt, the ash handing plant was rebuilt, the dust capture system was rebuilt and converted o bag-houses.. I know there has been significant turbine and generator work over the last decade or so, so I’d expect a fair amount of life is possible out if the plant.
    Yes, there might need to be work on the boilers in places, but a lot of the rest of the plant is not as rooted as claimed.

    • Mick

      Each of the 500MW units have actually been down rated to 420MW.. The capacity of Liddell is now 1680 MW (not 2000MW, as everyone seems to think) – as confirmed by Vesey a couple of weeks back. This is some measure of being ‘clapped out’.
      They may also need boiler work on top of this (…it seems as though they regularly run 3 units at at time). But that may also be reflective of their coal supply situation.

      • Andrew Thaler

        yes, part of the problem is the coal mills… Liddell uses a roller-mill instead of a far more efficient Ball-mill.
        retrofitting a few ball mills might not be that expensive, and improve the reliability of the station.
        As for the boilers.. they work on the same steam pressure of 20MPa whether the turbines are outputting at 200MW or 500MW.

  • Ken Fabian

    Ah, but when the network struggle in next summer’s heat Turnbull and team can and will keep on blaming the lack of coal – and it clearly does not matter a toss to them that it won’t be true. But a lot of the media will go along without questioning. Liddell – wasn’t it one of the plants that dropped capacity in last summer’s heat?

    Emissions almost as high as old coal is renamed as low emissions. Gas generator gouging is deemed, without evidence, as the fault of windpower. The goal of affordable, reliable and low emission power becomes the goal of reliability and affordability by abandoning emissions reductions. Campaigning for our long term future is called economic vandalism. When falsehoods like emissions reductions not being that important and coal being cheap and reliable are made the foundation of energy policy how can we expect anything except policy failure?

  • Mr. Turnbull
    Please contact us. We can help you make these coal fired power plants run US EPA compliant and a lot more efficient.
    Sid Abma
    1(805) 462-1250
    [email protected]
    http://www.SidelGlobal.com

    • Ian

      Fuck off sid

      • solarguy

        Well said Ian, I second that motion, motion carried!

        • Joe

          Sid…..a Trollie ?

    • Gnällgubben

      “EPA compliant” as in pay off the EPA inspector.

  • Radbug

    I can’t imagine a more powerful issue for Pauline Hanson to differentiate her party from the ALP, in Struggle Street, if the ALP sides with the Coalition to do mouth to mouth on Liddell (and Vales Point). As this goes on, whole suburbs in Struggle Street will be disconnected from the grid!

  • John Saint-Smith

    Aw, come on Giles, how do you expect us to believe our Prime Minister could have been responsible for such a monumental cock-up? The MSM will refuse to print this.
    Any minute now you’ll be telling us he was the guy who re-designed a 21st Century broad band network to run on copper wire!

    • Ian

      Classic!

  • Robert Westinghouse

    Everything the LNP touches transfers money from the people to the pockets of Big Business. They need to go. The answer is simple, scalable, cheap and delivers electricity where it is needed without the need for any change to the grid: – roof-top solar. But this gives ordinary Australians power to determine their energy future…something the LNP hate…democratising power, ideologically suicide for Malcolm and his Corporate Masters. The only solution: get rid of the fool….

  • Fizzelen

    Cant decide which national infrastructure they have screwed up more the power grid or the communications grid (NBN), that GOD they are not involved in the sewers.

    • solarguy

      Well shit keeps happening.

    • Joe

      Funny you should mention sewerage. It was Gough who installed flushing shitters for the masses in the outer suburbs of Brisbane, Sydney and Melbourne. And what a ‘relief’ it was for this ‘wee’ lad part of a young family of 5 having to rely on the ‘nightsoil man’ to visit once a week to changeover a single dunnycan. The Libs had been in power for 23 years and not one mention of flushing shitters. If not for Gough we probably would still have the outhouse in the backyard.

  • Robin_Harrison

    One more feeding frenzy at the public trough is ever so easy when you own the politicians.

  • bedlambay

    Turnbull’s Liddell deal is political cover for the all the climate change denying Coalition and especially the Nationals who will promote coal to their grave. AEMO has pushed out the 5 minute bidding process until 2021 which will favour the generators’ cartel and soaring prices and profits.

    • Colin Edwards

      Don’t confuse AEMO with AEMC. It’s the latter who have pushed out the 5 minute bidding process. A bunch of troglodytes earning their appearance money at the AEMC

    • Tom

      Yes – the AEMC.

      The whole AEMC needs to be sacked and replaced. They are a horribly conflicted miserable failure.

  • Carl Raymond S

    Time for Four Corners to do a piece on the inexplicable hold that the coal industry has over the coalition. Something is going on in back rooms. Expose it and end it.

  • brucelee

    Maybe the only positive here could be that the performance of Liddell will be under a microscope this summer, and be publicly outed as pathetic in the media.

  • Steve Fuller

    I once thought that Turnbull had to be honest enough to eventually either turn the LNP aound on energy policy or defect and take his vote with him in the public interest.
    I should have know that he is just another LNP Turnbullshitartist.

  • phred01

    There’s coal Money in the lib war chest he could use the spare change to make a killing by paying AGL 1$

  • onesecond

    How is this government doing in the polls? Are Australians dumb enough to still vote for this?

    • Rod

      47% of Australians still think they are a better option. Unbelievable but shows how partisan politics has become. Blue team vs Red team.

      • Joe

        …Green Team coming through the middle ?

        • Rod

          My bad, that 47% is two party preferred.
          Primary would be 37% Red and 10% Green
          I just wish the Red and Green teams would play nice together.

      • onesecond

        Wow, that sounds horrible. What is up with those 47%? Are they immune to incompetence, science, reason and decency?

        • Rod

          Some people can’t or won’t see the disaster happening to them. I mean even TRump still has 30% approval rating.

    • Joe

      The Barometer is Newspoll and Abbott losing 30 Newspolls in a row was justification for Two Tongued Turnbull to knife then PM Abbott. Our ‘Strong Leader’ has now racked up 19 Newspoll loses in a row. Tony 2.0 is ready for The Christmas killing season and then we can chuck the lot of them out soon after.

      • onesecond

        Thanks for the info, some good news going in the right direction at least I guess.

  • Malcolm M

    Is this the compromise to the right wing to get the Clean Energy Target through the party room ? If a 5-year extension to Liddell is sufficient to satisfy them it may be worthwhile, certainly better than building a new coal-fired power station.

    But it goes against almost everything else the right-wing stand for, such as belief in free markets, and “Jobs and Growth”. It was the previous LNP government that encouraged the NSW government to sell their generators through the Asset Recycling Program. Now they want to effectively buy it back.

    • Joe

      Please, lets call it what it really is…’Coal Energy Target’.

    • Barri Mundee

      They have disposable principles.

    • Thucydides

      Worthwhile? Only if Malcolm pays a very large bond and agrees an expensively refurbished Liddell will be renamed in his honour. This will be his skin in the game against the potential of a $500+ million white elephant – like Colin Barnett’s wasted $300 million refurb of the Muja coal fired power plant.

  • Les Johnston

    It is most interesting that the Federal Government is now considering becoming a financier in the power industry. I thought that the Liberal philosophy was to let the market sought out issues and to cut red tape. Injecting say $1b into Liddell is a complete 180 degree shift away from Liberal ideology. Would it not be better to give $1b to those who cannot afford to pay their electricity bills and let them use the money to invest in other options for supplying their energy needs and reducing their energy demand? There are other options!

  • Ian Jones

    Does anyone remember in the early 1980’s when some of the English Electric main generators failed at Liddell and there were power shortages? The NSW Government and the Electricity Commission of NSW ran a very successful “SAVE IT” campaign. I was only a boy but I still remember the little stickers next to each light switch. This voluntary demand management worked very well and the generators were eventually fixed and Eraring and Bayswater commissioned. Then in the 1990s the NSW Government and Pacific Power had too much electricity generation and ran a number of “use more electricity campaigns” (does anyone remember the Trans Grid add campaign “Who turns the lights on in the Valley….” ). So why not this summer try again a voluntary load reduction campaign? 10 Million 40mm * 40mm “SAVE IT” stickers and a few radio advertisements has got to cost less than fixing Liddell. The electricity distribution companies could also offer power contracts where household can voluntarily reduce consumption during peaks by turning down air conditioners, turning off pool pumps and deferring running washing machines, driers and dishwashers, hot water systems, etc. How could it work? Simple! The Power Distributor could SMS the household a message like “please SAVE IT tomorrow between 17H00 and 21H00”. The Contract could give the household a minimum 4 hours notice. The charges could normally be 100 applesperKWh and 60 applesperKWh between 23H00 & 05H00 (for off peak hot water, dishwashers, washing machines, etc with manual timers). But during these “SAVE IT” periods there will be a smart meter that bills at 160 applesperKWh. The smart meter will know its a “SAVE IT” period either from a high frequency tradition signal over the 240V cables or via the mobile phone network. The same type of contracts could be offered to business. For example if I was a small business owner with machines that consumed electricity and normally started then stopped them each day, a “SAVE IT” contract could make it attractive to close the factory early and allow my employees to go home and enjoy the summer weather on the understanding they make up the time later. If I was an office block or shopping centre owner and could not stop the air conditioners I could atleast decide to turn up the thermostat (ASHREA has many papers where they say if it is 30 DegC outside no need to cool the building to 21 DegC) or install “cool storage”. To provide safe, affordable and environmentally responsible energy :- generation, distribution and demand management must ALL be considered. At the moment in Australia only generation seems to be discussed.

  • Trevor Beal

    I am confused how can a 2GW power station that is going to close in 4 years cause power shortages this summer ??