Alinta dives back into coal with purchase of Loy Yang B

Little more than a year after it exited coal with the closure of the Northern power station in Port Augusta, Alinta has dived back into the coal market with the reported purchase of the 1050MW Loy Yang B brown coal power generator in Victoria.

The price paid to majority owner Engie, which recently closed the Hazelwood brown coal generator as part of it global exit of coal generation, and Japan’s Mitsui was reported to be $1.1 billion – way, way above recent coal generator purchases.

It indicates that, contrary to the Coalition’s promise of falling wholesale prices, that Alinta is betting on sustained high prices in the absence of sensible, long term climate and energy policies.

It hopes to make a  killing out of coal, in the same way that AGL has done with the purchase of the neighbouring Loy Yang A generator in Victoria’s Latrobe Valley, and the Bayswater and Liddell generators in NSW.

Loy Yang B was brought into service in the early 1990s, and is expected to operate for another 20 years – absent a climate policy that matches the targets of the Paris climate agreement.

Alinta, though, has not got a bargain price as AGL did for Loy Yang – analysts estimate it may have paid three times as much per MW of capacity – which means that its policy position will likely be focused on those that support coal generation, and high prices, like the Coalition’s proposed National Energy Guarantee.

Alinta, owned by China-based Chow Tai Fook Enterprises, is reported to have beaten offers from China Resources Power Holdings Co, and Australia’s Delta Electricity, which two years ago picked up the Vales Point power station from the NSW government for just $1 million.

That asset is making huge profits thanks to the jump in wholesale prices, caused by the lack of investment in new renewables and the bidding practices of the main generators, and is now valued at more than $700 million.

Victoria’s wholesale prices have been underpinned by the closure of Hazelwood, and the recent failure of units at both Loy Yang A and Yallourn, and planned maintenance at another Yallourn unit, that has taken 1.5GW of coal capacity off line as temperature rose in late spring.

Those failures prompted the Australin Energy Market Operator to issue LOR1 and LOR2 notices, warning of potential shortfalls in supply in the absence of a market response.

It also forced prices to shoot up to average more than $130/MWh  over the last three days as the state relied heavily on local gas, and imports from NSW, South Australia, and Tasmania.

Greens climate spokesman Adam Bandt, who represents the seat of Melbourne, said it would surely be a stranded asset.

“Coal-fired power stations are struggling with the heat,” he said. “We also need to retire one coal-fired power station a year until 2030 to meet the Paris Agreement goals.

“Buying a brown coal-fired power station in 2017 makes as much sense as investing in a chain of Blockbuster stores. Alinta’s board will rue the day they dropped over a billion dollars on what will quickly become a stranded asset.”

Note: AGL told Reneweconomy on Thursday that the failed unit at Loy Yang A is likely to be back in operation in early december. Yallourn’s spokesman said it expected both its absent units to be back on line next week.