The front page stories in today’s mainstream media about bailouts for Australia’s biggest brown coal generators are not quite what they seem.
Both The Australian Financial Review and The Australian – the Bill and Ben of anti-carbon price rhetoric – cited the case of the 1,542MW Hazelwood brown coal generator, which they said had to be rescued by their international owners GDF-Suez, as a result of the imminent carbon price.
Well, not quite. Both stories failed to mentioned that the refinancing of Hazelwood through internal means had been foreshadowed as far back as October 2010, when GDF (partially owned by the French government) was in the process of merging with Hazelwod’s owner, International Power.
This was mentioned again in Monday’s press release. More than $3 billion was set aside for the refinancing of loans, such as Hazelwood’s, as and when they fell due. The Hazelwood loan accounted for $652 million of that.
Hazelwood is an ageing facility, and it has been clear to the owners for some time that they were unlikely to get financing from banks on the terms they wanted – with or without a carbon price. The fall in wholesale prices – caused by easing demand and the impact of renewables – is also a key factor. Still, the owners had no need to ask the government for help or emergency loans through its specifically designed Energy Security Council. And given that Hazelwood is trying for a buyout under the contracts-for-closure scheme, why would it bring in new banks just as that transaction is being finalised?
In fact, in another part of the GDF press release overlooked by the papers (well, the release was three paragraphs long), GDF said it had no problems getting refinancing for an even bigger debt facility of $1.06 billion for the 955MW Loy Yang B brown coal generator, which is more modern and efficient than Hazelwood.
In fact, the release points out (albeit buried in the third paragraph), that banks were falling over themselves to get onto the Loy Yang B syndicate, despite the carbon price. New bank members had joined. “The new debt facility was well supported, particularly by the Australian and Asia-Pacific banks,” everyone will be delighted to hear.
The more pertinent quotes came from the AFR’s interview with Professor Ross Garnaut, who noted that the brown coal generators would last a lot longer than most people anticipated, and if there was a rationalisation, it was because there was too much capacity.
Professor Garnaut cited falling demand from higher energy prices and the impact of newly installed wind and solar energy, that had resulted in lower wholesale prices and excess capacity in the generation market.
“The effect of the carbon price on wholesale electricity prices will be counteracted by the fact we have a considerable surplus of base-load power capacity in Australia and that is pushing down wholesale prices,” he told the AFR.
“Even with the carbon price, the wholesale price of electricity in real terms is lower than in 2006. But the real price of electricity to households and businesses has increased entirely as a result of the way we regulate prices associated with distribution, transmission [costs] and retail sales.”
He told the AFR the first day of the carbon price scheme would not be a “big day” in Australian economic history in terms of actual changes. “The changes will be incremental,” he said.