Delta Electricity turns down $8.7 million grant for Vales Point upgrades

Delta Electricity has turned down $8.7 million in federal government funding and cancelled a planned turbine upgrade at the Vales Point coal-fired power station after concluding it would take the Morrison government too long to formally approve the grant.

A special $8.7 million allocation had been made in the most recent federal budget, handed down in October, to provide funding to Delta Electricity to undertake upgrades and repairs to one of the turbines at the Vales Point power station.

The upgrades had been expected to boost output from the 1,320MW power station by around 30 megawatts until the power station’s expected closure in 2029.

However, in a surprising twist to a long-running saga, Delta Electricity now says it wrote to the Morrison government in December indicating that it would not be submitting a formal application for the funding, saying it would have had to move immediately to secure required contracts for the upgrades to take place.

According to the company, the Morrison government had indicated that a final decision on the grant “is unlikely until early 2021”, with Delta Electricity indicating that this was too slow.

Delta Electricity said the turbine upgrades had been planned to start in late 2022 but that it could not wait for the government to approve the grant before securing necessary contracts for the works, which needed to be signed ahead of time.

Delta cited the lack of certainty around the timing of the funding as the reason for the cancelled upgrades, saying that the works were not economically viable without it.

“Unfortunately, the timing of the UNGI funding application process and the placement of contracts do not align,” Delta Electricity managing director Greg Everett said.

“Given the forward market outlook, the nominal closure of Vales Point in 2029 and proposed changes to electricity industry policy settings, the project is not economically viable without certainty around the UNGI funding.”

The turbine upgrades at the Vales Point power station were included in a shortlist of projects to receive funding under the Morrison government’s Underwriting New Generation Investments (UNGI) Program, that was unveiled in March 2019.

Delta Electricity had planned upgrades to ‘Unit 5’ and ‘Unit 6’ at the power station, with the federal government initially agreeing to fund upgrades to ‘Unit 5’. Delta Electricity still plans to proceed with upgrades to ‘Unit 6’ without the support of government funding.

Delta Electricity said the upgrades to the Vales Point turbine would improve the overall efficiency of the power station, reducing the plant’s emissions intensity and allowing it to produce more electricity for the same amount of coal consumption.

“Despite misinformation put forward by anti-coal groups, the upgrade to one of the Vales Point turbines had the potential to bring additional dispatchable generation into the grid while significantly reducing CO2 emissions,” Everett added.

“This project was about enhancing energy security while providing an overall reduction in carbon emissions.”

Correspondence obtained by RenewEconomy from the Department of Industry, Science, Energy and Resources through a freedom of information request showed that Delta Electricity was told that it would need to submit a formal application for the grant in the weeks after the funding was allocated in the budget.

The department did not inform RenewEconomy at the time that Delta had chosen not to accept the grant.

A spokesperson for the department told RenewEconomy on Thursday the decision to decline the grant was a commercial decision on the part of Delta Electricity.

“The Vales Point upgrade was shortlisted under the Government’s Underwriting New Generation Investments (UNGI) program based on the expected benefits of the upgrade to the market and consumers,” the department spokesperson said.

“In issuing grant guidelines to Delta Electricity, the department made it clear that the award of funding under the UNGI program can only occur after grant processes, including grant application and assessment, are successfully completed. The grant process adheres to the Commonwealth Grant Rules and Guidelines.”

“Delta Electricity has made a commercial decision not to proceed through the application process,” the spokesperson added.

Curiously, a Delta Electricity statement obtained by RenewEconomy this week is dated 14 December but was not posted on the company’s website – despite numerous other press releases dated both before and after appearing in the website’s media section.

A company spokesperson said it had been distributed widely, but RenewEconomy can find no evidence of its decision being reported elsewhere.

With Delta Electricity opting to decline the funding that had been earmarked for Vales Point, it means that none of the dozen projects that were shortlisted under the UNGI program in March 2019 have successfully secured funding from the Morrison government.

Legislation to establish a new $1 billion Grid Reliability Fund, to fund commitments under the UNGI program and to be administered by the Clean Energy Finance Corporation (CEFC) is currently before the federal parliament but has faced delays due to the impacts of the Covid-19 pandemic on parliamentary sittings.

The proposed legislation would also expand the investment mandate of the CEFC, using a broader definition of ‘low emissions technology’ that could see the green bank invest in gas projects, including those operating at a loss.

The plan has been labelled as “flawed” by former heads of the CEFC and the Australian Renewable Energy Agency, and is set to be opposed by both Labor and the Greens in Parliament.