Government officials say they knew Collinsville coal plant study could fail

The controversy over the funding of a feasibility study into a new coal-fired power station in North Queensland deepened this week, when department officials conceded that the chosen proponent, Shine Energy, might be unable to deliver a bankable feasibility study, but argued that this would still be a “legitimate” outcome.

The federal government agreed to give Shine Energy, despite its lack of experience in any major energy development, $4 million to investigate the feasibility of a new coal-fired power station near Collinsville.

Energy industry experts say the idea of building a new coal-fired power station in Australia is absurd, on both economic and environmental grounds, but the Coalition went ahead with the grant on the insistence of the LNP, and loud coal advocates such as former resources minister Matt Canavan.

But officials at the Department of Industry, Science, Energy and Resources have told a Senate estimates committee that a failure to deliver a bankable feasibility study into a new coal generator would still be a “legitimate outcome” of a $4 million grant provided to them by the Morrison government.

The admission came just days after the release of a damning report by the Australian National Audit Office (ANAO), which found the grant had not been awarded on the basis of an “appropriate assessment process” and that Shine Energy had been awarded the multi-million dollar grant despite its application failing to fulfil the grant criteria.

Department officials told Senate Estimates on Monday the funding was awarded to Shine Energy, at least in part, to honour the election commitment, even if the consortium was not in a position to complete a full bankable feasibility study into the project.

“The department took on balance in terms of looking at what the grant was trying to achieve, what the outcomes of this strategic study was, honouring the election commitment, and ensuring value for money,” the head of the department’s electricity division, Rachel Parry, said.

“The department made the judgment and made the recommendation to the Minister that in delivering those two stages of the feasibility study was still represented value for money.”

This included an assessment that Shine Energy was unlikely to be able to deliver a full bankable feasibility study with the amount of funding provided by the grant, and that providing additional funding to ensure the study’s completion would not represent value for money.

Department officials told Senate Estimates that up to $4 million in grant funding was provided to Shine Energy for the cost of the early work towards a feasibility study, with the hope that if the business case for the power station proved promising, that Shine Energy would be able to source additional funds to complete the bankable feasibility study from the private sector.

When queried about the appropriateness of the federal government giving funds to a project with such a high likelihood of failure, department officials told Senate estimates that if Shine Energy failed to deliver a bankable feasibility study, it would be a legitimate outcome of the grant funding.

“The intention was for Shine to be able to take the feasibility study, use that as leverage to garner more investment to deliver it to a full bankable feasibility study,” Parry told Senate Estimates.

“If that does not happen, in essence, that is also a legitimate outcome. This is, in essence, a market sounding. It has been 14 years since a coal plant has been built in Australia. This is a market sounding to determine whether or not the market thinks this is a worthwhile investment.”

In short, the department has argued that if the proposal to build a new coal power station falls over after the preliminary studies, then that answers the question about the viability of the Collinsville proposal.

The Morrison government promised the funding for a feasibility study into the proposed Collinsville coal power station as part of its 2019 election pitch, following internal pressure from a number of Queensland LNP members to back a project that could see a new coal fired generator built in Queensland.

The completion of a bankable feasibility study that confirms the likely profitability of a venture is generally necessary for proponents to secure the finance needed to construct and operate a major infrastructure project.

The proposal has attracted criticism, both due to the unlikelihood that a new coal power station would prove commercially viable and also by both sides of Queensland state politics, which see a potential Collinsville coal plant as an unwanted intervention in the state’s energy market that could jeopardise investment and jobs at other power stations.

The audit undertaken by the ANAO also found that federal energy minister Angus Taylor had sought additional information about the risks of the Shine Energy grant but that his office had also directed the department to cut down the detail contained in a brief about the grant funding awarded to the project, suggesting that a draft brief was “too long and included too much information”.

RenewEconomy has repeatedly requested access to documents relating to the proposed Collinsville power station, including preliminary findings of feasibility studies, but freedom of information requests have been denied.