Hazelwood to close as energy transition gathers pace in Australia

The dirtiest power station in Australia – and by some estimates the dirtiest among the world’s developed countries – the 1.5GW Hazelwood brown coal generator in Victoria is to close in five months after its owners finally bowed to the inevitable.

Staff at the Latrobe Valley generator were told this morning that the facility would close on March 31 next year. Its majority owner, the French energy giant Engie, is also looking to sell the nearby Loy Yang B coal plant also in Victoria, as well as the Kwinana gas power station in WA – although it will remain in Australia to focus on gas and retail markets, as well as large-scale wind and solar and battery storage.

Hazelwood is not the first coal generator to close in recent years, but it is the most symbolic because of its size, its history and its critical role in providing 20 per cent of the state’s power. But age has caught up with the 50 year-old facility, and so have technological advances and environmental concerns.

Engie, nearly one-third owned by the French government, could no longer tolerate the reputational damage of operating such a dirty power station. With no economic option to clean it up, and no buyer, it had no option but to close the facility.

Engie also sees the new energy future. New CEO Isabelle Kocher has recognised that within a few decades, half of all electricity demand will come from local sources – rooftop solar and battery storage paramount among them.

This is why Engie is committed to ditching its entire fleet of coal-fired generators. Its own plans are a microcosm of what is happening around the world and what will happen in Australia.

Given the recent price falls in the new generation of Tesla Powerwalls – a near 50 per cent drop in less than 12 months in the cost per kilowatt-hour – this new paradigm will arrive quicker than most people can imagine.

In the short term, the closure of Hazelwood will likely mean rises in wholesale power prices, although the extent of which depends on many factors and may not be as dramatic as some suggest.

The loss of capacity from Hazelwood will be taken up by other generators in the Latrobe Valley and black coal plants in NSW, and that likely means higher wholesale prices in those states.

Some suggest the wholesale price jump could be 25 per cent, others say much less. Bruce Mountain, from Carbon + Energy Markets, says it will be much less and the impact of these rises on households will be “negligible”  -at less than $1 a week, with bills projected to rise by about $44 in 2017 and about $35 in 2018.

It is important to note, however, that Engie says that current wholesale prices are already too low to justify keeping Hazelwood going. The same argument was made by the owners of the shuttered Northern power station in South Australia.

The wholesale prices could have been even lower had Australia not suffered a massive renewable energy investment drought over the last three years, induced by the Coalition government and punctuated only by the ACT government’s 100% renewable energy target.

More investment would have meant lower wholesale prices and lower LGC prices. That is now being addressed by the impact of the state based targets, such as Victoria’s and Queensland.

The closure also reveals just how unprepared Australia is for the energy transition. Germany is investing in new battery storage manufacturing facilities in th brown coal region of Saxony, to offer a new industry to fill in the gap of inevitable closures. Australia has nothing to show, having focused only on hair-brained schemes such as coal gasification, or the latest idea by John Hewson to use “refined” coal as a fuel. That technology was thrown away by the US decades ago.

“It is hard to believe that even though Hazelwood is the oldest and most polluting power station in Australia and was first due to shut in 2000, there remains no clear, government-led plan for its closure,” says Mark Wakeham, the CEO of Environment Victoria.

“Australia’s distinct lack of any credible climate policy or national energy plan to phase out the old and invest in the new, has left us at the whims of the market. It’s time for the Federal government and states to work together on a plan to clean up our power supply and support affected communities.”

Still, the Australian fossil fuel industry and its defenders thundered in protest. “There is no need, however, for the plant or the Portland smelter to close for environmental reasons when Australia produces jus 1.3 per cent of global emissions,” The Australian wrote in its editorial on Thursday, as it launched yet another attack on ambitious state-based renewable energy targets.

Frighteningly, this sort of thinking is infused within the Coalition and most state-based conservative parties, although the NSW government appears to have finally woken up to the reality of the Paris climate agreement, changing technologies and the inevitability of its own coal fired power stations closing.

On Thursday, NSW announced plans to try and get on the front foot and aim for “net zero emissions: by 2050. The motive is as much environmental as it is economic – the state can simply not afford to be left behind in the shift to clean energy, and the same is true for Australia.

The Turnbull government, meanwhile, has responded to news of Hazelwood’s closure with a pledge of $43 million in federal funding to go towards supporting the plant’s 750 employees and to bolstering the Latrobe Valley economy.

Federal energy and environment minister Josh Frydenberg said $3 million of the package would go towards job assistance, retraining, and financial assistance for displaced workers, while $20 million each would go towards developing new infrastructure projects in the region, and to a regional jobs and investment program.

The federal Coalition will also join forces with state and local governments to set up a locally-based taskforce that will address the needs and concerns of workers and the local community.

Environmental NGOs are not impressed, and say Australia needs a long term strategic plan to manage the energy shift.

“Will the federal government continue to back a dying industry that is damaging the climate and making its workers and surrounding communities sick, or will our federal representatives lead a national plan to move Australia to clean energy, attract investment, create jobs and help affected communities through the changes?” asked Australian Conservation Foundation CEO Kelly O’Shanassy.

“If we continue to let this transition happen haphazardly and chaotically we will be left with damaged communities and more pollution,” Ms O’Shanassy said.

Victorian Premier, Daniel Andrews, told reporters on Thursday he was confident the collaborative and cooperative approach being taken by the state and federal governments would meet the needs of the Latrobe Valley community, and help set it up for a more prosperous future.

On top of the federal government’s $43 million support package, the Andrews government is providing its own funding of $20 million to establish the Latrobe Valley Authority, which will have a staff of 20 at an office in Morwell to give advice and provide feedback, while acting as “an important listening post” for the state government.

Another $22 million will go towards personalised support, tafe training and financial and emotional counselling for the sacked Hazelwood workers.

“We’ve had discussions over the future of Hazelwood with Engie for some months now. They were determined to make this decision because it is a decision consistent with their global outlook,” Andrews said.

“This is a very difficult day for those 750 workers… (But) at least there’s now closure; there’s certainty.”

Andrews said that the CEO of Engie had confirmed the company was now working diligently through the progress of decomissioning, demolishing and rehabilitating the plant and mine site.

“They will deliver on their important obligations to rehabilitate that site in full,” he said.

On power supply, both Andrews and Frydenberg were keen to hose down any concerns that Victoria might be headed for the same sort of power troubles that have played out in South Australia over past months, with both citing the Australian Energy Market Operator as saying there is “more than enough supply” to cover Hazelwood closure.

“On the issue of supply,” said Andrews, “It’s important to note that there’s not one coal power station that’s operating at 100% today… AEMO has confirmed there is more than enough supply to deal with all of Victoria’s demand, and they can do that today.”

“The head of AEMO …assured me that the reliability of the NEM will continue despite the closure of Hazelwood,” Frydenberg said in his press conference.

“In the words of AEMO, they will have to watch closely what happens from here. But the next peak demand period after closure will be in January-February 2018, giving the market some 15 months to respond to that. The expectation is that Victoria will import black coal from NSW and hydro from Tasmania,” he said.