Subsidy or not, Yallourn deal will likely set a precedent for more coal closures

The Victoria Government’s recent agreement with EnergyAustralia for the Yallourn brown coal generator’s scheduled demise in mid 2028 has attracted much commentary, as well it should.

The commentary has ranged from the usual whinge about “market intervention” (as the adage goes “talk is cheap”) to much more serious allegations from some commentators that the deal is a subsidy to Yallourn (Australia’s dirtiest coal generator) to produce.

If this allegation is true it would be a very serious abrogation of Victoria’s emission reduction commitments, and of Australia’s competition law. One would imagine interested parties would be lining up to take the Government to the courts if they felt they could prove the allegation.

So, is it true?

The Government has been quite explicit that the deal is structured in a way that does not affect Yallourn’s competitiveness in the market i.e. that it does not provide a subsidy to produce.

The deal is confidential so we can not see for ourselves, but the stakes are high and to suggest that the Government is lying is not something that should have been trotted out casually.

Both the Government and EnergyAustralia seem to get a lot from this deal. The Government gets greater certainty that 1,450 MW will be available to produce during those nervous summer months over the next seven years during which period much more new renewable capacity will enter the market.

In return, Energy Australia can leave the plant in the ground for the next seven years with less concern that they are not able to cover fixed costs from what is likely to be an increasingly idle plant.

Yallourn’s employees get certainty and Yallourn is able to clear the air and aggressively expand its investment in renewable generation without the fear that this will be advancing the demise of their largest single production asset.

Mutual benefit is the stuff of good deals and it is not hard to see why EnergyAustralia approached the Government to do such a deal.

There have been some excellent ideas on industry-wide coal closure schemes.  But such schemes remain as distant as ever.

A bird in the hand is worth two in the bush and from what I can see, if EnergyAustralia and the Victorian Government are to be taken at their word – as they surely must – much has been gained with this deal. It would not be surprising to see other generators approaching the Government along similar lines.

Bruce Mountain is director of the Victoria Energy Policy Centre at Victoria University.