Vales Point told to apply for $8.7m coal upgrade grant, weeks after it was announced in federal budget

Delta Electricity, the owner of the Vales Point coal-fired power station, was asked to apply for an $8.7 million government grant for plant upgrades weeks after the funds were announced in the federal budget, documents obtained under freedom of information laws have detailed.

In correspondence obtained by RenewEconomy, representatives from Delta Electricity were told by officials from Department of Industry, Science, Energy and Resources they would be provided grant guidelines for $8.7 million in funding provided under the Morrison government’s Underwriting New Generation Investments program to pay for repairs to a turbine at the Vales Point coal-fired power station, “during weekending Friday 23 October” – almost two weeks after the federal budget was handed down.

The documents show that the federal government had announced the awarding of funding to the Vales Point power station before owners Delta Electricity had formally applied for the funding, with the 2020 federal budget being handed down on 6 October.

The budget itself made clear that funding was to be provided to Delta Electricity, with a portion of $134.7 million allocated to ‘improving energy affordability and reliability’ was to be dedicated to “upgrades to Delta Electricity’s Vales Point Power Station to reduce emissions, improve reliability and provide additional dispatchable generation in New South Wales.”

It was subsequently revealed that $8.7 million of this funding had been earmarked for the Vales Point power station to undertake upgrades to one of the power station’s turbines.

The Morrison government has sought to provide funding to cover the cost of some repairs at the ageing coal-fired power station under the UNGI scheme. Delta Electricity secured the $8.7 million in funds despite the power station generating more than $60 million in profits in the last financial year.

Delta Electricity told the department it estimated that upgrades to one of Vales Point’s turbines would achieve efficiency improvements that would lead to 92,000 tonnes of reduced annual emissions compared to the same level of electricity production. However, it is not clear whether the Vales Point power station would be prevented from increasing its production and overall consumption of coal.

Delta Electricity estimated that upgrades at the plant would allow for its rated capacity to be increased by 30MW and that repairs were needed as “high pressure feedwater heaters… are continuing to deteriorate.”

Delta said that without the repairs, the feedwater heaters would be expected to fail before 2029, the anticipated closure date for the power station, and would reduce the operating efficiency of the power station.

“The continual thermal cycling (increasing due to an increasingly variable generation role with continued renewables penetration) of the heaters will exacerbate the failure modes of the heaters and it is expected the heaters will be permanently out of service prior to 2029 with a corresponding estimated [redacted] sent out station efficiency loss,” Delta Electricity told the department.

The 1,320MW Vales Point coal-fired power station, which has been operating since 1978, is ultimately owned by businessman Trevor St Baker, who has been a frequent financial contributor to the Liberal and National political parties.

The documents also show details of back-and-forth pre-budget discussions between Delta Electricity and the Morrison government over what level of funding would be required by Delta Electricity to undertake upgrades to the coal-fired power station including what level of upgrades were needed and their likely cost.

However, it wasn’t until the days following the federal budget that representatives of Delta Electricity sought to confirm that the “grants process will be discussed when the guidelines are available – and presumably for an adhoc grant the design and selection phases will be progressed when we discuss.”

Officials from the department confirmed that was “broadly correct”.

The power station owners were forced to write-down the book value of the power station to $222 million following a fall in wholesale electricity prices, down from a valuation that was recently as high as $730 million.

The power station owners originally purchased the Vales Point power station from the NSW state government in 2015 for just $1 million.

The process used to provide public funds to Delta Electricity mirrors that of an earlier grant process undertaken by the Morrison government, where up to $4 million was to be awarded to Queensland company Shine Energy to fund the completion of a feasibility study into a new coal-fired power station in Collinsville, despite the company having no prior experience in the energy sector.

A report published by Guardian Australia detailed how Shine Energy was asked to formally apply for its own respective grant two days after it had been announced by the Morrison government.

In each case, the federal government has applied an ‘ad-hoc’ grant approach, with funding provided to a pre-selected recipient, rather than awarding funding on the basis of a competitive assessment.

Update: Delta turns down Taylor’s $8.7 million grant for Vales Point upgrades