Alinta offered to keep Port Augusta power station running for just $25 million from State Government
EXCLUSIVE: The owner of the now-defunct Port Augusta power station offered to keep it running until mid-2018 for $25 million from the State Government — 22 times less than its $550 million power plan.
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The owner of the now-defunct Port Augusta power station made a secret offer to keep generating electricity until mid-2018 in return for $25 million from the State Government — 22 times less than its $550 million power plan.
Extensive details of Alinta Energy’s bid to subsidise the 520 megawatt Northern plant’s operation are revealed in a May, 2015, letter from the company to the Government.
Seizing on the explosive revelations, Opposition Leader Steven Marshall branded the rejection of an affordable deal to keep power prices down and prevent blackouts as the State Government’s biggest failure since the 1991 State Bank disaster.
In the six-page letter supplied to The Advertiser by the Liberals, Alinta warns of significant risk to the security of South Australia’s power supply and a surge in electricity prices — costing the state $56 million to $112 million a year — if the power station and associated Leigh Creek brown coal mine were to close.
Other sources have told The Advertiser that Alinta made another bid for $30 million to the government, which made a rejected counter-offer of only $8 million. Alinta then announced in June 2015 that it would close the station.
The secret Alinta letter revealed also warned that closure of Flinders Power, which included the Northern power station and Leigh Creek, would trigger a $150 million annual blow to regional GDP and cost 450 jobs.
The bulk of Alinta’s demand was for a 70 per cent subsidy of maintenance costs for the 250km Leigh Creek railway, which supplied brown coal to the power plant — equivalent to about $8 million over three years.
SA has been hit by three major blackouts, including a statewide outage last September, since the closure last May of Alinta’s Flinders Power operation.
Businesses across the state took an estimated $450 million hit because of the statewide blackout and mining giant BHP Billiton has said that outages at Olympic Dam cost it $137 million.
Electricity prices for forward contracts in SA have jumped from about $80 per megawatt hour in mid-2016 to about $140MW/h.
Premier Jay Weatherill this month branded the Port Augusta plant a “clunky, old, coal-fired power station”, declared Alinta’s temporary offer did not secure SA’s energy future and cited a confidentiality agreement to refuse to release details.
Alinta this month said it would not make public its proposal to save the Port Augusta plant, citing commercial confidentiality, but said any decision about releasing details “rests with the Government”.
Responding to the letter, Energy Minister Tom Koutsantonis told The Advertiser it was a small part of complex and detailed talks and, therefore, did not represent the entire scope of negotiations.
Labor’s $550 million plan for reliable, affordable and clean power, unveiled this month, is headlined by a $360 million, government-owned gas-fired generator providing up to 250MW and Australia’s largest battery to store wind and solar energy.
Mr Marshall said it was now clear why Mr Weatherill had been fighting to keep Alinta’s proposed deal secret.
“There was an affordable deal on the table that would have kept power prices down and prevented blackouts but Jay Weatherill rejected it,” Mr Marshall said.
“Every time South Australians open their power bill or the lights go out, they should think about Jay Weatherill and his decision to close the Northern power station.
“The only thing that will be more scandalous than rejecting Alinta’s offer will be Jay Weatherill continuing to defend his decision.
“Jay Weatherill has sold out South Australians for his ideological pursuit of intermittent renewable energy.”
In Alinta’s letter to the South Australian Government Financing Authority, the energy company’s executive director of external affairs Michael Riches states that the Port Augusta plant and Leigh Creek mine would have lost about $10 million per year if operations continued until 2020.
Alinta asked for net payments from the State Government of about $25 million over three years, to ensure the power station and coal mine operated until June 30, 2018.
Other key measures the company sought included:
UP to $4.5 million a year for Leigh Creek town services and up to another $1 million for the town’s airstrip and water supply dam.
CHANGES to lease arrangements for Leigh Creek railway and township, particularly cutting from 36 months to six months the extension notice period. If extended, no rent would be payable.
REMOVAL of minimum handback conditions of the Port Augusta power station land but agreeing to meet environmental laws.
EXTENSION of the existing coal royalty rate to 2020.
Mr Koutsantonis told The Advertiser the Northern Power Station, regardless of the nature of the request, could not provide the services the state needed to “take charge of our energy future”.
“Alinta were also not able to provide any guarantees about how long they could continue to operate, and CEO Jeff Dimery has said publicly that the business was losing money and running out of coal,” he said.
“The State Government has launched its energy plan, which will drive local generation, improve grid security and put downward pressure on power prices.”
Alinta did not respond to repeated requests for comment but told The Advertiser in February that Flinders Power had explored “a variety of options with multiple counterparties to continue operations” of the Northern power station since the closure was announced.
“Ultimately, none of the options were economically viable,” the company said.
Timeline — how it came to this
1954: Playford A Power Station commissioned on reclaimed land at the northern tip of Spencer Gulf, just south of Port Augusta. Uses brown coal from the Leigh Creek mine, 250km north. The coal is transported via rail.
1963: Site expanded to accommodate the 240MW Playford B Power Station.
1980-84: Leigh Creek town is relocated 22km south of the coalfield to allow for the expansion of the mine.
1985: 520MW Northern Power Station built on adjacent site.
1999: ETSA privatised and power stations change ownership several times.
2007: Alinta Energy assumes control when former owners Babcock & Brown Power acquire Alinta. The name changes in 2010.
2012: Playford B mothballed. Previously, had mostly operated in summer to help meet peak demand.
May, 2015: Alinta writes to the State Government, offering to keep open for three years the Flinders business — Leigh Creek and Port Augusta power stations — conditional upon a State Government subsidy of about $25 million.
June, 2015: The Advertiser exclusively reveals the Port Augusta power stations and Leigh Creek coal mine will close by 2018, costing 450 jobs.
April, 2016: Final coal hauled from Leigh Creek to the Port Augusta power stations.
May, 2016: Northern Power Station stops generating electricity.
September, 2016: Playford smoke stack demolished.
September 28, 2016: Sstate blacked out as fierce storms topple pylons, triggering wind farm turbine failures. Inter-connector poeoviding power from interstate is tripped.
December, 2016: About 155,000 properties without power at the peak of post-Christmas blackouts triggered by severe storms.
February 8, 2017: 90,000 electricity customers lose power when dwindling electricity supplies force load shedding to maintain the stability of the grid.
WHAT ALINTA WANTED
Port Augusta power stations and Leigh Creek mine would have lost about $10 million per year if operations continued to 2020. Alinta, in May 2015, asked for net payments from the State Government of about $25 million over three years to ensure the power stations and coal mine operated until June 30, 2018.
Alinta’s key demands were:
■ About $4.5 million a year for Leigh Creek town services and up to $1 million for forecast infrastructure spend on town airstrip and dam.
■ Government to meet 70 per cent of Leigh Creek railway maintenance costs, aq figure that works out to about $8 million per year on average.
■ Changes to the lease arrangements for the Leigh Creek railway and township, to reduce the notice period for seeking an extension from 36 months to six months, with no rent payable if the lease was extended.
■ Removal of minimum hand-back condition of Port Augusta power station land under lease with Government but meeting environmental laws.
■ Extension of existing coal royalty rate to 2020.
WHAT ALINTA WARNED
Closure of Port Augusta power plant would trigger:
■ Significant risk generally to SA’s power supply security.
■ Likely increase in wholesale cost of electricity, between $4-8 per megawatt hour. This would cost SA economy $56-$112 million a year.
■ $150 million of regional gross domestic product is cut.
■ $4.5 million lost revenue in foregone coal royalties in payroll tax.
HOW THE SA GOVERNMENT TRIED TO KEEP IT SECRET
The Government has been at pains to keep secret how much financial assistance was sought by Alinta to keep the Northern power station open until 2018, denying Opposition Freedom of Information requests for related documents.
Premier Jay Weatherill has said that he “can’t say” anything about Alinta’s offer because of a confidentiality agreement.
Earlier this month, Mr Koutsantonis said he would be “happy” to discuss the offer “if Alinta says it’s OK”. Alinta then declined to release detail, citing commercial confidentiality, saying this “rests with the Government”.