Alinta faces more pressure over Loy Yang B coal power plant
Power giant Alinta may be forced to close its Loy Yang B coal plant 12 years early due to the Victorian government’s intervention in energy markets.
Power giant Alinta may be forced to close its Loy Yang B coal plant 12 years early due to the Victorian government’s intervention in energy markets and could struggle to negotiate any compensation given the state’s plan to have sufficient replacement generation in place by 2035.
Alinta, the nation’s fourth-largest electricity retailer, said its staff were shocked after the Andrews government announced a huge jump in its renewable energy target to 95 per cent by 2035, forcing Loy Yang B to close up to 12 years earlier than its nameplate retirement date of 2047.
The move immediately provoked a pointed statement from Alinta chief executive Jeff Dimery (who was given 30 minutes’ notice of the announcement), who asked how the government would “support us to invest in the replacement generation required to keep the lights on in the state”.
Alinta has proposed a giant $4bn offshore wind farm that could supply Victoria’s Portland aluminium smelter and the broader east coast grid, which may be in line for some form of government assistance under the state’s energy blueprint.
However, experts said Alinta was unlikely to replicate the secret financial deal struck by EnergyAustralia, with the state to keep its Yallourn plant open for longer because the Loy Yang B plant was not needed under government modelling.
“I would think Alinta would ask for compensation and the government will refuse,” Grattan Institute energy program director Tony Wood said.
“That’s not a deal since the government doesn’t need Alinta to do anything. Still, a scenario where a supply gap emerged because not enough generation had been built could create a dilemma for the state.
“What would be interesting would be if the government needs Loy Yang A and/or Loy Yang B to stay open, then a deal like Yallourn could be needed.”
AGL Energy, owner of Loy Yang A, was recently in a similar predicament to Alinta, but decided to fast-track the closure of its coal plant by a decade to 2035 after sustained pressure from its largest shareholder, Mike Cannon-Brookes.
Premier Daniel Andrews pointed to comments from Mr Dimery that Alinta may close Loy Yang B up to 15 years early as renewables undercut the fossil fuel on price. Mr Dimery was “already on the record saying that there’s every chance they’re gone by 2035”, Mr Andrews told ABC Radio.
“A cynic might say that energy being in short supply in those circumstances wouldn’t be that bad for a private company, because the price would go up. So we can’t be waiting around. We have to make this transition.
“We have to create these jobs. And we have to make sure that privatised coal is replaced by publicly owned, government-owned renewable energy. And that’s exactly what we’re going to do.”
The Australian Energy Market Operator has previously laid out a scenario in which all Victoria’s coal power plants would be closed by 2032.
Mr Dimery sparked a fresh headache for both state and federal governments last week after declaring households faced an increase in power bills of at least 35 per cent next year.
Alinta has also called for regular reviews to start in 2029 assessing whether coal should be included in a national mechanism to avoid future power shortages, offering an olive branch to governments wary of promoting a fix seen as prolonging the life of the fossil fuel in power stations.
Mr Dimery has said the government may have to step in as a lender of last resort to ensure coal remains in the power system. The premature exit of Loy Yang B – which provides 20 per cent of Victoria’s electricity and is set to run until 2047 – could cause market ructions and price spikes if not managed carefully.
Taxpayers face added risks and crises from the Victorian government’s intervention in the energy market, Credit Suisse said.
“It’s another step on the road to increased government control of the energy market, with Victoria leading the charge,” Credit Suisse analyst Saul Kavonic said.
“Both federal and state governments have done a poor job with their energy policy and interventions to date, leading to crises the market now faces, and the further government involvement via state-owned entities risks further crises, inefficiencies and losses for taxpayers.”
The move by Victoria may result in more states effectively nationalising their energy sectors, Mr Kavonic said, “as governments seek to intervene more in the market to remedy the unintended consequences of their previous interventions”.
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