Malcolm Turnbull’s secret plan to save Liddell coal station
Malcolm Turnbull has spoken to AGL about an imminent offer by Alinta Energy to buy the Liddell power station and extend its life.
AGL is under renewed pressure to sell the Liddell power station after Alinta Energy, allied with the manufacturing body representing some of the nation’s largest employers, moved to acquire the plant and extend its life by up to seven years.
The Australian can reveal Alinta Energy will make a formal approach to AGL to take control of the ageing Hunter Valley coal-fired power station and deliver energy certainty to major manufacturers that directly employ 50,000 skilled workers.
Following confidential talks in Canberra last week between Energy Minister Josh Frydenberg and Manufacturing Australia chief executives, and subsequent discussions at the weekend with Malcolm Turnbull, Alinta Energy has emerged as a serious contender to take over the 1800-megawatt plant.
Alinta Energy managing director and chief executive Jeff Dimery told The Australian the company saw a commercial opportunity to “facilitate a large customer base and enhance our market entrance strategy on the east coast of Australia”.
The Prime Minister last night contacted AGL chairman Graeme Hunt about Alinta Energy possibly taking ownership of the power plant. Last September, AGL chief executive Andy Vesey — in a meeting with Mr Turnbull, Mr Frydenberg, Treasurer Scott Morrison and former deputy prime minister Barnaby Joyce — pledged the company would consider selling Liddell.
Mr Dimery, who was put in touch with Manufacturing Australia chairman James Fazzino by Mr Frydenberg, said Alinta Energy was prepared to invest in assets that were “critical to delivering affordable and reliable energy during the transition to a low-carbon economy”.
AGL picked up the Liddell power station effectively for free when it acquired the Macquarie Generation portfolio in 2014, which also included the nearby Bayswater power station. AGL has forecast combined rehabilitation costs for Liddell and Bayswater in excess of $500 million.
“It (Liddell) is an older plant, it’s coming towards the end of its useful life, but we probably differ from AGL in that we have a view (depending on due diligence) that it could survive a little longer in the marketplace,” Mr Dimery said. “In respect to the expected shortfall with the planned closure date of 2022, we see a commercial opportunity by extending the life of an asset like Liddell.”
In January, Alinta Energy vowed to drive down power prices after finalising its $1.1 billion purchase of the Loy Yang B brown coal power station in Victoria from Engie and Mitsui. Alinta Energy retains a “collaborative and co-operative” relationship with AGL in Victoria.
Mr Dimery said it was critical to deliver reliable energy in the short term, while other energy sources, including the Snowy 2.0 hydro project, came online. “Manufacturing Australia raised concerns about the impact of the closure of the Northern and Hazelwood stations, and were realistic enough to understand the closure of Liddell, which is bigger than both Northern and Hazelwood, could be of concern, and they’re looking at ways to mitigate the risks associated with that for as long as possible,” he said. “We’re looking at pursuing this opportunity provided it makes commercial sense for all parties, by signing a forward contract that would push those dates to the late 2020s when more dispatchable power comes into the market.”
Manufacturers last week warned about the risk of energy shortfalls in NSW if Liddell was closed. In March, the Australian Energy Market Operator warned that, in the absence of new capacity, the closure of Liddell, which supplies more than 10 per cent of NSW’s energy, would create a one-in-three-year risk of power outages, lasting up to five hours, for 200,000 homes.
Mr Frydenberg said the government was concerned about the impact on energy prices and reliability from the proposed closure of Liddell in 2022. “That is why we initially sought AEMO’s advice which has now confirmed there will be a shortfall and a greater likelihood of blackouts if action is not taken,” he said. “We would be pleased to see Liddell remain open or sold by AGL to another party on a commercial basis. The interest shown by Alinta and the members of Manufacturing Australia in the future of Liddell is a positive sign and we hope the parties can enter into a constructive discussion.”
Manufacturing Australia — representing companies including BlueScope, Incitec Pivot, Rheem, Orora, Dulux Group, CSR, Cement Australia, Brickworks, Capral, and Adelaide Brighton — has spoken with Mr Frydenberg and Mr Turnbull about the need to deliver certainty for industries that drive the national economy.
Manufacturing Australia’s Mr Fazzino said he had spoken with “all relevant politicians to say we think Liddell should remain in the system one way or the other”.
“We can see where the future of the energy market is heading: that is solar, wind, gas and batteries, one way or the other, and hydro. The trouble is … you have to get there,” Mr Fazzino said.
“Our concern is, if you pull out of Liddell too early, does NSW have competitively priced, dispatchable power for what we do, which is run operations that need power 24/7, 365 days a year.
“We are keen to work with credible partners, who are willing — if they’re able — to step into AGL’s shoes and push the operating life of Liddell out to 2027-28.”
Mr Fazzino, the former long-time chief executive of Incitec Pivot, said that if a credible interested party emerged, manufacturers could deliver “certainty around offtakes to underwrite maintenance investment: whether that would be Alinta or AGL in their own right, should they choose to keep it going”.
He said Manufacturing Australia members, who were “contracted to coal, gas and renewables”, were largely indifferent to technology. “When you flick the switch it’s got to be reliable and affordable,” he said.
