Business calls for ’emergency intervention’ on Hazelwood closure

A leading national business group has called on Canberra and Victoria to consider an unprecedented “emergency intervention” to keep the Hazelwood coal power plant running due to escalating concern about electricity supply and prices.

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The extraordinary call by the Australian Industry Group comes just a week before the ageing coal-fired plant – Australia’s dirtiest, but which has provided up to a quarter of Victoria’s electricity generation – is scheduled to close.

Industry observers said it was unlikely the group thought Hazelwood could be kept open, but was using its closure to illustrate what it sees as the severity of the situation, and hoping to prompt government action.

Australian Industry Group chief executive Innes Willox said its 60,000 members were not convinced that the risks faced by energy users were being effectively managed.

He called on the federal and Victorian governments and the Australian Energy Market Operator to reassess whether Hazelwood’s loss could be covered before electricity demand peaks next summer.

“In the absence of convincing and appropriately sequenced alternative strategies, the state and federal governments should remain open to finding an 11th hour solution to keeping Hazelwood operating in some form,” he said.

Mr Willox said potential alternatives included:

Increasing generation from plants running well below capacity, including gas and NSW black coal stations.

Boosting gas supplies through a “swap”: getting the export companies that sell most of the east coast’snatural gas to Asia to buy extra supply offshore to meet international contracts, allowing them to sell more to Australian users.

Introducing a financial incentive for big energy users to cut how much they use at peak demand times.

Dramatically expanding plans to help big users to reduce energy waste by becoming more efficient.

Mr Willox said the group appreciated propping up Hazelwood would be a costly step, not least because the plant is run down and would require expensive upgrades.

He acknowledged it would also disrupt arrangements for workers and the community, and that governments intervening would further affect investment confidence across the electricity sector.

“These costs need to be weighed, and fast, against the current status of efforts to secure our grid and the risks if those efforts fail … We need urgent action, and all options should be on the table,” Mr Willox said.

The Australian Industry Group is part of an unlikely coalition, spanning business and the environment movement, calling for the introduction of an emissions intensity scheme – a form of carbon trading – as part of a national policy to encourage investment in new power plants while cutting greenhouse gas emissions. Hazelwood will be the 10th coal plant across the national market to shut this decade.

Meanwhile, Victoria has more than 2000 megawatts of peaking gas-fired power plants operating at about 5 per cent of capacity across the past two years.

The business call follows Fairfax Media reporting on market operator data suggesting that, if electricity use was at a 10-year high, there could be 72 days over the next two years in which Victoria could face a “reserve shortfall”.

Under a reserve shortfall, Victoria would not have enough generation capacity available to meet demand with a significant buffer. It does not mean the state faces blackouts, but illustrates that with Hazelwood closing there is less margin for error in the operation of the electricity grid. Victoria – historically an electricity exporter – may sometimes have to import from other states.

Federal ???Energy Minister Josh Frydenberg said the market operator last year advised that there would still be enough power once Hazelwood shut, and the government was carefully monitoring the situation.

He blamed the Andrews government for Hazelwood’s closure, saying it had tripled brown coal loyalties to a level similar to other states. ??? Victorian Energy Minister Lily D’Ambrosio said Hazelwood was closing because its majority owner, French company Engie, made a commercial decision to divest itself of coal assets.

The company considered selling the plant but could not find a buyer. The plant also faced several WorkSafe notices that would have cost hundreds of millions of dollars to address.

“[The operator] has assured us that they are responding to market demands and that there will not be energy shortfalls in Victoria,” she said.

The market operator said its projections were based on conservative estimates of supply and extreme weather conditions and would not necessarily translate to real energy shortfalls.

It pointed to a report from last November, when it said in the absence of further action there was the potential for reserve shortfalls in Victoria next summer, and listed potential responses including returning mothballed plants to service, storing water during the year to allow greater use of the Murray Hydro plant and introducing programs to reduce peak demand.

Announcements since then include Victoria launching a $25 million tender for a large-scale battery.

Industry experts said Victoria should not have supply issues if the electricity market was operating properly.

Environment Victoria chief executive Mark Wakeham said the concern showed the failure to introduce a national energy transition plan for electricity was having dangerous consequences across the economy.

“Hopefully, Hazelwood’s closure is the wake-up call we all need for a coherent national climate and energy policy, not just thought bubbles about infrastructure projects,” he said.