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Hundreds of millions in compensation on offer for coal-fired plants


December 28, 2022

Hundreds of millions in compensation on offer for coal-fired plants

Origin Energy-owned Eraring is among a handful of NSW electricity generators set to share in federal compensation, on top of up to $450 million for Queensland’s largest coal-fired power station, because of losses to be incurred under Labor’s price cap plan.

The final amount that Queensland’s Gladstone Power Station, of which miner Rio Tinto owns the largest share, receives will be determined by the amount the plant is forced to cover for coal already locked in at prices above $125 a tonne.

Under the temporary plan, coal producers are forbidden from selling above the price cap and electricity generators must contribute power to the National Electricity Market at a cost that assumes they had paid under the level of the cap.

Where generators have previously locked in contracts at or above the price cap the generator will be compensated for the difference, which ensures, Labor argues, it does not become uneconomic for generators to continue supplying power.

The Albanese government argues the payments are not about maintaining super profits, which have been boosted by rocketing prices resulting from the war in Ukraine.

Among the generators to be compensated is the Gladstone Power Station. The federal government estimates the upper limit of the compensation to be $450 million over the life of the 18-month price cap.

The Queensland government confirmed it would split 50-50 with the Commonwealth the rebate to Gladstone Power Station “based on actual costs” incurred.

“As part of this partnership on energy security, the Commonwealth will work with the Queensland government on a package of commitments to support the clean energy transition,” it said.

Most generators in Queensland are government-owned and will wear any losses incurred during the price cap in return for federal funding for two pumped hydropower stations.

The Gladstone Power Station does not have long-term contracts for its coal, and is exposed to changes in the spot price for coal.

Its primary functions are feeding Rio’s bauxite refinery and aluminium smelter in Gladstone; however, the electricity grid has relied on supply from the station following outages across state-owned coal-fired generators, including Callide Power Station.

Similarly, there is an agreement between the federal and NSW government to compensate generators when they are supplying below cost, the final cost of which is unknown.

Origin in line for compensation

Chief among them is Origin’s Eraring, which purchases its feedstock from Centennial Coal. Eraring is located on the NSW Central Coast and is slated for closure in 2025.

Eraring is among between two and four power stations anticipated to be eligible for compensation to be paid after the fact, based on each generator’s supply mix and costs incurred. There is no total estimate, at this stage, for the overall compensation figure involving various private operators.

Neighbouring generator Vales Point Power Station could also receive compensation, chief executive Greg Everett has previously told The Australian Financial Review.

The NSW government was contacted for comment.

A spokeswoman for Energy Minister Chris Bowen said: “The Commonwealth is pleased to have worked with all states and territories to deliver the Energy Price Relief Plan, to shield Australian families and businesses from the worst impacts of predicted energy price spikes”.

“This plan will limit coal and gas prices, provide targeted energy bill relief to households and businesses who need it most, and we will continue to invest in cleaner, cheaper, more reliable energy for the future.”

But the fact coal-fired plants are being compensated has infuriated the Greens, which agreed to back the government’s price cap in exchange for a “significant package” to help households and businesses transition away from gas.

“Labor should be making coal and gas corporations pay more tax, not giving them handouts. In a cost of living crisis, Labor should be helping people, not big corporations,” leader Adam Bandt said.

“This money could be used to stop people’s power bills rising at all, and then recouped by a windfall tax on coal and gas corporations. Not a single dollar of public money should go to coal and gas corporations.”

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