New govt tender process could favour coal power

Giles Parkinson, RenewEconomy

The Coalition government has unveiled the details of its rushed proposal to underwrite ‘new generation investments’, and it looks for all the world like a document that can be tailored to deliver whatever the government wants.

And in this case it looks increasingly like an opportunity to use taxpayers money to support the extension of an existing coal generator, most likely Vales Point in NSW.

The first thing to note is that the tender document may well be titled ‘new generation investments’ but it is open to upgrades and life extensions of existing generators, which can only mean coal and gas plants.

As well, the government has given itself license to pick and choose what it wants. And the process is deliberately framed as a ‘registration of interest’, rather than a more formal ‘expression of interest’, which would require higher levels of governance.

The various mechanisms and merit criteria are also not finalised, and can – and will – be tailored to suit whichever project takes its fancy. And the energy industry is pretty convinced what that project will likely look like: an extension to the Vales Point coal generator in NSW, possibly with a contract with the Tomago aluminium smelter.

The Coalition appears to have no more than six months left in power but is determined to leave its mark.

Apart from its clear preference for a coal project in this process, it has continued to demonise renewables, became the only country to openly support the US lobbying in favour of coal-fired power at the UN climate talks, and kept its head down when most countries expressed their horror at attempts by the US, Saudi Arabia, and Russia to have references to the recent IPCC document excluded.

Australia is also under fire over the long-running legacy of its ‘dodgy accounting’ rules that it won in the Kyoto negotiations. Those rules have allowed Australia to dramatically increase its emissions to meet the first phase of Kyoto, do little or nothing for the second phase, and they may now be carried over even further to offset its targets under Paris.

The underwriting document issued by the Coalition on Thursday (December 13) claims the process will be ‘technology neutral,’ providing a ‘level playing field to enable the best and lowest cost generation’ options to be supported.

‘All technologies allowed under Australian law will be eligible under the program, including ‘greenfield’ and ‘brownfield’ projects, such as upgrades or life extensions of existing generators,’ it says.

It notes that it could include wind and solar, firmed by contracts or co-located storage. On the face of it, that could give such projects hope, given the low prices for ‘firm’ wind and solar reported by the government’s own utility, Snowy Hydro, recently, and the observations from UK steel baron Sanjeev Gupta about what that could mean for solar plus storage projects.

The fear is, however, that it might be something like immigration policy; nominally open to all but the government will choose who it wants to enter the country.

And the Morrison government does appear to be in an awful rush. The ‘registrations of interest’ (ROI) must be submitted on January 23, a highly unusual deadline given it allows barely six weeks for replies and straddles the Christmas and New Year holidays.

The government wants to use this to develop a ‘pipeline’ of potential projects so it can then tailor the design for a more formal request for proposal that will be issued before the end of March. That process may also have a tight deadline, given that if it is keen to get the contract signed, sealed and delivered, it will need to do so before entering caretaker period before the poll likely in mid May.

Contrary to reports in mainstream media (Sydney Morning Herald), the scheme will be capped. It’s just that the caps won’t be revealed, apparently to encourage competition in the bidding. The minimum project size is 30MW.

The government has basically given itself the right to choose what it wants. Any number of mechanisms could apply, including floor price contracts, cap and floor (collar) contracts, contracts for difference, underwriting of cap contracts, loans and grants.

And it has given itself permission to apply ‘final eligibility and merit criteria’ depending on whatever mechanism it finds attractive. In other words, if it has a particular project in mind, then it can tailor the rules and requirements of each phase of the program to suit.

‘The government will refine the design of the program in the light of the information it receives through the ROI process. The eligibility and assessment criteria provided in this document are indicative only,’ it says.

‘The final eligibility and merit criteria that will be applied to proposals may differ depending on the kinds of support sought. The government reserves the right to determine the appropriate support mechanisms and the assessment criteria that will best achieve the program’s outcome and objectives for each phase of the program.’

It’s actually quite clever, but it’s also quite laughable.

Even the emissions ‘criteria’ are not fixed. The SMH made much of the fact that the merit criteria will favour investments in low emissions. But the actual document makes it clear that these criteria are options only, and may not form part of the final proposal.

The document says merits of a project ‘could be assessed’ against emissions intensity, but also that the government ‘may add to, amend or remove criteria prior to the commencement of the RFP process.’

So, if the government likes a particular project, it will be able to report a remarkable coincidence in the final merit criteria.

And why does the energy industry appear so convinced that Vales Point will be the ‘chosen’ one, an observation made from the very day the Coalition announced its underwriting plan.

Partly because Vales Point’s owner has made it clear that it wants to extend the life of its asset, and landing government support would make that task a lot easier, particularly in the face of more wind and solar generation coming on line, not to mention the anticipated proliferation of rooftop solar and household storage.

One of those owners, Trevor St Baker, dominated discussion at an open forum hosted by Taylor and his advisers in early November, and was a speaker at the Coalition’s Monash Forum that represents an attachment to coal-fired generation and a disregard to climate science.

St Baker and partner Brian Flannery have already done well out of the purchase of Vales Point, which they picked up for $1 million from the NSW government under a negotiation handled by then NSW government advisor and now Energy Security Board chair Kerry Schott.

Any such decision will be loudly opposed, and seven environmental NGOs have already moved, writing a letter warning financiers that any provision of finance for new coal or retrofits of old coal-fired power stations would be inconsistent with their public commitments to the Paris Agreement.

The letter has been sent to Westpac, CBA, NAB, ANZ, Macquarie, Suncorp, AMP and BoQ.

It refers to the recent IPCC report on climate change, the current UN climate conference, and the recent comments by Geoff Summerhayes, a board member of the Australian Prudential Regulation Authority (APRA), who warned:

‘Shifts in market sentiment have increased the risk of asset value volatility, and the potential for stranded assets. Institutions that fail to adequately plan for this transition put their own futures in jeopardy, with subsequent consequences for their account holders, members or policyholders.’

The NGOs – ACF, Get Up, Greenpeace, ACCR, The Australia Institute, AYCC and Environment Victoria – said they were seeking assurance that new coal projects and/or coal retrofits to extend the life of existing generators will not be financed by those institutions.

This article was first published in RenewEconomy and is reproduced with permission.