The Hazelwood Effect

The Hazelwood Power Station is set to close its doors in March, leaving 500 workers unemployed. While the closure has had a devastating impact on the workers and their families, as well as the community as a whole, the effect of the controversial closure on the entire nation is beginning to show.


The Hazelwood power plant was commissioned in the late 1960s, making it one of the oldest coal-fired power plants still operating in Australia. But after more than 50 years, the power station, in Victoria’s Latrobe Valley is closing its doors.

In May last year, ENGIE announced it would gradually withdraw from coal-fired power stations. Chief executive Isabelle Kocher told a French senate committee they would study all possibilities for the Hazelwood plant. From May to November, it was unclear what the future was for Hazelwood.

In November, ENGIE announced 500 workers would face the axe as Hazelwood approached its schedule shutdown for March 2017.

The power station supplies about 22 per cent of Victoria’s energy requirements and employs around 750 workers, 250 of which will stay employed at the power station until 2023 to manage the decommissioning and help rehabilitate the adjoining mine site.

ENGIE Australia chief executive officer Alex Keisser said the power station was no longer economically feasible for the plant to continue operating.

“Hazelwood has been a wonderful contributor to the National Electricity Market but we have now reached the point where it is no longer economic to operate,” Mr Keisser said.

In order to re-establish its viability, Mr Keiser said hundreds of millions of dollars would need to be invested, and it was a level of investment that could not be justified.

The loss of jobs from the power station’s closure is being seen as a blow to the state’s economy, with Latrobe Valley unemployment rates already ranking one of the highest in the country.

ENGIE has also indicated it is studying the possible sale of two other Australian power production assets in Australia: Loy Yang B coal power station and Kwinana gas power station.

THE PARIS AGREEMENT

On April 22, 2016, Australia signed the Paris Agreement. In line with its obligations under the agreement, the Australian Government has committed to reduce emissions to 26-28 per cent below 2005 levels by 2030.

This target represents a 50-52 per cent reduction in emissions per capita and a 64-65 per cent reduction in the emissions intensity of the economy between 2005 and 2030.

Currently, coal-fired generation (both brown and black coal) makes up 78 per cent of electricity generation across the National Electricity Market.

Currently, there are 24 coal-fired power stations in Australia. Since 2010, nine coal-fired power stations have been decommissioned.

The Climate Change Authority August 2016 Policy Options for Australia’s electricity supply sector: Special review research report (CCA’s Special review research report), noted that of all the sources of electricity generation, coal contributed 88 per cent of emissions.

“Of the generation sources that produce emissions, brown coal is the most emissions-intensive—that is, it produces the most greenhouse gas emissions per unit of generation—followed by black coal and gas,” the report said.

“The total emissions from each fuel depend on the emissions intensity of the fuel itself and what share of total generation it makes up. Coal produces around 88 per cent of generation emissions, 35 per cent from brown coal and 53 per cent from black coal.”

If Australia wants to reduce emissions and reach its renewable energy targets, cleaner power sources are needed. This has lead to a level of uncertainty and insecurity in the industry, with more closures inevitable.

INQUIRY INTO THE RETIREMENT OF COAL-FIRED POWER STATION

The Environment and Communications References Committee, headed by Senator Larissa Waters, released their interim report for its inquiry into the planned closure of coal-fired power stations in November.

The inquiry looked at policy mechanisms to encourage the retirement of coal-fired power stations from the National Electricity Market, and policy mechanisms to provide a just transition for affected workers and communities.

Associate Professor Frank Jotzo, director of the Centre for Climate Economics and Policy, ANU College of Asia and the Pacific, and Professor John Wiseman, deputy director of the Melbourne Sustainable Society Institute, University of Melbourne, provided the committee with information from their International Coal Transitions Research project.

“The Nationally Determined Contributions (NDCs) submitted under the UNFCCC Paris Agreement imply significant reductions in the share of coal in primary energy by 2030,” the Professors’ submission said.

“Holding the increase in global temperature to well below 2°C and pursuing efforts to limit it to 1.5°C would require even deeper reductions in coal use in the energy system by 2030 and 2050, even allowing for [carbon capture and storage] technology.

“Relevant research and advocacy efforts have so far focused, with a high degree of success in many places, on stopping new coal plants. But early phase-out of both coal production and consumption assets will also be necessary to stay well below 2°C.”

In order to meet the Paris Agreement targets and to effectively retire coal-fired power stations, there must at the same time be an increase in renewable energy systems to ensure a smooth transition.

Many submissions argued if coal-fired power stations were to close, they would need to be replaced with power stations using different energy sources in order to maintain energy security.

The Australian Mines and Metals Association (AMMA) explained the importance of maintaining the security and stability of the country’s electricity market in its submission.

“…if Australia reduces its reliance on coal (through the retirement of coal-fired power stations) and if the demand for energy (electricity) were to remain or increase, without the same amount out of supply being brought on to the market by alternative energy sources, the price of energy (electricity) will rise as well as elevating the risk of supply shortages (dependent on inventory levels).”

AMMA called for a National Energy Transition Plan be developed, including harmonised renewable energy targets, that ensures affordable, reliable and secure energy and delivers measured transitions that are as fair as possible for employees, communities and the industry.

“Australia requires genuine and constructive policy discussions on our energy future, including on the emergence of renewable sources and ensuring we meet our international obligations such as those agreed in Paris,” AMMA head of policy Scott Barklamb said.

“However, discussions on future power generation in Australia must also be firmly grounded in facts. For instance, while there will be a considerable shift in investment towards renewables over the next 25 years, the World Energy Council projects fossil fuels will remain the dominant producer of electricity until at least 2050.

“While government will have an important role in promoting and incentivising new sustainable energy technologies, its first priority must be maintaining access for Australian industries and communities to affordable and proven reliable energy sources.”

Mr Barklamb said AMMA was concerned about “naïve optimism” that the renewable energy industry can seamlessly pick-up all jobs lost from coal-fired power stations.

“Unfortunately, there is minimal geographical commonality between Australia’s current coal fired power stations and where our potential for renewable energy will emerge,” he said.

“Even if former coal-fired power station employees had perfectly transferable skills and experience, most would have to relocate to find employment.

“The key challenge for governments will be implementing energy transitions predictably and transparently, while minimising losses of existing jobs, maintaining energy security and positioning Australia’s energy sector as an attractive and globally competitive place to invest and do business.”

The committee made note of the national plan in its interim report, and said the phase-out of coal-fired power stations would need to be structured and managed well. One of the arguments posed in favour of a strategic national plan to retire coal-fired power stations is that is reduces uncertainty for workers in the industry and allows them to plan for a future without coal.

“In the past fifteen years, there has been a push by labour organisations and environmentalists across the world for what is termed a ‘just transition’. A ‘just transition’ is defined as linking ‘ecological sustainability with issues of work, equity and social justice’,” the report said.

“A just transition process recognises the needs of both current and future generations for safe, secure and satisfying jobs… A just transition is needed to ensure that the costs of change do not fall on vulnerable workers and communities.”

In the interim report, the Committee said the question was not if coal-fired power stations will close, but rather, how quickly and orderly the closures will occur, and what policies will be in place to manage the process.

“The age and declining economic potential of Australia’s fleet of coal fired power generators, as well as Australia’s commitment to reducing its carbon emissions footprint in line with the Paris Agreement, means it is inevitable that many of these coal fired generators will cease operations in the medium term,” the report said.

“It is imperative that this reality is acknowledged by government, industry and the broader community, so that this transition can be adequately planned for and implemented at the lowest cost to consumers, taxpayers, workers and communities.”

HOW MUCH WILL THE CLOSURES COST?

The Australian Energy Market Commission released their annual report on household electricity price trends in December. The 2016 Residential Electricity Price Trends report showed residential electricity prices are expected to rise over the next two years to 2018/19, driven by significant increases in wholesale costs following the retirement of the Hazelwood coal-fired power station.

“The changing generation mix – as more wind and solar generators enter the market and coal-fired generators retire – changes electricity flows across regions and leads to variation in residential prices,” the report said.

The effect of the retirement of the Hazelwood power station on the wholesale market is particularly large, according to the report, as it currently accounts for around 20 per cent of Victoria’s electricity consumption. Prices in Victoria, South Australia and Tasmania are expected to increase by around 20 to 40 per cent from 2016/17 to 2017/18 following the closure, before decreasing by around 10 per cent in 2018/19.

AEMC Chairman John Pierce said the wholesale costs are estimated to increase by between 5 per cent and 15 per cent each year over 2015/16 to 2018/19 in most states and territories, while demand remains flat.

The report estimates the national average residential bill will be $78 higher in 2018/19 due to Hazelwood retiring, compared with Hazelwood continuing to operate.