Closing Down the Hazelwood Power Station

It was a surprise to many in the community in early November 2016, when the French energy giant Engie (one third owned by the French Government) announced the closure of the Hazelwood Power Station in Victoria. The power station was owned 72% by Engie and 28% by Mitsui, and the announcement indicated it was to be closed on 31 March 2017. The Victorian Government stood back apparently unsurprised. Why – where was the grant to keep it afloat, as there was being offered to keep Alcoa alive at Portland with a $1.1 billion rescue.

From an environmental point of view, the decision was most welcome. Hazelwood has been considered the dirtiest power station in Australia, it was also close to being the dirtiest power station in the developed world because of the poor quality of the brown coal it burnt. It was nearly 50 years old, and had been supplying annually 20- 25% of Victoria’s power needs and 5% of Australia’s energy demands.

Various press reports indicated that the plant was simply too old, maybe a euphemism for too inefficient. Technological change had by-passed it when the State Government owned it, as it had failed to reinvest and modernize. It was doomed two decades after it was built.

Financially Sound

That said it has been a great financial investment, reaping its owners high returns, firstly because of the low capital value accepted by the State Government in the initial sale relative to its earnings, but more importantly because they could pollute at will, as there was no price on their pollution, no ETS, no carbon tax.

So if it was such a financial success, why close it down? Two events in Victoria go some way to explain the decision.

Recently, Alcoa closed its Aluminum smelter at Geelong. Alcoa also closed its tiny power station at Anglesea, which was a defacto emergency power generator, with a direct transmission line to the smelter as a backup. After its announcement to close the smelter it attempted to sell the power station. However a condition of sale imposed by the Victorian Government was that filters had to be installed to reduce the carbon and sulphur dioxide gases. The cost was to be over $150 million. There were no buyers so Alcoa was forced to close the power station. It will demolish it, presumably pushing it into the coalmine, then rehabilitate the site. This set a precedent.

The second major event was the fire at the Hazelwood mine on the 9 February 2014, which burnt for over 45 days sending smoke and ash over Morwell and the surrounding district. There were a number of official reports prepared after that fire, which made recommendations for the owner of the mine and the State Government.

Engie when announcing the closure, indicated that owning Hazelwood, did not fit with the clean and green image Engie sought for its long term business model, and that its reputation was being damaged by retaining Hazelwood.

They also indicated that had tried to sell

Hazelwood, and like Alcoa could not find a buyer. History seems to be repeating itself.

They also indicated that it was not economic to clean-up the pollution in the power station.

But finding out what clean-up was required and by whom, has proven to be an impossible exercise. And that is where the facts stop. In the future the full story will become public. It can be speculated that like Alcoa, the Victorian Government may have required filters on the 8 chimneys. If it cost $150 million for one chimney at Anglesea, and that is for one small chimney, then 8 huge chimneys at Hazelwood, would cost at least $1.2 billion, but more likely over $2 billion.

As with Alcoa, if this scenario has merit, then the decision to close Hazelwood would then appear to be logical.

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