THE Yallourn brown-coal electricity generators are trying to blackmail government into giving them even more billions of dollars in compensation for the carbon pollution reduction scheme, saying that otherwise they will refuse to maintain their power stations, leading to blackouts across Victoria.

In full-page advertisements in daily newspapers last Tuesday, TRUenergy, which operates the Yallourn W power station, claimed the CPRS as proposed would bring down the electricity sector in Victoria and families and businesses would pay the price. According to TRUenergy, if the CPRS is eventually passed, ”over $8 billion is wiped from the balance sheets of private generators immediately”.

This is after compensation in the form of free pollution permits has been increased 50 per cent as a result of the negotiations between the Government and the Opposition. This is estimated to be worth some $2 billion to the three Latrobe Valley generators over 10 years on the basis that the cap on emissions is reduced by only 5 per cent and possibly worth twice this amount if the cap is reduced by 20 to 25 per cent. On top of this, generators are also offered government guarantees for any borrowings for loans in their highly geared companies, which might have to be rolled over during the next 10 years.

All this bounty led Greens leader Bob Brown to describe the amended CPRS accurately as a ”polluter’s paradise” but TRUenergy chief executive Richard Macindoe says this is not enough for the Yallourn generators because all their $8 billion equity will be wiped immediately the CPRS legislation is passed.

The written-down value of the six gigawatts of capacity of the four generator companies (Hazelwood 1.8Gw, Yallourn W 1.4Gw, and Loy Yang A&B 3Gw) is about $4 billion according to consultant and management educator John Legge, who worked as an engineer on the construction of the power stations in the 1960s. The SECV depreciated power stations over 25 years. The oldest and dirtiest stations, Hazelwood and Yallourn W, were written off years ago. The Loy Yang generators were put in place in stages from the 1980s and would have a residual value less than a third of construction costs.

The politicians in Canberra have put together a CPRS that will give free pollution permits worth anything between $7 billion and $20 billion over 10 years, depending on whether the cap is reduced 5 per cent or somewhere up to 25 per cent following the eventual Kyoto Mark II agreement.

The generators don’t get the money unless the price of electricity rises. Macindoe said after the Government/Opposition deal was announced that the price of electricity would double in the next four to five years if the CPRS went ahead as planned. If that happens then the value of the free permits will more than double to $15 billion to $20 billion and the generators might then be worth $8 billion or more expressed as the present value of the stream of future earnings.

See The Age 30th Nov 09 for the full article.