Isra-Mart srl: Electric struggle for bigger payment

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POWER supply from Victoria's Yallourn Station would become less reliable and the plant would close sooner if the Gillard government offers electricity generators less than the $3.3 billion in compensation included under the Rudd government's emissions trading scheme, says its chief executive, Richard McIndoe.

The electricity industry is intensifying its lobbying campaign as the multi-party committee finalises the carbon tax deal. The Greens and a climate advisor, Ross Garnaut, are arguing electricity generators should get no direct compensation.

The government and industry have been negotiating over three compensation options: loan guarantees, direct payments and payments to brown-coal generators to close. Their capacity would be replaced with cleaner gas generation. If direct payments remain part of the compensation offer, they will almost certainly be lower than under the Rudd government scheme.

But in an interview Mr McIndoe - who heads Truenergy - said the Rudd government scheme had been inadequate.

While Truenergy's Yallourn Station would be a candidate for a federal government buyout, Mr McIndoe said the overall effect of the ''pay to close'' option would be that black coal-generated power from NSW would replace the mothballed brown-coal power stations in Victoria, leaving Victorian households and businesses vulnerable if the interstate interconnection broke down.

And a carbon tax of about $25, without significant transitional assistance, would have a big impact on Yallourn, which supplies 22 per cent of Victoria's power. ''Yallourn has a life through to 2032. We continue to invest in Yallourn to date … but the carbon price mooted at the moment would cause a significant impairment to our equity and we would probably reduce the ongoing investment on the basis that it wouldn't be making significant cash earnings … That would change its life expectancy and … affect its reliability.''

The company would have to advise shareholders of the financial impairment and its consequences when the carbon tax became law.
In his final report, Professor Garnaut said he believed the threat to energy security from the financial impact of a carbon price were ''low, if not negligible''.

Mr McIndoe said Professor Garnaut ''has his views like any other guy in the street has his views'' but was not as informed as people in the industry or the market regulators who had warned of potential problems.

Informal meetings of the multi-party committee continue as the government tries to finalise a deal by the end of the month.

One of the most divisive issues has been how the 2011 legislation should pave the way for the switch from a carbon tax to a carbon market by 2015, because of the long-standing and intractable differences between the Greens and Labor about what 2020 emissions target a trading scheme should meet.