Australian Govt. cancels 'contracts for closure'

[LancedDendrite]

As some of you might be aware of, part of the Australian Government's Clean Energy Future legislation was that some money (several billion AUD) was allocated to pay the operators of some of the dirtiest coal power stations in Australia to shut down. This has now been cancelled. But why has it happened? Several theories:

• It was cancelled so that the money could be used to help return the Federal Government budget to surplus sooner.
  
• The power plant operators were going to shut down the dirtiest power stations in the next 10 years anyway, as the oldest brown coal ones are the dirtiest (Hazelwood in Victoria and Playford B in SA were the rumored power stations involved)
  
• Alan Kohler at Business Spectator has an alternate theory - there isn't enough domestic gas to go around for the baseload gas-fired generators that would be built to replace them.
  

So, what's the reason? I'm tempted to say it's the last one. Why? Both SA and Victoria have rapidly depleting gas reserves. Both the Cooper Basin and Bass Strait reserves are set to be used up in the next 20 years at present usage rates. Most of the other state's gas is intended to be exported as LNG, so the prices these states will have to pay will be higher than current domestic prices.

[QuarkingMad]

Comments on the theories:

1) The budget bottom line is getting hit by lower than expected gains from the industrial sector in Australia, namely mining. Latest GDP data is out from ABS and it doesn't look rosy for the $1.5bn 'surplus'. Saving money by scrapping these compensatory payments, in the short term at least, is a fairly plausible option.

2) If the change is 10 years away development approvals need to get going, to advance into procurement and feasibility for new generators.

3) There are some very very interesting results coming from undeveloped regions of the Cooper basin in terms of shale gas. Utilising reserves to production ratios at a stationary point in time to extrapolate over a given time period to predict when the fields dry up is haphazard, and ignores a vast swathe of economic, innovation and geological factors that delay or extend that exhaustion date.
The gas prices in the Eastern market (SA, Vic, NSW, Qld) will rise on two factors. First being that the long term contracts for gas are coming up for renewal, and second the exposure to export LNG market through Gladstone. How much is up to the market on the day (supply/demand), and whether a long term contract in the future can be negotiated (i.e. certainty for generator fuel supply) and the terms of those contracts rather than a spot price.


Number 1 sounds the most plausible. Whereas 3 I'd be cautions when considering R/P ratios to determine "when the gas will run out", and the reasons for future gas price rises and their level impacting upon future investments.

[proteos]

I have read that the Australian CO2 emission permits market will be coupled to the EU market. If so, the price of carbon will be really low at start and for some years to come. Now the price here is below €10 per tonne.

With such a low price, coal and lignite remain extremely competitive. Owners won't want to close unless they get a huge amount of cash and/or they are loth to comply with anti-pollution regulations.