In November 2015, the NSW Government offloaded Vales Point Power Station — an old, polluting coal-fired plant on the shores of Lake Macquarie — for $1 million.
Suburban homes sell for more.
A former energy industry bureaucrat and a coal baron bought Vales Point at the fire sale price through their company, Sunset Power International.
Last week, as politicians loudly debated the latest energy plan to come out of Canberra, Sunset Power quietly released its latest financial reports — revaluing the Vales Point Power Plant at a cool $730 million.
The shareholders, who lent Sunset Power the money to buy the old power plant, pocketed nearly $40 million through a share buy-back by the now cashed-up company.
Nice work if you can get it.
The shareholders are companies associated with Trevor St Baker, an energy industry veteran and former engineer with the NSW and Queensland electricity commissions, and Brian Flannery, a BRW rich-lister who owns a suite of mining, energy, and property assets.
He controls more than 25 per cent of the ASX-listed ERM Power Limited, which purchases power under contract from Vales Point.
In turn, ERM has contracts to supply the NSW Government with electricity.
The changing fortunes of Vales Point Power Station is, on one level, an illustration of how Australia’s energy policy chaos is creating unlikely winners and losers.
Back in 2015, the State Government considered the old coal-fired power plant near worthless: unable to compete with either cheaper brown coal-generated electricity from Victoria or the growing supply from renewable energy.
As the State Government was shopping it around for sale, the “useful life” of the Vale Point Power Station was reassessed.
Despite its technical closure date of 2029, the State Government slated it for closure in 2021 — resulting in a $371 million write-down.
When it was finally sold, after struggling to find a buyer, the then-NSW treasurer Gladys Berejiklian issued a media release which said the $1 million price tag was “above its retention value”.
Selling Vales Point would rescue the taxpayer from “ongoing losses” and exposure “to significant liabilities, such as costs associated with decommissioning, estimated to be in the tens of millions”, she claimed.
Two years on, how different things are — wholesale electricity prices have soared.
The external environment is conducive to ERM Power’s business plan, with the need for competition clear in the National Energy Guarantee and in the recommendations of the Electricity Supply and Prices Inquiry by the Australian Competition and Consumer Commission (11 July 2018).ERM Power has a core electricity retailing business from which customer relationships are expanding into new energy management solutions.Investment in recent years has laid a solid platform for this business which is exceeding its targets. The Energy Solutions pro position is underpinned by market insights, deep knowledge of how businesses consume energy and powerful data analytics leading to compelling integrate d project solutions.The Company’s generation assets are an important part of the portfolio. Gas has a critical role to play in the transition to a lower-emission electricity sector, highlighting the strategic value of ERM Power’s two gas-fired peaking power stations – Oakey Power Station in Queensland, and Neerabup Power Station in Western Australia.ERM Power continues to execute on its strategy to create a high-performing business that advocates and delivers for energy consumers and in turn, shareholders, while making a positive contribution to the communities in which it operates.
With finance costs, inter company loans and a raft of advice from the pin stripe mafia, company tax appears to be optional
Over the past year, Vale Points’ owners gained $380 million from electricity sales from the power station, compared to $270 million for energy generated during its last full year of state ownership.
The changing energy landscape
The closure of the Hazelwood Power Plant in Victoria has tightened the market.
Victoria’s decision to subsidise the continued operation of the energy-intensive Portland Aluminium Smelter has bolstered demand.
Gas prices have soared, as much of Australia’s gas gets sent offshore, making coal-fired power more competitive.
Perhaps most critically, continued uncertainty about Australia’s energy policy — and the Federal Government’s perceived hostility to clean energy — has curtailed the amount of new generation capacity coming onto the market.
The new owners of Vales Point Power Station say they have no intention of closing it in four years’ time.
Sunset Power sees the “useful life” of the old coal-burning power plant extending to at least 2029, and possibly beyond.
That’s one of the reasons for the massive hike in its book value.
Some might quibble at the $730 million valuation for the station.
One analyst we spoke to said that cost of decommissioning and rehabilitating the site of the ageing unit might be in the hundreds of millions, not tens of millions, and this did not appear to be factored in.
But the days of decommissioning could be a long way off if the Federal Government’s New Energy Guarantee is enacted, forcing electricity retailers and large users to enter contracts for “dispatchable energy” from gas and coal.
Great news for Mr St Baker and Mr Flannery; it looks as if they made a shrewd bet and got the power station for a steal.
For those who believe we should be shifting away from polluting fossil-fuel sources of energy, it’s not such a good outcome.
In 2015/16, it was responsible for 11.4 per cent of the large-scale electricity generation in NSW, producing nearly 7 million tonnes of CO2 emissions — a cause of global warming — in the process.
“This is a stark example of the consequences of Australia’s broken energy policies,” said Adam Walters, research director at Energy & Resource Insights.
“Years of chaos has led to a chronic lack of long-term planning and delayed investment in new renewable capacity.
“As a result, supply tightened so much in the wake of Hazelwood’s closure that windfall profits have been delivered to highly polluting coal power stations.
“Australia’s self-sabotaging approach to gas exports hasn’t helped either.”
Maybe the NSW Government’s decision to sell the ageing asset was a little hasty.
Despite the climate science, and the Paris accord, the days of coal-fired power aren’t done.
The idea of the federal government underwriting new electricity generation is based on a recommendation made by the ACCC in their Retail Electricity Price Inquiry Report last year. The ACCC proposed that the federal government support commercial and industrial electricity customers to access long-term contracts for new generation.