Contract for Closure Program

The Contract for Closure Program was announced by the Australian government in July 2011 as a part of its carbon price package. The government stated that the primary aim of the program was "to support the closure of around 2,000 megawatts of highly emissions intensive generation capacity in Australia by 2020, subject to negotiation with eligible generators."

Background
The programme was announced as a part of the two-pronged "energy security" provisions of the federal government's Clean Energy Future package. In explanatory notes on the package, the government stated that:


 * "An Energy Security Fund will be established to ensure there is a smooth transition which preserves energy security. The Energy Security Fund comprises two elements:


 * An allocation of free carbon units and cash payments to strongly affected coal-fired electricity generators. These allocations will be conditional on electricity generators strongly affected by a carbon price publishing Clean Energy Investment Plans, which show how they will reduce their pollution, and by meeting power system reliability standards.


 * The Government will seek to negotiate the closure of around 2,000 megawatts (MW) of highly polluting generation capacity by 2020. Closing down some of our highest polluting coal-fired generation capacity makes room for investment in lower pollution plants—and kick starts the transformation of our energy industry in a managed way."

Key elements of the Contract for Closure program
The government stated that it aimed for plants to be closed in the period between 1 July 2016 to 30 June 2020 "although proposals for closure prior to 1 July 2016 may be considered."

While the government's initial plan was for contracts for closure to be entered into by 30 June 2012 this timetable was extended. In a media statement the Minister for Resources. Martin Ferguson stated that "there are a number of complex commercial issues yet to be resolved including the need to ensure value for money." Ferguson stated that "negotiations are expected to continue and the Government will endeavour to reach an outcome in the coming months."

The government requested generators interested in retiring coal-fired plant to submit an expression of interest by October 21 2011. Subsequently it announced that five generators had been invited to proceed to the negotiation phase. The five are:

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Closure program terminated
In September 2012 the federal Minister for Resources and Energy, Martin Ferguson, announced that plans for closure had been scrapped. In a media release Ferguson stated that "the Government could not be satisfied that entering into such arrangements would achieve value for money against the Contract for Closure Program objectives." He stated that regional adjustment funding which had been pledged to area affected by closure under the program would remain available to areas affected by the carbon price.

Ferguson told journalists that " I've said all along that there was no bottomless pit in terms of the amount of money available from the government's perspective to actually buy out electricity generation. On the basis of the outcome of discussions to date, I simply say there's no value for money for the government in continuing this process," he said.

Responses from power generators
Following the cancellation of the program International Power Australia issued a brief media statement. In it the company stated that "we have not been able to find common ground with the Federal Government on the terms of a closure."

Following the announcement, TRUenergy boss Richard McIndoe told the ABC that he though the government lost interest in negotiations when it became apparent that power demand was falling substantially says dollar figures weren't exchanged during negotiations. "I think the concept (contract for closure) was a reasonable concept to pursue but obviously the government is under increasing budgetary pressure and I suspect they saw an opportunity here to achieve those carbon emission reductions on the back of that lower demand for electricity over the next decade," McIndoe said.

McIndoe said that "we didn't really get to the point where there were negotiations to and fro about the actual number. I think that focus may have been with other generators," he said.

Environment group reactions
Following the decision, Environment Victoria called on the federal government to withdraw the proposed $5.5 billion in compensation from the Energy Security Fund. "If polluting power stations are saying in negotiations that they remain profitable and their assets are still valuable then there is no justification for giving them compensation for introducing a price on carbon. We don’t buy the Government’s line that the amount sought by power station owners for Contracts for Closure doesn’t represent value for taxpayers when $5.5 billion is being gifted to these same companies to keep polluting with no public benefit," said Mark Wakeham

After McIndoe's comments to the ABC, Environment Victoria's Mark Wakeham stated that "The Energy Minister claimed that negotiations hadn’t provided value for money, but it’s impossible to assess value for money if you don’t even discuss money with one of the two large power stations tendering for closure ... Even if the government did discuss the finances with owners of other power stations like Hazelwood it would have been impossible to make a comparison or drive a negotiation if you weren’t properly engaged with all parties. It’s becoming clear that the government didn’t have any intention of making these negotiations work or delivering on this key part of their commitments."

Australian government resources
Website: http://www.ret.gov.au/energy/clean/contract/Pages/ContractforClosure.aspx

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