The shadow climate change minister, Mark Butler, has issued a clear warning to Australia’s energy sector that Labor does not support the government indemnifying new coal plants against the future risk of a carbon price – noting the cost to taxpayers could run into billions.
While the ALP federally has a policy of not repudiating contracts, Butler told Guardian Australia on Wednesday: “Investors need to understand very clearly that we do not support that. That would be an extraordinary waste of taxpayers’ money.”
Butler’s comments follow a signal from the energy minister, Angus Taylor, that the government could provide an indemnity for private projects as part of “absorbing” the risks currently stopping companies investing in new “reliable” power generation.
The prime minister, Scott Morrison, earlier this week held out the prospect of government support for new coal-fired power stations “where they meet all the requirements” of yet-to-be finalised new mechanisms to boost investment in new electricity generation.
One of the key problems preventing private investment in new coal-fired power generation is proponents have struggled to get finance because they are unable to predict future carbon risk, particularly given Australia’s decade-long partisan standoff over emissions reduction policies.
Taylor told Guardian Australia in an interview on Tuesday the government would look to remove the risks currently stopping investment in new power generation. “I’m saying we will look at whatever risks that can’t be managed by the companies that need to be managed to get investment.
“What we are saying is the risks that government needs to absorb to get investment in reliable generation, we will look at absorbing. We need the investment.”
Butler said in response the idea that the Coalition would expose taxpayers by taking on private sector risk associated with new coal plants “which the industry itself has described as uninvestable, marks a new low, even for this government”.
He warned that if the government did proceed to provide an indemnity for a new coal project to shield the investor from future carbon risk, the cost to taxpayers “would likely run to billions of dollars that could otherwise be spent on schools and hospitals”.
With an election due in the first half of next year, Butler sent a clear signal to the energy sector that it would be imprudent to countenance such a proposal. “Labor has sent the clearest possible message that new coal-fired power stations have no part in Australia’s future energy mix”.
“They are too expensive, and fundamentally inconsistent with our climate change obligations”.
Taylor has made it clear the Morrison government wants to settle a decision about the mechanisms the government will use to underwrite investment in new generation projects quickly, and have a short list ready to go by early next year, so before the next federal election.
The energy minister says government backing will be available not only for new generation projects but also for retrofitting existing plants.
The idea of the government underwriting new generation power stations was proposed by the Australian Competition and Consumer Commission in a recent landmark review of the electricity market.
The ACCC suggested an underwriting mechanism where the government would enter low fixed-price energy offtake agreements, set at $45-$50 per MWh. While government conservatives grabbed the recommendation as a potential lifeline for coal, the ACCC made it clear that wasn’t the intention.
The ACCC’s recommendation was also aimed at bringing new entrants into the market to increase competitive pressure on the incumbents, but the government has departed from those parameters.
It is unclear whether any market participants would bring forward a proposal for a new coal plant before next January, and whether it would get regulatory approval.
Trevor St Baker, part-owner of the Vales Point coal generator and founder of the business electricity retailer ERM Power, has previously telegraphed interest if the government settles on a favourable energy policy.