Brokhof said he believed the mechanism would only apply in “really adverse market conditions”.
“We believe the power station can run profitably until closure,but in parallel we are sticking to our clear ambition to build 12 gigawatts of renewable and firming capacity,” he said.
Credit:Matt Golding
Asked about the circumstances under which the government would fund the operation of the power station,D’Ambrosio said:“It is not about this. We need Loy Yang A to be there so that we have sufficient supply to meet our needs,to keep the lights on and to give us the opportunity to build the replacement renewable energy that we are right now delivering.”
The electricity generator is underpressure from its major shareholder,software billionaire Mike Cannon-Brookes’ Grok Ventures,to close the massive generator before 2035 and rapidly decarbonise its operations in line with the Paris climate accord.
Grok Ventures would not comment. But AGL’s largest shareholder is understood to be engaging with the company on the latest deal and other matters.
Analysts at investment bank RBC Capital Markets,who track AGL’s performance,said there was little financial clarity on how the risk sharing and minimum operational and performance availability levels agreed to with the government would work.
Mike Cannon-Brookes’ investment company,Grok Ventures,succeeded in blocking power giant AGL’s proposed break-up.Credit:Flavio Brancaleone
But,the deal was likely to provide AGL with certainty around its future cash flows from Loy Yang A,analysts said.
One possible form it might take was by an agreed-upon lower “floor price” limit and an “upper ceiling” limit for the price of electricity.
“Any time the plant realises an electricity price lower than the floor,then the Victorian state government would provide a top-up payment and these payments would be tracked on a cumulative basis,” the analysts said.
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“Conversely,if a top-up ‘debt’ exists and Loy Yang A earns a realised price above the ceiling,then the revenue above the ceiling price would be paid to the Victorian state government to pay down the top-up ‘debt’.”
In the lead-up to last year’s state election,Labor announced plans to revivethe State Electricity Commission. The details are still unclear,but at the time Premier Daniel Andrews said the government would hold a controlling interest inrenewable energy projects,which would generate the 4.5 gigawatts of power needed to offset the closure of Loy Yang A.
Even under the flurry of existing and committed energy projects in the pipeline,modelling by the Australian Energy Market Operator has suggested Victoria could face power reliability gaps as early as 2024,with more serious breaches possible from 2028 onwards.
Victorian Greens coal transition spokesman Tim Read said the government must come clean on the risk-sharing mechanism,and whether it involves the state taking on the financial risk of keeping an outdated,polluting brown coal power stations running longer than its private owner otherwise would.
“Labor needs to reassure Victorians that they’re not taking on a future financial risk in order to prop up the state’s biggest carbon polluter,” Read said.
Opposition energy spokesman David Hodgett said the government’s SEC had no identified projects and no funding partners,10 months after being first announced.
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