19 November 2015
by Ben Potter
Huge NSW power station sold for less than a house
Two investors have just bought one of NSW largest coal-fired power stations for the price of a nice suburban house.
Brisbane-based energy consultant Trevor St Baker and coal baron Brain Flannery paid the princely sum of $1 million to the NSW government for the Vales Point power station.
Vales Point's 1320 megawatt capacity is a bit more than half the size of the Loy Yang A brown coal-fired plant in Victoria's La Trobe Valley - Australia's largest and about the same as the Yallourn power plant.
The low price for the plant on the shores of Lake Macquarie - the backdrop for the film clip of the Midnight Oil hit "US Forces" - is sobering for the owners of other black coal power plant.
Though cleaner than Victoria's brown coal plants, black coal plant is being squeezed out of the National Electricity Market in the absence of a carbon price by brown coal and renewable energy because its marginal operating costs are higher.
Mr St Baker says he thinks he can turn the power station around. "It's been a loss-making business for several years. We have been involved in this business for a long time on the coal side and the power side and we intend to trade with the market in a smarter and more effective way".
Despite the low price, NSW Treasurer Gladys Berejiklian said the sale of Vales Point to companies associated with the two businessman would return $130 million in cash held in the company to the government and save the state tens of millions of dollars in decommissioning costs.
Mr St Baker said the purchase included guarantees to maintain the employment of 300 staff and liabilities to honour coal contracts struck by the Vales Point plant for seven years and pay for decommissioning and site rehabilitation if it closes.
"We are aiming for at least seven years (of operation) if coal fired power generation continues to be required in NSW," he told the Australian Financial Review.
Mr St Baker, a former engineer with the Electricity Commission of NSW, founded ERM Power, an ASX300-listed gas-fired power company, in 2007, and an energy innovation trust. He was chairman of the National generators Forum for three years until 2013.
Alinta Energy has announced that its Northern coal plant in South Australia will close permanently in March, and other coal plant is mothballed. Generators without retail arms - such as Vales Point - are at the mercy of a retail market dominated by AGL Energy, Origin Energy and Energy Australia.
The low priced sale comes as Britain plans to phase out coal fired power by 2025 and Organisation for Economic Co-operation and Development countries have agreed only to finance the cleanest burning coal plant.
Ms Berejiklian said the former Labor government's "dud Gentrader deal" - which left all the generators in public ownership selling to privately owned retailers - had left Vales Point as a stranded asset on the state's balance sheet.
She said the sale marked the final step in cleaning up "the mess" left by Labor, which suffered a damaging split from its union wing over electricity privatisation that helped boot it from office in 2011.
The Baird government's electricity sell-off - the subject of a desperate but unsuccessful campaign by NSW unions in the March state election - had generated $870 million for the state's infrastructure, and got $1.2 billion of debt and $2 billion of future liabilities off its balance sheet.
These avoided liabilities included $1.5 billion to develop a "non-commercial" coalmine at Cobbola to feed Vales Point. The site will now be sol as agricultural land.
Goldman Sachs, Baker & Mckenzie and KPMG advised the government on the sale of the generators and retired public servant Kerry Schott oversaw the process.