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COMMENTARY

9:21 AM, 21 Jul 2009



Robert Gottliebsen
Charging into the abyss

RECENT GOTTLIEBSEN
Charging into the abyss Jul 21
The Argus legacy Jul 21
Africa in China's sights Jul 20
China's financial tug-of-war Jul 17
Smooth sailing, for now Jul 16

TOP NEWS
Westpac CEO says commercial and corporate customers still face distress 3:23 PM
RBA more optimistic about economic growth outlook on stimulus and China 11:36 AM
Harvey Norman boosts full year sales by 1.4%, but warns margins still under pressure 1:35 PM
Oz Minerals says production on track 3:13 PM
Oil Search posts small lift in Q2 output 1:36 PM

THE SPECTATORS
Bartholomeusz: Beyond the guarantees
LUNCH DEALS: Compressed gas
Bartholomeusz: OZ's double-edged sword
Kohler: Buying the illusion
Gottliebsen: The Argus legacy

It has taken the print media seven months to catch up on the fact that Latrobe valley coal is looming as Australia’s greatest infrastructure and banking crisis.

As BusinessSpectator originally explained (Power at any price, December 18) the banks are owed about $5 billion by the four Latrobe Valley power stations, which are worth a fraction of that sum. Moreover, the loans will mature in the next two years.

Earlier this month (Infrastructure on the cliff edge, July 15 and A monumental failing, July 14) we took my December commentary further in the light of the dramatic revelation by TRUenergy that it had stopped long-term maintenance.

Since then, I have received emails from Latrobe Valley people explaining that the cash cost of producing power at Latrobe valley is so low that the banks who control the game will pump out as much power as they can for as long as they can and harvest the cash to reduce their exposure.

They will also be looking at opportunities to lift the price of electricity. Neither the owners of the effectively bankrupt power stations nor the banks want to invest more money in the Latrobe valley generators, so just how long the brown coal power is produced at the current rate is simply a matter of luck.

But given it is long-term maintenance that is being slashed (rather than short-term) peak power generation could last a few years.

We simply can’t quickly replace 25 per cent of our power with renewable on the basis of present technology. There are a lot of interesting new developments in the long term pipeline but it is vital to act quickly, particularly as the looming Latrobe Valley crisis will affect NSW, Queensland and South Australia as much as Victoria.

What Canberra does about carbon quotas is academic. There is simply is no more capital for brown coal power on the basis of current technology.

The answer is either a new brown technology – and I don’t think it is there yet – or the combination of gas and renewables. We are really lucky to have low carbon coal gas available in Queensland and NSW (New energy can't wait, July 16).

The worst outcome is that the politicians dither. But if they do, then voters will take it out on them via the ballot box.