Queensland’s latest state budget contains a potential black hole that could cost Queensland taxpayers billions of dollars over the next couple of decades.
The 2021-22 budget papers, tabled in State Parliament last week by Treasurer Cameron Dick, confirm that the Queensland Government’s energy companies, Stanwell and CS Energy, are no longer the profitable and reliable cash cows they once were.
For years, they’ve delivered hundreds of millions of dollars in annual dividends to the state.
But that was before the surge in renewable energy suppliers, which is making it hard for traditional coal power stations, such as Stanwell’s and CS Energy’s, to make a profit, let alone pay a dividend.
Shutting them down isn’t an option and not only because of the economic devastation it would cause in central Queensland.
Whatever the desire to decarbonise Australia’s energy sources, we’re going to need coal-fired power stations for perhaps the next 20 years, until batteries and other technologies solve the challenge of providing power when the sun and the wind don’t deliver.
Stanwell’s and CS Energy’s power stations aren’t currently scheduled to close for another couple of decades.
But if the two companies can’t run profitably, then who pays for the losses to keep their power stations running as an essential service? Queensland taxpayers?
It’s a question energy regulators are grappling with but haven’t yet come up with an answer.
This transition from money machines to potentially expensive liabilities has happened more quickly than anyone imagined.
When Dick delivered the COVID-19-delayed 2020-21 budget, in December last year, he was counting on Stanwell and CS Energy to deliver more than $900 million in dividends in the four years to 2024
But now, barely six months later, the 2021-22 budget papers write down the expected returns to just $121 million – a nearly 90 per cent decline.
They also forecast that the companies will stop paying any dividends at all from next year.
This reflects the fact that wholesale electricity prices keep falling. Two years ago, spot prices were at about $83 a kilowatt hour.
Today, they’ve almost halved, to around $45 a kWh – good news for electricity customers but bad news for owners of ageing, capital-intensive coal power stations, trying to compete against lower-cost and more flexible renewable energy suppliers.
The State Government believes it has a solution to Stanwell’s and CS Energy’s woes, beyond suspending their dividend payment obligations.
But it’s high risk, and expensive – a new $2 billion Queensland renewable Energy and Hydrogen Fund, to “enable investments by Queensland’s government owned energy businesses in commercial renewable energy and hydrogen projects.”
Hydrogen isn’t yet commercially viable but there’s clear logic in an economy as dependent on energy exports as Queensland taking the initiative to try to turn the promise into reality.
However, it’s no quick fix for Stanwell and CS Energy.
Even if they find the right projects to invest in, the creation of profitable new businesses large enough to offset the ongoing drain of operating ever-more expensive but essential coal power stations must surely be years away – say, a decade or more.
That could mean a decade of no dividends from the power companies, which, on historical figures, would mean a loss to government revenues of about $200 million a year, or about $2 billion over 10 years.
There would also be the unknown cost of subsidising loss-making Stanwell and CS Energy until such time as they find new revenue streams.
On the positive side, there are a couple of potential developments that could benefit the power generators.
The first is that the energy regulators may work out an effective system for underwriting the coal power stations to make sure they’re providing essential energy even when it’s not profitable to do so.
The other is that if and when coal power stations start shutting down in southern states – AGL is closing its Liddell power plant in 2023 – CS Energy’s and Stanwell’s operations will face less competition, and therefore more chance to make a profit.
But the underlying fact remains – owning a coal power station is no longer a guarantee for making money.
In fact, it’s increasingly a guarantee for losing money. Just how much? That’s the black hole.
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