On 10 July 2011 the Australian Government announced its plan to implement the Contract for Closure (CFC) Program as part of the Clean Energy Future Package.
The program seeks to support the closure of around 2,000 megawatts of highly emissions intensive generation capacity in Australia by 2020, subject to negotiation with eligible generators.
Contract for Closure is a voluntary process and is a component of the Energy Security Fund announced as part of the CEF Package.
The objectives of the CFC Program are to:
- negotiate the orderly exit, by 2020, of around 2,000 MW of highly emissions-intensive coal-fired electricity generation capacity
- provide certainty about the timing of closure of this highly emissions-intensive coal-fired electricity generation capacity and provide sufficient time to facilitate investment in replacement lower emissions electricity generation capacity
- minimise the risks to energy security that may arise from an unplanned exit of electricity generation capacity from the market
- achieve a value for money outcome on terms and conditions that are acceptable to the Commonwealth
- ensure that appropriate arrangements are put in place by Eligible Generators to preserve workers’ entitlements and meet all relevant State legal requirements, including requirements regarding site remediation.
The Government intends to enter into any Contracts for Closure by 30 June 2012. The preferred closure timeframe is 1 July 2016 to 30 June 2020, although proposals for closure prior to 1 July 2016 may be considered.
The CFC Program is being implemented by the Department of Resources, Energy and Tourism (RET).
Information for workers and communities
The Government is committed to ensuring that measures are put in place to assist workers and communities affected by any Contract for Closure.
Generator obligations
It is the Government’s intention that any Contract for Closure will ensure appropriate arrangements are put in place by relevant generators to meet obligations regarding workers’ entitlements.
The evaluation process for proposals will consider each generator’s proposed arrangements regarding workers' entitlements, including their preparedness to participate in workforce structural adjustment discussions with other generators, where relevant. Generators in the Latrobe Valley region where there are possible candidates for closure have already provided written undertakings that they will participate in structural adjustment discussions with the Government and key stakeholders in the event of a neighbouring generator contracting to close.
The evaluation process will also consider each generator’s agreement to appropriate arrangements to meet all relevant State legal requirements, including requirements regarding site remediation.
Assistance for regional communities
It is likely that in the short term, some regions and communities may face more significant impacts than others from the carbon price reforms.
To this end, the Government is providing structural assistance to support regional communities if they are strongly affected by the introduction of a carbon price.
The Government has set aside up to $200 million for the Regional Structural Adjustment Assistance Program. That figure is on top of a much larger sum to help Australians more generally adjust to carbon pricing.
For regions requiring support, structural adjustment assistance will take into account issues such as:
- the significance of the impact on the region’s economy
- how rapidly a region is transitioning
- vulnerability to socio-economic disadvantage.
Assistance for significantly affected communities is designed to provide access to support for employment and training opportunities, community development and economic diversification.
Process
Expressions of interest
On 30 September 2011 the Government released the Invitation for Expressions of Interest (EOI) for the program (see Related documents). The media release for the EOI announcement is available.
Eligible generators were invited to respond to the Invitation for EOI, with responses due on Friday 21 October 2011. This was the first step in a two stage process, with a negotiation phase following.
Negotiations and evaluation criteria
The EOI phase has now concluded and five generators have been invited to proceed to the negotiation phase.
These generators are:
- Playford B Power Station (Alinta Energy)
- Energy Brix (HRL)
- Hazelwood Power Station (Hazelwood Power Partnership, 91.8% owned by International Power GDF Suez Australia)
- Collinsville Power Station (RATCH)
- Yallourn Power Station (TRUenergy)
Closure proposals have now been received by the Department from all five generators.
Following an assessment of the proposals the Government expects to commence bilateral negotiations with the eligible generators. This process is expected to conclude by 30 June 2012.
The Evaluation Criteria set out below will be used to consider which closure proposals best address the objectives of the CFC Program.
Evaluation Criteria
| Subject | Criteria |
|---|
1. Emissions Intensity | The evaluation will confirm that the relevant Unit or Complex meets the minimum emissions intensity threshold of 1.2t CO2-e/MWh of electricity on an as generated basis. |
2. Timing | The evaluation will consider the extent to which the Closure Proposal will result in permanent closure of the nominated capacity within the Commonwealth’s preferred closure timeframe of 1 July 2016 and 30 June 2020, subject to the Energy Security criterion below. |
3. Energy Security | The evaluation will consider: - The risks to reliability and security of electricity supply in the NEM and relevant regions as a result of the proposed closure of capacity, having regard to:
- How the proposed capacity closure is to be undertaken, including phasing if relevant
- Creation of an “orderly exit” to provide certainty to market of timing of capacity to be closed and adequate time for investment in replacement capacity
- Projected demand and supply conditions in the NEM.
- Any flexibility to extend closure beyond the proposed date(s), and conditions attached if a delay of closure is required for energy security reasons.
- Any broader energy security implications as a result of the proposed closure.
|
4. Value For Money | The evaluation will consider: - Expected economic life and value of the nominated Unit or Complex
- Level of proposed closure payments
- Which combination of proposals best achieves the Government’s objectives for the CFC Program.
|
5. Contractual Terms | The evaluation will consider: - The Participant’s acceptance of the draft terms and conditions of the CFC
- Certainty of commitment to permanently close the capacity
- The Participant's agreement to appropriate arrangements to preserve workers' entitlements, including preparedness to participate in workforce structural adjustment discussions with other generators, where relevant
- The Participant's agreement to appropriate arrangements to meet all relevant State legal requirements, including requirements regarding site remediation.
|
Timeframes
As outlined above, the Government intends to enter into any Contracts for Closure by 30 June 2012. The preferred generator closure timeframe is between 1 July 2016 to 30 June 2020. An outline of the timeline for the contract process is outlined below:
Contract for Closure Program announced | July 2011 |
Invitation for Expressions of Interest released | 30 September 2011 |
Expressions of Interest due | 21 October 2011 |
Evaluation Criteria released | December 2011 |
Detailed Proposals due | March 2012 |
Negotiations | March – June 2012 |
Contracts entered into | 30 June 2012 |
Grants and funding
Any closure payments will constitute Commonwealth grants and will be administered in accordance with the Commonwealth Grant Guidelines (see Related documents).
The Contract for Closure Program will be funded by the Government through the Energy Security Fund.
The Government has allocated a capped amount in the Contingency Reserve beyond 30 June 2016 to support delivery of contract for closure, which is in addition to the $5.5 billion Energy Security Fund transitional assistance for emissions intensive generators.
More information
For more information about the Contract for Closure Program see the Contract for Closure Program fact sheet (see Related documents) or email contractforclosure@ret.gov.au.
Media enquiries should be directed by phone to (02) 6243 7907 or 0410 030 954.
Related documents