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While Hazelwood’s closure raises questions about the future of Latrobe Valley – and of energy markets – an insider says Engie got off lightly after the mine fire inquiry. By Martin McKenzie-Murray.

The Hazelwood closure and the future of the Latrobe Valley

The coal fire had been burning for 33 days when I arrived in the town of Morwell, 150 kilometres east of Melbourne. Government officials were conducting house visits in face-masks, helicopters buzzed the power plant in the near distance. The air was brown, filled with ash and sickly sweet to smell. The streets were quiet. Many of the brick single-storeys and fibro shacks were vacant, their occupants finding temporary housing with friends or family in nearby towns. Others were in hotels, paid for by the Victorian government. Local sports teams stopped training. There was great concern for the young and the old. The smoke, heavy and choking with the right winds, was toxic.

At the Morwell Bowls Club, groundskeepers Terry and Sugar were vacuuming ash from the artificial turf. There was something touching and faintly absurd about it – a dust buster deployed against the effects of the most dangerous coal fire the Latrobe Valley had ever seen, a fire that had obliged a long and dangerous emergency response. But life went on, at least in this bit of the town. People were still bowling. The adjoining pub and pokies was full. “It’s bloody pointless,” Sugar told me. “The dust’ll be back again.”

The bowls club sits on the Princes Freeway, the principal divide between the town of Morwell and Hazelwood mine. Perhaps a kilometre away from the artificial turf sat the distinctive power plant, its eight giant smoke stacks hazy. It wasn’t the first time the mine had experienced fire. There was one in 2008, another in 2005. Locals told me it seemed routine to them now. The Princes Freeway itself has been a casualty of the mine, rupturing in 2011 because of the vast excavations – the total size of the pits is that of Melbourne’s central business district. The freeway was closed for six months.

Morwell had a vexed relationship with the plant. It was both blight and benefactor. A depressed town in a depressed area – unemployment is about 20 per cent here – the plant directly employed more than 500 people. But the valley is bleak with pollution and subsequent health problems. Hazelwood burns brown coal, a low-grade, geologically immature variant. “At full capacity, it’s the dirtiest coal-fired plant in the world, not just Australia,” a source intimate with Hazelwood’s operations told me.

When I asked a spokesman for the owner of the power plant and adjacent mine, Engie Australia, what he thought the plant’s legacy would be, suggesting that there had been both costs and benefits to the local community, he responded bluntly: “This question is not only simplistic and uninformed but offensive to all past and present Hazelwood employees who have contributed to the production of the competitive, reliable electricity which has underpinned the Victorian economy for more than 50 years.”

Before coal, there was asbestos. “The community of the Latrobe Valley has been particularly hard hit by asbestos-related disease,” the Hazelwood fire inquiry’s report read. “There would be few long-term residents who do not know someone who has suffered or died from a lung disease caused by inhalation, decades earlier, of asbestos dust.” 

As of March next year, the Hazelwood Power Station will shut. As I reported in this paper almost three years ago, its closure seemed inevitable to many insiders. The plant was poorly run and maintained, I was told, and Engie, formerly GDF Suez, a global company partially owned by the French government, was withdrawing globally from developed energy markets. Earlier this month Hazelwood chief executive Alex Keisser said: “We have done different studies in order to look if we could transform … into a biomass plant. We looked also if we could power it with gas, using gas turbines. We looked to do full revamping, [but] the total [capital expenditure] was estimated to be $A400 million. We looked if we could keep only the most efficient boilers and basically stop operations on the others. Unfortunately the power price today in Australia didn’t make any of these options available.”

The closure will leave a giant hole – literally and figuratively – in the Latrobe Valley. While the Greens celebrated, the closure asked many questions: What does the future look like for the valley’s communities? What of the energy market’s future? What legacy does Engie leave the valley? What role have governments’ ever-shifting climate policies had upon energy investment and corporate behaviour? And can the site be adequately rehabilitated? “There is a void down there now,” my source said. “How do you fill it?”

 

Three years ago, while the coal fires seemed implacable, insiders explained Hazelwood’s operations. I was told about aged equipment, shrinking maintenance, fire safety protocols that barely achieved the minimum required. The picture of the plant was that of an aged racehorse being furiously whipped for one final lap. Then, on February 9, 2014, an arsonist lit fires in brush near the Hazelwood pits. Burning embers were blown into an exposed coal seam. The rest is history. The company said that the fire was a freak result, and deflected all responsibility onto the arsonists. But sources told me of grossly inadequate preparation.

I relayed a series of allegations at the time, raised by my source, to the spokesman for GDF Suez, as the company was then called. Heated phone calls were exchanged. I was met with anger and obfuscation. But my source would later be vindicated by the independent inquiry. Its report found that “GDF Suez was not adequately prepared for a fire of this kind, severity and complexity… Contrary to suggestions that the Hazelwood mine fire was the ‘perfect storm of events’, all of the factors contributing to the ignition and spread of the fire were foreseeable. Yet it appears they were not foreseen…

“A number of previous fires at the Hazelwood mine bear similarities to aspects of the 2014 Hazelwood mine fire. Fires occurred in December 2005 and September 2008… Ease of access, location and reliability of water supply in worked out areas of the mine were identified as potential vulnerabilities. An incident investigation into the September 2008 fire recommended that a risk assessment should be undertaken concerning the risk of fire in worked out areas to determine if further prevention work was required. That risk assessment was never undertaken.”   

Despite those findings, my source today believes the company got off lightly. Their evidence goes further than the inquiry. “Because of a lack of capital expenditure, they had to quarantine certain boilers because they were dangerous,” the source said. “They extracted every ounce of blood and flesh until the end. Health and safety wise, there were so many things wrong with the plant. [It] was an accident waiting to happen.”

A spokesperson for Engie flatly denied that any boilers had been quarantined.

 

Tony Wood is the energy program director at the Grattan Institute, and a former executive at Origin Energy. He tells me that the Australian energy market is bedevilled with uncertainty. “There is a future expectation of lower emissions,” he says, “but you also have a complete failure on any credible government policy that would provide the appropriate incentives. If we had clear policy on carbon pricing, businesses could make determinations.

“The decision to shut [Hazelwood] triggers a very large rehabilitation bill, and you might be looking ahead at increased levels of wind power into the system which ends up suppressing wholesale price. You could spend a couple of hundred million on upgrades, but you have incredible uncertainty in Canberra. What do you do as an owner? You run this thing like the clappers, keep costs down. It’s like owning a house. If you know you’re leaving the next year, your response to maintenance is different. To me, this is all rational behaviour given the climate of uncertainty. As a government, you get the behaviours that you create with uncertainty.

“The headline argument here is that a market has been created in which no one will invest because of uncertainty in climate change policy. The only things that will attract investment will be those with subsidies or government contracts, and there’ll otherwise be no investment in large, low-emission technologies.”

My insider source agrees that policy uncertainty “creates problems” but notes that while “the other three utility providers invested in other energy sources … in that time Engie didn’t do anything to change their business model. Uncertainty can stifle what you want to do, but other companies responded.”

The global trend is one of declining energy consumption within developed markets, and investors anticipating greater carbon constraints. Wood tells me that the International Energy Agency “says that if the world follows the Paris Agreement, which is not an outlandish prospect, global coal demand falls from 2020 and by 2040 it’s producing just 12 per cent of the world’s energy. If you look at that scenario, and you have major coal and gas exports as does Australia, how do you manage collapsing demand for your products?”

Adding to this uncertainty, though, is Donald Trump’s surprise US presidential victory and his public ambivalence on the Paris climate accord. “Will he cede this area of global leadership to China,” Wood asks, “and will climate deniers in the current Australian government turn the leadership away from our own international commitment, ratified within hours of Trump’s victory?”

 

There are questions also about the holes in the Latrobe Valley – the giant ones left in its topography and its labour market. On Engie’s website, they declare the pits equal to the “size and depth” of Uluru, a neat demonstration of how inadequate their rehabilitation bond of $15 million was when first signing the mining lease in the 1990s. That bond was increased to $37 million this year, which is little more than 10 per cent of the total cost of rehabilitating the site, according to some estimates.

Alex Keisser expressed a desire to turn the 700 million cubic metres of coal pits into a lake, an enormous project without precedent in this country.

“How can they make a lake,” my source asks. “How long will it take? It’s a massive, massive amount of water.

“Water will always travel to the lowest point, so what effect will that have upon neighbouring mines? What effect will it have upon water tables? I don’t think they’ve thought about it. Water plus toxins equals movement – where does it move too? If you’re demolishing the plant, you have toxic soil there. What testing have they done? It just seems like a giant mess.”

Readers might say good riddance to Hazelwood, but to do so is speaking on behalf of thousands of people, little seen or heard, who depended on it. The closure of the plant asks many important questions, few of which have been answered with any sophistication.

This article was first published in the print edition of The Saturday Paper on Nov 26, 2016 as "Running mines into the ground". Subscribe here.

Martin McKenzie-Murray
is The Saturday Paper’s chief correspondent.

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