WA's Coal Power Dilemma: Investment Bankers Hold Leverage Over Cook Government in Collie
The Western Australian Government finds itself in a precarious position regarding the future of coal power in Collie, with Premier Roger Cook appearing to have few options against the strategic manoeuvring of international investment bankers. These financiers have gained significant leverage in negotiations, partly due to unforced errors by the State Government, creating a complex energy crisis.
Government's Binding Commitments and Strategic Vulnerabilities
The Government has firmly committed to shutting down taxpayer-owned coal power stations by 2030, aiming to lead the charge in reducing WA's emissions. However, this plan has encountered a major obstacle: most experts agree that the grid will require at least one coal plant beyond that date. The only viable alternative to the government-owned Synergy is the privately-owned Bluewaters power station, making its survival mission-critical for the Government.
To keep Bluewaters operational, the Government desperately needs Griffin Coal, which is otherwise insolvent, to continue mining and supplying coal to the generators. Griffin cannot mine profitably, and there is no appetite for higher electricity prices among consumers. This untenable situation forced Premier Cook into a significant policy reversal this week, agreeing to continue subsidising Griffin beyond June, with costs soaring past $300 million.
Investment Bankers Seize Control in Critical Negotiations
The lenders backing Bluewaters, including prominent firms like Oaktree and Deutsche Bank, recognise the asset's strategic importance to WA's energy security and are now dictating terms. These institutions have taken substantial financial risks by investing when others hesitated, positioning themselves to call the shots. Meanwhile, Griffin's main creditor, ICICI Bank, is content to shift the burden of the miner's potential collapse onto politicians rather than their own accounts.
This dynamic leaves the Cook Government with limited bargaining power, as the investment bankers hold all the leverage in negotiations. The situation underscores the challenges of transitioning away from coal while maintaining grid reliability and managing financial pressures.
Potential Solutions and Government's Stance
There are two primary solutions to this energy impasse. First, WA could accelerate the deployment of green energy projects, storage systems, and power lines to facilitate a transition by 2030. However, experts warn that the State has fallen behind in this race against time, making timely completion unlikely.
The second option would involve delaying the closure of Synergy's government-owned power stations to reduce dependence on Bluewaters and weaken its bargaining power. This approach would also incur additional costs but appears to be off the table for Energy and Decarbonisation Minister Amber-Jade Sanderson. She emphasised on Thursday that these assets are "end of life" and cannot be extended, with plans to replace them with reliable renewable energy backed by storage and gas.
Historical Context and Additional Challenges
The Government's 2020 Whole of System Plan was notably more optimistic, assuming that two units at the Muja plant would operate until 2036-37 and the nearby Collie Power Station would continue "beyond 2040." However, these ageing plants are deteriorating faster than anticipated due to the impact of cheaper rooftop solar, which forces them to ramp up and down frequently—a function they were not designed for.
Further complicating matters are issues beyond Premier Cook's control. WA is not a major coal producer, and the coal mined locally is generally considered high-cost. Earlier hopes for an export industry collapsed due to economic unviability. This week, the Government signalled intentions to amalgamate Griffin with Premier Coal, the State's only other miner, though taxpayers may question whether these discussions are three years too late.
The situation in Collie highlights the intricate balance between environmental commitments, energy security, and financial realities, with investment bankers now holding significant sway over WA's energy future.
