The hinges of hell - Australia's fossil fuel investments losing heat

Tim Buckley, the director of energy finance studies at the IEEFA, says the Institute for Energy Economics and Financial Analysis (IEEFA) is seeing more and more evidence that the electricity sector is rapidly transforming, and the changes are global. Buckley says the changes are due to technological advances and innovations, policy changes, and a general view that assets suffering unanticipated or premature write-downs/devaluations has been significantly underestimated. 

In Australia, recent government policy changes in Victoria offer us a clear example, Buckley says, of how policy change is unavoidable, and somewhat unpredictable in terms of the timing and location. 

The outcome is serious - money flowing out of Australia once everyone realises that their assets have devalued, and that risk was underestimated in rather hefty ways. 

Energy innovations that bring forth renewable energy sources and increasing energy efficiencies means devaluing is occurring more and more frequently in the energy sector, throwing the current industry into a spiral of increasing losses that has only one logical end. 

Climate agreements on carbon outputs are driving change too, with costs of carbon pollution increasing demand for clean, efficient - and soon, cheaper - energy production. 

What's happening in Victoria

There have been two recent announcements in Victoria that are to upset the fossil fuels industry in this country, and contribute to the downward spiral of losses. 

Victoria has the third-largest lignite (brown) coal-mining industry in the world, coming in behind Germany and Poland. Our fleets of coal-fired power plants are also the most intensely-polluting fleet in the world, even worse than India's, Buckley says. Australia does not fare well on the pollution scale, with the only thing saving us being public ignorance and lots of space. 

The coal industry in Australia is massively subsidised by the Government in several respects - they get rehabilitation subsidies, diesel fuel rebates, zero pollutants/emissions charges, water, rail and port infrastructure subsidies - however this is set to change, albeit slowly. Premier Daniel Andrews has declared that lignite mine operators are to provide rehabilitation bonds that equal the estimated cost of such a clean-up ('rehabilitation'). 

The coal companies operate with bonds for just 10-20 per cent of basic clean-up costs, which ultimately leaves the taxpayer responsible for the decades-long 80-90 per cent of bills if the coal companies go bust. Considering the state of Australia's coal mining equipment, that may not be too far away. 

The bonds for the mines is to rise fivefold by the beginning of 2017, from a low and insignificant $44 million, up to less insignificant (but arguably still a low) $254 million. 

Australia has not done a good job of fulfilling its obligations to the COP21 climate agreement (Paris, December 2015, signed last week), since it protects and subsidises the coal industry every opportunity. 

Treasurer Tim Pallas has announced a tripling of lignite coal royalties paid by coal-mining companies that increases to 22.8 cents per gigajoule of energy, up from 7.6 cents - this is now in line with New South Wales (25.2 cents) and Queensland (21.5 cents). An extra $70 million will be deposited into the tax coffers of Victoria for the health and environmental costs driven by the coal industry. 

Other enhancements include the Victorian Energy Efficiency Target (VEET) scheme, with a new program due out this year.