WA coal phase-out uncertainty amid Bluewaters power station closure backflip

In many ways, it was a perfectly reasonable venue to launch "a comprehensive plan to upgrade" Western Australia's main grid.

The ballroom at Crown in Perth, a sprawling resort complex on the banks of the Swan River, is an impressive space.

WA Energy Minister Amber-Jade Sanderson was there this morning to put on a spectacle.

She was unveiling a "blueprint" for new and upgraded transmission lines across the South West Interconnected System — the grid spanning Australia's south-western corner.

The blueprint would help WA become a "renewable energy powerhouse", unlocking access for a wave of new wind, solar and battery projects.

The plan was a "backbone" that would allow coal-fired generation in WA to be phased out.

"We're going through a staged process in terms of delivering the transmission," Sanderson said.

There seemed to be just one problem.

For all the bullish talk and the impressive setting, the minister didn't seem to have any extra money to pay for it.

Meanwhile, and unbeknown to most of the people in the room at the time, the energy market operator was sending very different signals on the need for coal.

Indeed, it was willing to pay WA's only privately owned coal generator simply to be around in three years' time.

That the minister's announcement was made at Crown, WA's only casino, wasn't lost on many of the folks attending the event.

Spin over substance

The lack of funding for the transmission plan drew predictable criticism that the government was engaging in spin over substance.

WA Greens leader Brad Pettitt said the plan offered no certainty whatsoever.

"There are very few large-scale renewable energy generation projects under construction," Pettitt said.

Opposition spokesperson for energy Steve Thomas was even blunter.

"None of the government's transition plan works on its current parameters," he said.

Ever since then-premier Mark McGowan declared in 2022 that WA would close its last state-owned coal plants by 2029, the government has been adamant in its plans.

If anything, McGowan's successor, Roger Cook, and Sanderson have only become more ambitious.

Not only was the government going to close the coal-fired generators it owns — Muja and Collie — but WA was getting out of coal entirely, they suggested.

"There have been some tired arguments from cynics that we won't have enough generation to close coal," Cook said in July.

By implication, the government has cast a pall of doubt over the future of Bluewaters, a 434MW coal plant near the South West town of Collie owned by private interests.

Earlier this year, when faced with scrutiny over the government's coal closure timeline, the energy minister bristled.

She pointed to work that was being done by the body that runs WA's biggest electricity market — the Australian Energy Market Operator (AEMO).

In that work, the agency assumed Bluewaters would be unavailable from 2027-28.

The reason? A government subsidy scheme that was keeping Bluewaters' coal supplier Griffin alive — a scheme which will cost taxpayers more than $250 million over four years — was due to expire in June 2026.

And the agreement was not going to be renewed.

The funding that had kept Griffin whole — and allowed it to continue mining the coal that was burnt in Bluewaters' furnaces — would stop flowing.

"While AEMO understands Bluewaters has stockpiles of coal to meet capacity reserve requirements for 2026-27, due to the risk Bluewaters will not be able to establish a new coal supply arrangement past this point, AEMO considers it prudent not to assume the availability of this power station from 2027-28 onwards in the reliability assessment," the agency noted.

Such an assessment was seemingly a death sentence for Bluewaters.

Without the confidence of AEMO, Bluewaters could not be certified for a little-known but vitally important part of WA's energy system called the capacity market.

This market is effectively the insurance policy taken out by WA energy consumers to ensure there is always enough supply on hand to meet demand at peak times.

Under the market, generators are currently paid about $250,000 for every megawatt of capacity they can reliably provide during peak demand periods.

In essence, they are paid simply to be available when the system needs them most.

Generators are also paid for every megawatt hour of electricity they sell into the energy market.

That is, they are paid for their production, too.

But the capacity market typically makes up a substantial portion of the revenue most generators earn.

Faced with the prospect of being cut out of the capacity market, Bluewaters' days would surely have been prematurely numbered.

Sudden shift

But here's the thing — after provisionally ruling Bluewaters out of the capacity market for 2027-28, the ABC can reveal AEMO has quietly reversed its position.

Bluewaters is back in the game.

So what explains this about-face, and what does it say about the government's plans to get out of coal?

In order to qualify for the capacity market, a generator must meet several requirements, including that it has a secure supply of fuel.

However, the government has insisted that it will no longer subsidise Griffin once the current deal expires at the end of next June.

If true, that would leave Griffin and Bluewaters with few other options than to negotiate a new supply deal that would leave both parties in business.

But the two had been singularly unable to reach such a deal for more than a decade before the Cook government stepped in three years ago.

In spite of all of this, AEMO is satisfied that Bluewaters will continue to get coal in 2028 — a full two years after Griffin's lifeline is supposed to end.

Unanswered questions

For her part, Sanderson insisted that, in talking about the plan to get out of coal, she was only ever referring to "state-owned" coal.

"The State Government's commitment has always been to exit from state-owned coal-fired power assets by 2030," Sanderson said.

"This is unchanged. 

"Any assertion that Bluewaters is part of our coal exit commitment is wrong."

It all leads to the inevitable questions around the satisfaction of AEMO's conditions.

On what grounds did it make the decision to certify Bluewaters for a scheme whose whole purpose is to underpin the security of WA's main power system?

A market in which only those generators who are deemed reliable — bankable, even — can get a guernsey?

Answers to those questions are likely to be known only among a few people inside AEMO, Bluewaters and the state.

What seems clearer, though, is the part Bluewaters will continue to play for a while yet.

As one of the pillars of WA's biggest grid, the power plant provides about 10 to 15 per cent of the electricity supplied every year.

The government may say — and wish — that WA can be completely out of coal by the end of this decade, but at least as far as Bluewaters goes that may be unrealistic.

A transmission plan heavy on rhetoric but light on detail — and the money to back it up — is unlikely to help.