One of Australia's most prominent energy investors has called on the West Australian government to intervene in the state's beleaguered coal industry before it collapses and the lights go out.
Oliver Yates, the inaugural head of the federal government's green bank and a senior advisor to investment fund Sentient Impact Group, said WA was headed towards an energy calamity amid a growing crisis affecting its coal industry.
Coal-fired power still accounts for about a third of the electricity used in the state's biggest grid, but the domestic miners responsible for producing the fuel are in financial distress.
In September, Indian-owned Griffin Coal was tipped into receivership with debts of almost $1.5 billion, while Chinese-owned Premier Coal has been hit by a series of setbacks and declining output.
Mr Yates said the problems bedevilling the two miners were only likely to get worse as demand for coal-fired power fell further away in the face of a rising renewable energy industry.
Coal still needed 'until it isn't'
However, the former investment banker said WA still needed the coal assets "until such time as it doesn't", and the state could not afford to let them fail.
And he said it was a similar situation across Australia as other regions that had long been the heart of electricity systems, such as the La Trobe Valley in Victoria and the Hunter in New South Wales, wrestled with the same problems.
"It became pretty obvious to me that the participants in the Collie region … are in financial distress," Mr Yates said.
"Effectively, they're not investing in their assets.
"They're sweating their assets, which is a common event that occurs when the private sector knows their assets are likely to close."
Mr Yates said it was a "logically sensible" action for the companies to take.
"The problem is when you don't invest in the assets — whether it be equipment or whether it be in the case of a mine just clearing the overburden so you can get to more coal — effectively, you can run into very significant, abrupt problems," he said.
"They are key, strategic assets to the state and WA."
Earlier this year, Premier Mark McGowan announced the government would close its two remaining coal plants — supplied by Premier Coal — by 2029.
That would leave a single coal-fired power station, the 440MW Bluewaters plant controlled by US hedge funds, operating in the state.
According to Mr Yates, who ran the Clean Energy Finance Corporation, the WA government needs to intervene before the woes affecting the local coal industry get much worse.
There were many ways to do this, he said, ranging from direct government control through a so-called transition authority to a regulated company that could be comprised of the state and private investors.
He said it seemed inevitable that the current operators of WA's two coal mines were headed to the wall.
'Sharks' may start circling
While Mr Yates acknowledged that some private investors would be willing to pick up the pieces, he said the extreme financial, political and social risks involved meant it was only "sharks" who would be interested.
"You can always get the private sector to participate," he said.
"If the state says, 'We really, desperately need this coal to come out, how about we provide guarantees for coal or everyone has got to pay a lot more for coal', it's effectively burleying the waters to the private sector.
"And, so, when you do that, you'll end up getting sharks around."
WA Energy Minister Bill Johnston conceded the predicament of WA's two coal miners was a serious concern for the government.
However, Mr Johnston argued their problems were inherently private commercial matters, and it would be inappropriate — even unlawful — for the state to intervene.
"While the companies, Griffin and Premier Coal, are operating, there's no legal pathway for the government to take over the mines," Mr Johnston said.
"Those two companies have legal rights under Australian laws.
"It's just not possible for the government to ignore the private ownership of the mines."
To deal with shortfalls in production at Premier and Griffin, customers, including state-owned power producer Synergy and mining giant South32 have moved to import coal from abroad despite record prices for the fuel.
Grahame Kelly, the Mining and Energy Union's general secretary, broadly supported the calls for intervention.
Mr Kelly said it seemed obvious the financial position of WA's coal industry was untenable, particularly at Griffin.
"Our view is that business as usual just won't work at Griffin," Mr Kelly said.
"A private company will focus on profits, they'll focus on the short-term, and they'll focus on minimising the end-of-life risk of the operation.
"So, if they're doing all of that and the state government is called in underwrite it in some way, then all the risk goes on to government.
"We think there should be a better structure … some sort of regulated arrangement that allows it to be managed in an effective and proper way."
WA Government stands firm
Mr Johnston acknowledged the state's energy system would still need coal for some years but did not agree with Mr Yates' assessment.
A big worry for Mr Johnston is the financial risk involved for taxpayers in the event the state steps into a failing market.
He noted both coal mines were foreign-owned and stressed the government was unwilling to bail them out of the losses.
"We're not going to transfer wealth from the taxpayers of Western Australia to the foreign owners of these two companies," he said.
"That would not make sense."
Despite the minister's reticence, Mr Yates said a big financial reckoning was coming for the state regardless of whether it wanted one or not.
He said the private sector's overarching motive of profit was irreconcilable with the government's objective of keeping the lights on.
"If you're trying to get a private sector solution out of a Chinese state-owned entity, a company which is broke … and then a power station which is owned by a hedge fund … good luck," Mr Yates said.
"You actually still need coal in WA for a period of time.
"You can't have a disorderly closure of coal.
"It's unfair to workers. It's unfair to industry who will have difficulty coping with sudden supply changes, and it'll actually lead to vastly more expensive costs and risks for all of WA."
