Australia's highly emitting brown coal power generators will reap $2.3 billion to $5.4 billion in windfall profits from carbon price compensation, an analysis by a leading energy market expert has found.
While brown coal power plants based in Victoria's Latrobe Valley will get billions in compensation, the analysis suggests they have so far been able to pass on all of their extra costs of the carbon price - thus turning the compensation into pre-tax profit.
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The analysis carried out by Bruce Mountain, director of consultants Carbon + Energy Markets, looked at half-hourly spot prices for electricity sold from four Victorian brown-coal fuelled power plants - Hazelwood, Yallourn, Loy Yang A and Loy Yang B - over the first six months of the carbon price.
Environment Victoria, which commissioned the analysis, demanded the federal government review the compensation for coal power plants.
Its campaigns director, Mark Wakeham, said: ''It is a terrible result for taxpayers and the environment if our dirtiest power stations like Hazelwood are becoming more profitable as a result of compensation payments.''
The government rejected the study as simplistic and partial. Climate Change Minister Greg Combet said it was based on an ideological opposition to brown-coal fired generation and investors in existing energy infrastructure.
In his study, Mr Mountain compared the spot price data with the corresponding period last financial year and concluded the four Victoria plants had seemingly been able to pass on their full costs from the carbon price through higher electricity prices.
Under the tax, the generators will receive billions of dollars in free carbon permits and cash over the next four years as compensation, with $1 billion cash already delivered. The compensation package has been valued at $5.5 billion to 2016-17, with Victorian brown coal generators to get about 90 per cent.
The analysis says if the four Victorian brown coal power generators can continue to pass on their entire carbon tax costs, then they can expect to accrue additional pre-tax profits of at least $2.3 billion over the next 15 years.
The pre-tax profits could rise to as much as $5.4 billion to 2027 in the unlikely event future carbon prices are not suppressed by fledgling global carbon markets. The total value of the future profits depends on the future value of the carbon price.
Mr Mountain has been an influential figure in the debate over the future of the national energy markets. He was among the first to argue that over-investment in networks - poles and wires - had unnecessarily pushed up electricity bills, a position later advanced by Prime Minister Julia Gillard.
In his report, Mr Mountain says it is impossible to be certain that generators have been able to pass on their entire carbon costs because some have supply contracts with specific conditions. The modelling assumes the carbon price scheme has no impact on some operating costs, demand for coal-fired electricity and the cost of refinancing debt.
Generator owners say compensation is necessary because the carbon tax reduces the value of their assets. Shortly before the carbon tax was passed, the owners of Yallourn wrote down the value of the plant by $350 million.
Mr Combet said Mr Mountain's work was designed to further political attacks on energy investors. He said as the carbon price and renewable energy target increasingly drove clean energy investment, coal generators were expected to pass through less of the carbon price.
Mr Mountain's research follows modelling by consultancy Frontier Economics that found brown coal generators would be up to $1 billion better off under the carbon price.