Closing down any significant business – like a power station or a mine – is not only complex, it has major impacts on the spectrum of stakeholders, and requires careful management.
We discuss how to do this smoothly, minimise those impacts and generate goodwill in the process.
How does an electricity generator make a good news story out of closing its large, regionally-based business?
The answer is through meticulous planning, excellent stakeholder engagement, using a multi-disciplinary team, by exceeding people's expectations – and by leaving a positive legacy.
This scenario is encapsulated by the recent successful closure, dismantling and remediation by Flinders Power of its coal fired power stations at Port Augusta in South Australia – a unique journey that commenced over four years ago.
The circa A$300 million closure program was the largest and most complex program of its type in South Australia, and is being hailed as a 'model' for how future large infrastructure project and mine closure programs should be carried out.
The closure and dismantling of the formerly-Alinta Energy owned power stations was only one aspect of this major task. It also involved:
- Remediating the 'feed stock' Leigh Creek coal mine, through a complex and unique mine closure plan;
- Rendering as non-operational the dedicated Leigh Creek-to-Port Augusta railway line, which had continuously fed coal from the mine to the power stations for over 60 years;
- Transferring management responsibility for the regional Leigh Creek township back to the South Australian Government to assist prospects for future regional development;
- Retaining, modifying and in some cases even improving, former mine infrastructure for the future benefit of local ecosystems and regional populations; and
- Ensuring that the large regional workforce was properly looked after during the closure program.
To help meet the project's key objectives, specialists from every legal team within MinterEllison's Adelaide office worked side-by-side with Flinders Power, taking each step of that unique, four year journey. This culminated in the recent successful conclusion of the closure program.
Lead partner, Neil Gordon, said "This was an excellent example of the project owner and the legal advisers coming together at an early stage to map out a strategy with a clear focus on a timely, efficient and fully compliant closure program, which was also robust and flexible enough to meet challenges, obstacles and opportunities during the implementation phase."
The closure of coal fired power stations in Australia
To say the closure of coal fired power stations in Australia is a hot topic is an understatement. It's one that understandably polarises sections of the community. The reality is, however, that it is happening, and will continue to do so at an increasing rate over the next 30 years, as Australia embraces renewable energy.
In forming its 2018 Integrated System Plan in respect of the National Electricity Market (NEM) - following a recommendation by the Finkel Review - the Australian Energy Market Operator (AEMO) considered the need to replace Australia's ageing fleet of thermal generation resources, in order to maintain reliability and security of electricity supply. Although noting the uncertainty of precise asset retirement dates due to a range of factors, AEMO's modelling, and its published list of expected closure dates, suggests a dramatic reduction in the number of coal-fired power stations by 2040, and even more so by 2050. That modelling indicates a projected overall reduction by 2040 in the energy generated from soon-to-be-retired power stations of approximately 70 TWh. That figure is significant - equivalent to about one-third of current total NEM consumption.
Putting to one side the important question of what energy source(s) will replace that lost generation, the key first issue is how best to go about closing down these generation businesses.
Hastening slowly – and bringing stakeholders along with you
Closing down a large electricity generation business spread across separate sites linked by a 250km railway, brings unique challenges. Some of the challenges facing Flinders Power at the outset included:
- Loss of employment for a large number of people – a workforce of over 500 in total;
- The wider economic impact on surrounding regional areas;
- Managing substantial safety and environmental challenges and obligations; and
- Significant negotiations with the State Government, as well as key regulators.
These challenges pointed to the need for three important steps – which should also be embraced by other generators in the future. To bring about a successful, and relatively pain-free, closure of a power generation business:
You need to meticulously plan, sequence and prioritise each and every aspect of the closure process, taking into account the 'pros' and 'cons' of moving in one direction over another, or taking one step prior to another.
Take your time and do your due diligence up-front, not as you go, with a clear focus on the 'end game' and what needs to be achieved to finalise operations. There may be multiple pathways leading to the same end result, but deciding which one is the most logical, most sequential, most efficient and most cost-effective, will not always be straightforward.
You need to have open and transparent dialogue from the outset with all key stakeholders, given the serious impact closure is likely to have on a range of people and other businesses. Stakeholders will almost certainly include employees, the wider community, indigenous groups, 'anti-closure' organisations and environmental groups, politicians and other elected officials, as well as government and other regulatory bodies.
Openness and transparency might sound like invitations for resistance and argument, but those elements might be inevitable in any event. Sensible consultation with, and involvement of, key stakeholders, even if you don't ultimately see eye-to-eye, is likely to produce a better outcome for all.
Flinders Power maintained an open and collaborative relationship with local residents throughout the closure process, through an active Community Reference Group. In addition, over 250 local residents, including many schoolchildren and university groups, toured the power station site during various stages of the demolition and rehabilitation process.
You should strive to leave a positive legacy, by exploring all opportunities for the repurposing or future uses of sites. Allow for future value creation by applying a strategic approach to securing the ongoing beneficial use of sites. Preferred options should consider synergies with other sites and industries, and should complement existing Government and community objectives to increase the development potential. Seek to maximise the retention and usage of existing infrastructure to benefit new development opportunities.
Exceed the community's expectations
To be forgiven (at least in part) for closing down a significant business like a power station or a mine, then do it to 'best practice' standards. You should constantly look for ways to keep the community and other stakeholders, involved and 'on-side'. In the case of Flinders Power:
- Around 100 full-time workers were employed over a 30-month period at the height of the closure program, with more than 30% of that workforce and external spend sourced within local districts;
- As the local community had been the home to this business for 60 years, four public auctions were held, allowing locals to secure their own piece of power station history;
- 75,000 tonnes of steel were dismantled and removed from the power stations, 97% of which was recycled;
- Better-than-industry-standard safety outcomes were ensured when carrying out the demolition and removal, with 100% compliance on all contractual and regulatory obligations;
- The 273 hectare ash storage area at the power station was completely rehabilitated, with over 6,500 truck movements and the sowing of over six tonnes of native seed that will ultimately cover the entire ex-storage area;
- An enormous site contamination assessment and remediation works program was completed, culminating in sign-off by an independent auditor
- The remediated site was intentionally sold to a significant commercial enterprise for the purpose of creating new and replacement employment opportunities for the local community, and
- At the Leigh Creek mine:
- 14 million lcm (loose cubic metres) of earthworks were undertaken, and 4 million lcm of inert cover put in place, to remediate the mine,
- Over 70 kms of 3m high x 9m wide base surface water bunds constructed, and
- The very large mine retention dam was retained and redesigned for ongoing use by the Leigh Creek community for recreational purposes, and for the future benefit of native flora and fauna.
Bring efficiencies to bear – you may even generate some revenue
Flinders Power generated significant efficiencies in its closure program through engaging a multi-disciplinary team bringing niche specialties to the table collaboratively – overseen and managed by experienced Flinders Power managers with extensive knowledge of the assets.
That team comprised, amongst others, experts in the areas of:
- Large scale demolition
- Environmental remediation
- NEM regulation and compliance
- Electricity de-contracting
- Mine closure programs
- Employment, insurance and workers compensation
- Land tenure (including Crown Land)
- Stakeholder management and dispute avoidance management and resolution, and
- Winding up and corporate re-structuring.
On top of achieving efficiencies, Flinders Power was also able to generate innovative revenue streams, thereby reducing the 'net' cost of the overall closure program. Those included:
- The sale of yellow goods, timed to maximise the return to Flinders Power, with maintenance and lease back arrangements that led to a win-win outcome for Flinders Power and the purchaser; and
- Significant land sales at the former power generation sites (post-remediation), specifically targeted at future users bringing major new business operations to the local area with resulting employment opportunities for the local community.
The bottom line: closing down a power generation business
Closing down a power generation business is obviously a huge task. But the real challenges and opportunities are to bring the workforce, local community, decision makers and interest groups along with you to make the journey as informed and painless as possible.
On top of that, careful planning ahead of time and the involvement from the outset of a team of collaborative experts (like engineers, specialist lawyers, and environmental consultants) will generate the greatest efficiencies and lessen the risk of unforeseen issues down the track.
Ensuring that the team members within the business who are driving the closure process are committed, suitably engaged and carefully incentivised to see the closure right through to the end, will undoubtedly result in a smoother and less costly outcome.