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:
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."
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.
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:
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.
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:
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:
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:
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.