WA needs Bluewaters power until 2028, but who will pay?

ANALYSIS

WA's South West power grid needs Bluewaters Power Station for at least three more years, but its insolvent fuel supplier, Griffin Coal, loses vital state government support in 2026. Money has to appear from somewhere to keep the lights on.

Last week, the Australian Energy Market Operator (AEMO) told power generators how much capacity it would pay to be available for the 12 months to October 2028. Bluewaters was allocated 434 megawatts, seven per cent of the reserved capacity on the South West Interconnected System (SWIS).

That makes Bluewaters, WA's only privately-owned coal-fired power station, vital for keeping the lights on for 1.2 million customers.

Opposition energy spokesman Steve Thomas said AEMO's move was "an embarrassment to the Labor Government and its flailing transition plan."

"AEMO has come to the obvious conclusion that it needs to provide peak reserve capacity to Bluewaters to ensure the lights stay on and business continues to run during the summer peak of 2027-28," he said.

Bluewaters gets most of its fuel from Griffin Coal, which the WA Government is keeping alive with $308 million of support over 2½ years to June 2026.

For Griffin to remain open for a further two years and four months, while AEMO needs Bluewaters, on a pro rata basis, it needs $287 million of additional support.

The true cost could be more as each year Collie's coal miners - Griffin and Premier - have to remove more material to access each tonne of coal, driving operating costs up.

WA government statistics show that more is being paid for each tonne of coal in the mines' last few years, but how much is subsidy versus customers paying more is unclear.

The WA Government is adamant it will not put its hand in its pocket for Griffin after June 2026.

“Its future beyond that date is a matter for the relevant commercial parties," a WA government spokesman said.

“If the relevant commercial parties can adequately arrange to support the mine’s operation before that date, the government will facilitate an appropriate outcome."

Is Bluewaters a going concern?

Can Bluewaters, Griffin Coal's biggest customer, afford to pay Griffin Coal more for its fuel, and why would they?

The commercial structure of Bluewaters, owned by Japan's Sumitomo and Kansai Electric, is complex. There are at least six companies, with numerous loans within the Bluewaters group and with the parent companies.

Only three of the companies cross the threshold of having to submit annual reports to the corporate regulator, ASIC. Two of these are Bluewaters Power 1 and Bluewaters Power 2, which each own one of Bluewaters' steam turbines.

The accounts of the two operating companies for the 12 months to March 2025 both note:

"In the absence of a long-term sustainable solution for coal and water supply and the extension to the mining rights of the coal supplier by the West Australian State Government beyond July 2026, or a restructure of the coal supplier, there exists material uncertainty as to whether Bluewaters can continue as a going concern."

However, the directors, perhaps based on Bluewaters still being essential to keeping the light on, see a way forward.

"Despite the prevailing sentiment towards coal-fired power generation and continued issues with the financial stability of the coal supplier to Bluewaters the directors have a reasonable expectation that a sustainable solution can be achieved."

The operating companies were in the black, making a $22 million profit. Coal purchased from heavily subsidised Griffin cost $84 million. An increase in coal price sufficient to keep Griffin afloat would immediately push Bluewaters into the red.

Revenue came from $158 million in capacity payments for having the generation capacity available and $98 million from energy sales.

Hanging over Bluewaters is a monstrous $804 million of borrowings. While $551 million is owed to "related parties" Sumitomo and Kansai Electric, $245 million is borrowed from a syndicate of banks that bought the debt in 2020 at a discount of 71¢ in the dollar.

Who else can help Griffin?

Bluewaters alone cannot sustain Griffin Coal, but the government subsidy to Griffin has benefited more parties than the coal miner and Bluewaters.

South32's Worsley Alumina takes coal from Griffin to fuel three of its five boilers. The business, which had underlying earnings before interest, tax and depreciation of $US1.1 billion last financial year, would have had to pay more for that coal without the government subsidy.

Another winner has been Boddington Gold, Bluewater's biggest customer, whose owner, US-based Newmont, returned $US2.3 billion to shareholders in 2024.

In May, Newmont contracted to buy the entire output of Collgar's Merredin wind farm for 15 years, but Business News reported it has also quietly extended its Bluewaters contract to 2031.

The WA government may be waiting to see if Newmont or South32 step in to keep Griffin going.

With Griffin's subsidy expiring in less than 12 months, the machinations behind the scenes must be furious.