THE NSW government is demanding the Commonwealth redirect compensation from Victorian brown coal generators to its state-owned black coal power stations after new modelling showed the Victorian companies could be between $400 million and $1 billion better off under the carbon tax.
"It was always perverse to be paying lump sums to the Victorian power stations' foreign owners but not to assets owned by the NSW taxpayers," the Energy Minister, Chris Hartcher, said.
But the Climate Change Minister, Greg Combet, said the modelling, by Frontier Economics, was inaccurate, and that he stuck by calculations done by Treasury for the carbon tax and the $5.5 billion compensation offered to the brown coal companies.
The Greens, who always argued the compensation was unnecessary, called for an immediate Productivity Commission inquiry to adjudicate on whether the companies have been promised too much.
''I have always been certain this is a huge waste of money,'' the Greens leader, Christine Milne, said.
But Mr Combet said there would be no inquiry. ''The Greens signed this package and they should live by it,'' he said. The electricity industry also rejected the idea that it was being given too much money.
''The reality is that all coal generators are facing big challenges and the carbon price makes their life harder not easier,'' the chief executive of the Energy Supply Association of Australia, Matthew Warren, said.
But the Coalition said the compensation was always a crazy idea.
''We don't think they should have paid the generators anything,'' the Coalition climate change spokesman, Greg Hunt, said.
''We certainly don't think they should have set up two funds, one to pay them billions of dollars to stay open and one to pay them billions of dollars to close down … it was always destined to fail.''
Energy industry experts said the failure of negotiations for the government to pay for the early closure of brown coal generators would retard the shift in Australia's energy mix away from coal and towards cleaner power.
Keith Orchison, a former head of the Energy Supply Association, said that the announcement would be a disappointment for would-be gas generators.
''Nothing that is being done is going to make investors feel any more certain. They thought they had a government plan but in the last week that has been turned on its head,'' he said.
''It's not the sort of stuff that has directors sitting in boardrooms looking at each other saying, 'Let's invest in electricity'.''
Clean energy advocates say the failure will push clean energy investment back towards the end of the decade.
Will McGoldrick, of the World Wildlife Fund, said that on top of the scrapping of the floor price, the end of the buyout talks put the energy transition in doubt.
''Where is our energy sector heading? [The buyout] was a signal to the industry on the horizon that they were shifting away from dirty coal. That is not locked in any more.''
Macquarie Generation, NSW's largest generator, slashed the value of its assets by one-third earlier this year.