Basslink backfires: buying dirty power

Bacchus H Barren

The Minister’s spin doctors then pushed the line that Bell Bay would close to non-emergency use as it was too expensive to operate on gas and was not needed for Basslink — both contrary to Treasury papers published in January. The Bell Bay workforce was sacked and the 100s of millions of public dollars spent over the past 3 years to convert the oil-fired station into a modern 345MW gas-fired station were flushed down the proverbial. Bell Bay power plant now sits as both a worthless (stranded) public asset and a testament to bungled energy policy. In addition to this Hydro Tasmania is now faced with decommissioning the plant whilst still being contractually obliged to pay out is $9 million gas contract with Alinta. But how is it that Alinta can build a new profitable gas-fired powerplant ($230 million cost) next door to Bell Bey when the Government says that gas-fired Bell Bay station can’t turn a quid?

Tasmania took another great lurch towards the oblivion of deregulated electricity and bankruptcy with the announcement that Alinta would build a new 200 MW gas-fired power station at George Town to sell power to Aurora and the National Electricity Market (NEM) via Basslink, at a cost of $230 million.

It took some time for the slow Tasmania media to realise that in September Alinta had abandoned a perfectly good gas-fired 345MW power plant just a few kilometres away (Bell Bay power plant — where it was the operator).
LAST Wednesday, whilst half the State’s population was enjoying the distraction of the merry-go-round at the Hobart Show, that other great circus-of-chaos, otherwise known as the Tasmanian Electricity Industry, was putting on a fine show of its own.

Tasmanians are now faced with the farcical situation of having a new private gas-fired power plant being built next door to an almost abandoned and publicly-owned gas-fired power plant. Although this is symptomatic of the shambles which has engulfed Tasmanian energy planning, what does it mean for the average punter?

Taking one’s bat and ball and going home

As revealed on TasmanianTimes in September (Bell Bay: another bungle), the spat between Hydro Tasmania and its Bell Bay plant operator (Alinta) culminated in the two parties unable to agree on gas contracts and Alinta withdrawing as operator.

The Minister’s spin doctors then pushed the line that Bell Bay would close to non-emergency use as it was too expensive to operate on gas and was not needed for Basslink — both contrary to Treasury papers published in January. The Bell Bay workforce was sacked and the 100s of millions of public dollars spent over the past 3 years to convert the oil-fired station into a modern 345MW gas-fired station were flushed down the proverbial. Bell Bay power plant now sits as both a worthless (stranded) public asset and a testament to bungled energy policy. In addition to this Hydro Tasmania is now faced with decommissioning the plant whilst still being contractually obliged to pay out is $9 million gas contract with Alinta. But how is it that Alinta can build a new profitable gas-fired powerplant ($230 million cost) next door to Bell Bey when the Government says that gas-fired Bell Bay station can’t turn a quid?

Part of the answer may lie in the fact that Alinta is also the operator of the infamously bungled and expensive undersea gas pipline from Victoria to Tasmania. The 47 PJ gas pipeline was built by Duke Energy, paid from Tasmanian public monies, and later sold to Alinta. The ability of Alinta to build a new gas-fired powerplant and operate at a profit whilst Bell Bay power station rusts, may say more about the contracted price for gas being demanded by Alinta. With gas now being rolled out into Hobart and Launceston households by an Aurora subsidiary, some questions need to be asked about the long-term price competitiveness of gas, especially given this new cosy relationship between Aurora and an electricity generator (who is also the gas pipeline operator). What a convoluted web we weave!

Basslink stuck in permanent backfire mode

The other part of this dark story lies in the economic train wreck known as Basslink. Some punters may recall how the Tasmanian Government sold the concept of Basslink as a sure money generator as Tasmania sold its clean green electricity to a thirsty mainland grid for mega-bucks. Indeed this is how the story was presented in 2002 by the Office of Tasmanian Energy Regulator, who also noted the role of the to-be gas-fired Bell Bay power station in contributing to the NEM bonanza. But all that shines — is usually fools gold!

Tasmania, as an island state, has always existed in energy balance — producing as much electricity as it consumed via hydro (about 1220 MW base load in 2005-06). Although Hydro Tasmania has an “installed capacity” of 2570 MW, this is largely “on paper only” as capacity is highly dependent upon the cyclicity of dam levels. During peak-load times, Hydro can run extra water for short period of time to cover about 1790MW, but in general it has recently been struggling to meet its daily base load demand levels (generating about 1105MW). This is purely because of decreased rainfall and the appalling management of the State’s water resources.

Prior to Basslink, the Government would manage declined electricity generation capacity through agreed reductions from the 16 major industries who consume 42% of the State’s electricity (converting it to CO2). In dire cases the Bell-Bay power station was also kicked into action for a few weeks until the rains came. However Basslink has provided an easy corridor by which the Government can buy cheapish coal-fired power from Victoria and on-sell this at the ridiculously tiny contracted price provided to the 16 major Tasmanian industries. Based on base load balance alone, one can see that the Government has been importing a minimum of 122 MW daily of coal-fired electricity for a long time (a 10% base load generation deficiency). When one also considers peak load it is obvious that since mid-September the amount of imported energy has increased to beyond 300MW daily as Hydro struggles to maintain water levels so as to meet its future summer obligations on Basslink. Consequently about one quarter of all base load electricity consumed in Tasmania today is now comprised of dirty Victorian coal-fired power. Only nine months ago all Tasmanian households only consumed 100% green hydro Tasmanian electricity.

The general aspects of the above scenario were confirmed in an ABC radio interview with Hydro Tasmania last week. The Government counter-argument is that Basslink is also being used to sell Tasmanian green-energy to the National grid. But given the energy balance which has always existed in the state, where is this extra electricity coming from?

When the balance is not balanced

The idea of Basslink is that during low-load periods in Tasmania (late night to early morning), the decline in domestic power use provides a bucket of energy that can be sold across Basslink for big dollars. Households use about 58% of Tasmania’s electricity and if we assume that during the 8 hour period from 10pm to 6am that demand declines by 50%, then about 360MW becomes available to sell during this limited time window. Over a 24-hour period, this amount of energy equates to 120MW — so of the approximate 1200MW that Hydro generates on a daily basis and is consumed, only 120MW may be available to sell daily owing to low-load. Despite the capacity of the Basslink cable (600MW), unless new generation is introduced by Hydro, or unless the water situation improves, it seems highly unlikely that Basslink will ever reach its export potential. Given the predictions of ever-declining rainfall across Tasmania and the collapse of the MRET, the future viability of Basslink is daunting. The good news is that there is only another 24.5 years of excessive (and secret) rental payments for the cable that we have been contracted to meet! Thanks Paul and gang.

Basslink has provided an additional burden for Hydro in that its linking to the national grid has allowed Hydro to enter into supply obligations on the mainland. Hydro may therefore find itself in the bind that it is contractually obliged to supply green power to Victoria whilst not having enough to provide Tasmania (even during the low-load periods as described above). Consequently, the ability to Alinta to build a new 200MW gas-fired station also means that either sufficient unmet capacity exists on Basslink for Alinta to also sell power to the NEM, or more likely, Hydro Tasmania can free-up some of its green energy (otherwise used by Tasmanian households) and sell it on Basslink, leaving Alinta to provide power for Aurora customers. Clearly Alinta have seized a market opportunity generated by both Basslink and Hydro Tasmania’s inability to meet its obligations on the NEM. This is a global characteristic of electricity deregulation where opportunistic private enterprises quickly exploit any supply-demand imbalance resulting in escalating prices to captive markets.

In a nutshell, we pay — through the nose

The Governments new spin on the Alinta-Aurora deal is that competition with Hydro Tasmania will benefit Tasmanian consumers by driving down prices. Rubbish!

Despite Alinta’s partial control over gas prices as the pipeline operator, the fact remains that gas-fired electricity generation is not cheap. In fact it is at least $29 MWh more expensive than cheap Victorian coal-fired power. Hence this price differential can only go one-way – to the consumer. In addition to this both Alinta and Aurora share a symbiotic and unique monopoly position as the only inter-related gas wholesaler and electricity retailer. One may be surprised that the ACCC has not yet commented on this relationship with regard to the announcement.

The Tasmanian Government has also chosen to ignore the global trend of electricity deregulation. In all parts of the world which have experienced electricity deregulation there has never been a single incidence of recorded price decline. On the contrary consumer prices have only risen steeply. The Tasmanian Government may do well to learn from the experiences on Dominican Republic where electricity deregulation resulted in an immediate three-fold increase in prices — and civil turmoil.

All aboard the disaster express

The last person to provide a belated public comment on the Alinta-Aurora deal was the Tasmanian Minister for Water and Energy, David Llewellyn. It would appear that the Government was caught unaware by the deal and the Minister seemed to umm and arrr his way through a quick verbal approval — concluding that it all sounded like a good idea.

Critics have noted that it would appear that the disastrous state of energy policy in Tasmania has been overseen by politicians with the performance and intellectual capacity of the Keystone Cops. In turn, technical advise on energy policy has been provided to politicians by a comfortable clique of bureaucrats with limited, if any, experience in the cut-and-thrust of national and international deregulated electricity markets.

When one considers the chaos of Tasmanian energy and the faces in the crowds of the Hobart Show, it is easy to be reminded of the old London Times lithographs of the faces of the un-knowing passengers aboard the Edinburgh Express as it rocketed towards the gaping chasm of the collapsing Tay Bridge on that fateful December night in 1879.