Actually, Shaun, its a bit more complex. This is the only State in which the vast bulk of electricity is bought up by major industrials, most of it used in metallurgical smelting.
These predate the modern era and (so it is argued) the power they use comes from the older hydro schemes, the capital costs of which have been fully ameleorated. We buy our power from the schemes built more recently, and therefore we pay what is called the ‘marginal costs of production’.
The 50 year debate about how much the major industrials should pay is sort of solidified, because the public is not privy to the actual amounts being paid, and in any case the ability of the major industrials to say “we’ll just pack up our bags and leave if we are forced to pay more” is enough to lock in the present situation.
Now most Tasmanians are happy to live with that situation and that’s okay. They would rather pay a bit more themselves than, for instance, the zinc works closed down (whether that price sensitivity is real or not).
The real problem arose with the Basslink debacle and the immense impact that climate change is having on the Hydro’s performance, having lost about 13 percent of its capacity to changed climatic conditions.
Hydro Tas can’t be blamed for the changed climatic conditions, but it has had a huge impact on its finances. And how does that impact pan out with power prices? Well, the major industrials are on long term power contracts which, although not completely rigid, are hedged against any marked changes in prices so the retail consumers (that’s us) have to cop it sweet. We are a small slice of the energy load yet we had to bear the brunt of the Hydro’s financial crisis.
A factor making this even worse for the Hydro was our entry into the national electricity market (NEM), now that we have a cable across Bass Strait. The NEM means that the Hydro (or Aurora) no longer ‘own’ their business customers, who can buy power from the cheapest sources. Exposure of the Tasmanian system to the open market means that we are left with the low paying bulk industrials whilst intermediate business on much higher tariffs can go elsewhere if they can buy power at a better price.
It’s a dog eat dog market out there and, to date, Aurora has kept most of its market share despite Tasmania’s troubles with drought and the Hydro’s finances. One thing’s for sure, though, this bunkering down comes at a price and that price is what we the consumers will have to fork out to keep our power system in the black.
Expect more power price hikes. But that’s not a bad thing, energy has been generally subsidised for far too long and we have been spoilt rotten by it.
