Booth suggest an inquiry and Gutwein of the Liberals criticises the government. Well Liberals all you have to do is give the greens a call and negotiate and then we have one instead of a whining and whingings opposition that after 4 years will have achieved nothing anfd thus deserve another 4 years doing the same.

Tasmanians want a government that works and any party that chooses 4 years as a hot air factory when it could act will find that the parking arrangments remain the same.

The Liberals cannot continue to pass up opportunities to act or the refrain that they are part of the same club that gave Labor the odure it still carries until it prooves itself different will stick as firmly to them whilst the only party looking for answers becomes the Greens.

Talking the voters into using another car park or indeed cars requires more than orchestrated gum flapping.

Where is the strategic energy plan?

The experiment with GBE’s has proven time and again to be a dud.
Time to move all GBE’s back into being government departments where we get to scrutinise them properly.
The splitting of Hydro into three entities did change their political power but was never going to make prices for power cheaper.
It is also time to actually reward people for using less power rather than rewarding inefficient use of resources and infrastructure.

The debate over the viability of Basslink has been going on for years, it would be good if it can be decided whether or not it is the expensive fiasco that many claim. Particularly with a second line apparently being discussed.

Boothy does it again!

Why is it so that our current erstwhile political intellectuals, (excluding the Greens political incumbents for they are actively aware of Tasmania’a situation,) cannot take into their minds to review the state of affairs as they are currently presenting, the poorly performing, the poorly situated, poorly managed et al, so to seek better use of our infrastructure resources and to seek better outcomes for State revenue expenditures?
Seems today these Lib/Labs are little more than an elite group of overpaid tosspots?

Maybe now is the time to charge the major users of power such as the zinc works and Comalco the true cost rather than the pittance they have paid over the years . Plans have to be expedited to start work on the Musselroe Bay windfarm and installation of tidal and wave power and also hot rocks should not be ignored either. A friend back from overseas in Turkey says that solar panels are installed everywhere over there and have been for years. Time to drag Tas into the 21st century.

No doubt the need to keep specific aspects secret from so-called “competitors” will be used as a reason to try to keep us in the dark. I’m not seeing a lot of competition for my electricity dollar, so I suspect the competition is more on my side of the game rather than Hydro/Aurora’s - I’m competing with some large industries, which no longer employ very many people, for the power Hydro produce. I don’t think I’m very “competitive”. Of course it would be interesting to know how “competitive” Hydro is in the national electricity market, and what benefit I can expect as a result. I think the answer will be “not very”. What we need is to open the books on this business we own and get a clear picture of what assets and debts, income and costs we’re looking at. Come on Greens, what can you achieve?

#7…This in the Mercury today

“... Energy Minister Bryan Green said the PricewaterhouseCoopers report would be treated as Cabinet-in-confidence and therefore never be released….”

#7 Mark Hanna, I like the way you have sought to get to the heart of the ills bedevilling these 2 GBEs.
Let’s see where Bryan Green takes this basket of failing controversial issues, perhaps he will do as he has done in the past, we all know what that is?

For this financial year to date, average electricity prices in Victoria have been 3.656 cents per kWh. In South Australia it has been 5.628 cents per kWh.

Figures for the previous financial year are 4.182c and 5.098c for Vic and SA respectively.

A few points:

1. Prices at this level in Vic have prompted incremental expansion of existing brown coal plants and construction of an new hydro scheme in recent years. Several gas-fired peaking plants have also been built in recent times and at present, a large baseload combined cycle gas-fired plant is also under construction.

Since the industry is privately owned it exists for one reason only - to make a profit. Whilst it is possible that a private owner faces a loss on previous investments if market prices decline, the fact that they are investing in new power stations strongly suggests that they expect to make a profit by doing so. And that’s with prices in the order of 4 cents / kWh for wholesale electricity.

2. SA’s industry is part leased from government (99 year lease so effectively privately owned in the context of investment decisions at this point in time) and partly privately owned as such. As with Victoria, it exists so as to make a profit.

3. Prices this financial year to date for Qld and NSW are 3.384c and 4.466c respectively. Those prices aren’t greatly different to those in Vic or SA and all of them are in the general ballpark of 4 cents / kWh over the long term.

4. Gas transmission from Vic to Tas adds about 1 cent / kWh to the cost of operating steam turbine plant in Tasmania, or about 0.7 cents to the cost of operating combined cycle plant.

5. This gas situation is similar to SA, where gas is supplied to Adelaide (most of SA’s power stations being in the Adelaide metro area) from distant fields in North-East SA and from Victoria. Coal-fired generation in SA relies on the transport of low grade coal several hundred KM from Leigh Creek to power stations at Port Augusta (so located so as to access cooling water), a considerable cost disadvantage compared to Vic / NSW / Qld with power stations located next to coal mines.

6. Various gas industry and private power developers have stated that new gas-fired baseload generation in the mainland states can be built at around 3.7 cents per kWh and be profitable. This suggests a price in Tasmania of around 4.4 cents assuming the same underlying gas price ex-Vic.

7. Hydro Tasmania has on recent occasions stated that new wind energy costs around 8 cents / kWh. After taking the value of REC’s (Renewable Energy Certificates) created into account, this represents an actual energy cost of 4 - 4.5 cents / kWh.

8. Assuming gas price at the Victorian end of the pipe is the same as that generally prevailing in SE Australia, the cost of operating the old Bell Bay power station would have been around 4.6c / kWh including gas, gas transmission and an allowance for ongoing maintenance of the plant.

9. A private developer decided to build the Tamar Valley plant in Tasmania, presumably with the intention of making a profit from the sale of electricity produced. Whilst the developer did strike financial troubles, these were related to general financial market conditions and did not result from any loss associated with generating electricity in Tasmania.

Overall, there seems to be overwhelming evidence to suggest that a fair value for wholesale bulk electricity in Tasmania is somewhere around 4 - 4.5 cents / kWh.

Now here’s the more complicated bit…

Since the construction of Basslink, the major industrial (MI) users have been subject to frequent load trips and indeed their willingness to accept this is essential to facilitate the effective operation of Basslink. Needless to say, a supply that regularly drops out without notice is less valuable than one which is consistent, as is the case in the other states.

This suggests that a fair price for the MI’s would be 5 - 10% under the average price, or about 4 cents / kWh. Due to the peaking component it would be higher for other consumers, but not hugely so.

If Hydro has invested in unprofitable means of production then that is not the fault of large (or small) consumers. It is no different to any other business - failure to operate in an efficient manner results in financial loss or, at best, reduced profits.

What would happen if Hydro tries to charge prices above the efficient cost of production? The short answer is more of the same - private developers will build new generation to displace that from Hydro and/or MI’s will relocate. Either way, the Hydro ends up with a lot of idle power stations and very little ongoing revenue.

Already we have seen one large scale privately funded power development (the financial troubles of which were due to external factors affecting the company) and now there are plans for another, this time a wind farm. Meanwhile there are a number of small privately owned plants built in recent times as well.

“5.Why is it so that our current erstwhile political intellectuals, ... cannot take into their minds to review the state of affairs as they are currently presenting ...” - #5

Because they are a mob of book johnnies, not a leader, thinker, creative mind, visionary or able bodied engineer among the lot of them.

The concrete in their colons from their anal retentive attitudes has suppurated their brains, in other words, “wouldn’t work with an iron lung”.

The Tasmanian Greens today called on the Tasmanian Government to implement an energy savings dividend strategy across all government departments aimed at reducing departmental power use by five percent, with the savings from reduced usage to be allocated towards a fund dedicated to providing energy concessions and energy savings measures for low income households.

Greens Energy spokesperson Kim Booth MP said power prices are spiralling through the roof and it is time to investigate innovative solutions to the impact that major rises in the price of electricity will have on low income households, and other vulnerable Tasmanians.
Mr Booth also said that the Greens are still seeking to clarify the actual financial position of Tasmania’s energy generation, transmission and distribution companies, and have called for the public release of the PricewaterhouseCoopers review of Aurora Energy, Transend and Hydro Tasmania.

“With power prices spiralling through the roof the Greens believe that government departments should lead the way in making energy savings, and allocating those saved funds on energy concessions and energy savings measures for low income households.”

“This is a constructive proposal which will require government to also share the pain of power price hikes, as well as clear leadership for proactively pursuing energy conservation measures,” said Mr Booth.

Kim Booth MP
Greens Energy spokesperson

CRIPPLING AURORA
Kim Booth MP
Greens Energy spokesperson, MR

mps.tas.greens.org.au
The Tasmanian Greens today said that Labor’s failure to deny allegations that the ill-advised purchase of the Babcock and Brown partially-completed power station at Bell Bay, Aurora Energy Tamar Valley (AETV) has contributed to Aurora Energy’s financial problems, can only be read as confirmation.

Greens Energy spokesperson Kim Booth MP said that with power price increases looming on the horizon Tasmanians had a right to know how much money has already been sunk in to the AETV, and the total value of energy sales from the power station.

“The Greens are calling on Energy Minister, Bryan Green MP, to detail the total cost to date of the AETV, along with the total value of energy sales from the AETV so that the public can assess whether this forced purchase was in the best interests of Aurora Energy or of the taxpayer,” Mr Booth said.

“Minister Green being unable to deny that the ill-advised purchase of the AETV has crippled Aurora Energy financially is clear confirmation that this decision has been detrimental to the ongoing viability of Aurora, and which will in turn have serious ramifications for power prices for Tasmanians.”

“After 12 years of poor management decisions, Labor must accept responsibility for any electricity bill increases, as the Minister has not been able to deny that Aurora’s financial difficulties are linked to the forced takeover of the AETV.”

I would have to disagree with Shaun’s comments as to a fair price for wholesale regulated electricity in Tasmania. In the absence of a competitive electricity market it is standard practice to set the price equal to the long run marginal cost (LRMC) of a new entrant. The following URL provides the source of information used by OTTER to calculate the LRMC for Tasmania.

http://www.aemo.com.au/planning/419-0035.pdf- 7 May 2009

On page 82 it shows the LRMC of a new entrant in Tasmania is 5.836c/kWh.  The 5.8c/kWh differs from OTTER’s estimate of 7.3c/kWh because there is an error in the IES report which has been used by the regulator to calculate the LRMC.

The IES report doesn’t mention the fact that Tasmania is energy constrained and NOT capacity constrained. The open cycle gas turbines at Bell Bay are only used for backup and therefore should be excluded from the LRMC calculation.

Page 129 of Aurora’s latest annual report states

‘The acquired company is constructing a 203MW combined cycle gas turbine generator (plus 180MW backup) in the Tamar Valley.’

So it would appear that Tasmanian consumers should get something like a 5% discount rather than a 16% increase.

Shaun’s comments are only valid if there were a competitive electricity market in Tasmania. I should add that the 5.8c/kWh does include a windfall gain to both Hydro and Aurora as this amount includes recent inflationary pressures caused by the effect China is having on world markets.

All is not lost. Someone just needs to write a submission to OTTER arguing that the LRMC in Tasmania is 5.8c/kWh. So far only Hydro and Aurora have lodged submissions.

Shaun I like the work you have done calculating the figures for power generation.
I came up with figures such as production cost of 7.7c/Kwh for Tassie generated power.
Tassie power revenue from industrial customers $350 million = 81% of total tassie power use.
Residential customers $200 million = 19% total power use.
That works out at $550 million revenue from 10,400Gwh/year with a total production cost of $806 million.

However I have a few questions.
Before basslink, did the industrial customers pay the tassie wholesale price ie 7.7c/kwh.
Has basslink enabled tassie industrial customers to negotiate rates at NEMCO prices ie NSW/VIC coal powered price?
Does tassie buy NEMCO (basslink) power to supply industrial customers because it would be cheaper than generating in Tassie?
Some Tassie industrial customers state on their websites that power they use is generated from green sources. (Is that statement correct if the power is sourced from basslink?)

Shaun’s estimate of 4.5c/kWh is correct if there were a competitive electricity market in Tasmania.

In the absence of a competitive electricity market the price of electricity should be 5.8c/kWh to encourage new entrants.

OTTER has mistakenly calculated a price of 7.3c/kWh by ignoring the fact that Tasmania does not have a capacity constraint.

The financial value of anything is what it can actually be sold for, not what it costs to produce.

In Tasmania, about 60% of electricity is used by major industry for which electricity is a significant part, in some cases a large part, of total production costs.

A further 20% (approximately) of electricity is used by smaller consumers for purposes (primarily space heating and hot water) where other energy sources can easily be subsitituted.

Only the remaining 20% of electricity consumption is relatively “safe” in that consumers have relatively little choice other than to consume and to pay whatever price is demanded. That said, there is a price point at which even that consumption is subject to competition from solar panels, small wind generators, small gas generators and the like.

At the extreme, if electricity prices were $1 per kWh then consumption would virtually cease once consumers had time to shut down industry, install alternative heating / hot water and install their own generation equipment. At that price, even a petrol generator or non-subsidised renewables are cheaper than mains supply. The only remaining consumers would be those physically or financially unable to install alternatives, and even they would reduce consumption due to simply not being able to afford the cost (regardless of need).

So there is a practical limit to the price which can be charged if Hydro/Aurora are to continue selling anywhere near present volumes. And, here’s the critical part, THE TOTAL COST OF PRODUCTION IS LARGELY FIXED REGARDLESS OF VOLUME since it relates to having built dams, power stations, wind farms, transmission lines etc which are capital intensive but which have minimal ongoing costs once built (around 0.2c for established hydro generation).

In the case of major industry and the heating / hot water loads, there are 3 realistic scenarios as follows.

1. Electricity prices remain competitive with alternative locations for factories and with other fuels for heating. The status quo remains.

2. Electricity prices rise to the point that continuing to operate existing facilities remains viable, but where additional invesment no longer makes financial sense.

In that situation a capital strike arises, with existing plant (industry as well as heating / hot water) being operated only because it has already been built and the capital cost is largely unrecoverable. But no new investment occurs, such that consumption ceases once existing plant eventually wears out or becomes obsolete.

An example of this situation is the demise of the former APPM mills at Burnie and Wesley Vale where major investment stopped in the 1980’s, investment since that time being only that required in order to continue operating the previously installed major items of equipment for the remainder of their useful life.

In due course the equipment becomes obsolete and wears out. A point is reached where continuing operation is either impractical (the equipment is completely worn out) or uneconomic due to being out dated etc. At that point total closure occurs.

This situation could foreseeably apply to the entire major industrial (which has the option of directing future investment to another location) and heating loads (which have the option of investing instead in gas, wood etc).

3. The price of electricity rises to the point where continuing to operate existing plant (including heating / hot water) is unviable either due to not being cash flow positive (industry) or because consumers simply can not afford the cost with or without the option of using an alternative. In this situation electricity consumption for these loads abruptly ceases.

An example of this is the huge rise in the price of heating oil, which at that time dominated the domestic space heating market, 30 years ago. The end result was fully a 60% drop in consumption over just 12 months as consumers either installed alternatives (primarily wood) or simply stopped heating the house because they could no longer afford to do so. It is an historical fact that this actually did happen in Tasmania.

So what are the actual limits to electricity price?

1. Electricity is readily available outside of Tasmania at prices around 4 cents / kWh. At prices beyond that level, the capital strike scenario becomes real - no factory owner is likely to continue to invest in Tasmania when a more profitable option is easily available in Qld, NSW and Vic.

2. Natural gas for household use is available to about 1 in 6 homes at a cost of 6.55 cents / kWh. After appliance losses (heat going up the flue etc), that is comparable to electricity at 8.2 cents / kWh.

LPG is readily available in bulk to just about all Tasmanians. It is equivalent to an electricity price of about 22 cents / kWh.

Wood pellets are a reasonably convenient alternative too, with the cost being equivalent to electricity at about 11.6 cents / kWh.

Conventional firewood is not directly comparable to electricity for heating due to the manual work involved in operating a wood fire and the waste of some fuel due to it not being capable of being quickly switched off. But firewood at $125 per tonne is equivalent to electricity at 4.6 cents per kWh ignoring those issues.

It is no secret that most people who install heat pumps, do so because they are relatively cheap to operate. Ignoring issues of cost, a great many people simply prefer gas heating to the somewhat “commercial” fan heating of a heat pump.

At present electricity prices, heat pumps for residential use produce heat at around 4 cents / kWh (from an electricity price of 11.847 c / kWh) and for business that is around 6.5c / kWh for heat produced.

If electricity prices doubled, it is likely that those with access to natural gas would choose that option for new / replacement heating systems. Gas distribution would likely expand accordingly. Meanwhile others would decide that the additional cost and relatively minor inconvenience of wood pellets is justified by the strong performance and “real fire” aspect of those heaters.

And of course there are many consumers who will simply choose the cheapest form of heating, regardless of other considerations. As many seem to have realised, it would only require a modest rise in electricity prices to bring about a situation where wood becomes the cheapest form of heating to operate.

The “capital strike” scenario would likely arise with respect to much of the heating load if electricity prices significantly increase relative to other forms of energy. There is some room to increase prices, but it is not huge.

3. Using the Rio Tinto (Comalco) aluminium plant as an example, a price of 13.5 cents per kWh would require that the entire revenue (not profit but total income) from the operation be handed over to the Hydro. Clearly that is an unviable situation.

Allowing for the cost of raw materials and labour, that price is reduced to somewhere around 6.5 cents per kWh. At that price the operation would be break even on a short term cash cost basis, but with a clear loss in that there would be no profit made on the capital invested in the plant.

So, at anything above 6.5 cents / kWh the only rational option is to close the operation and walk away, writing off losses on the original investment. At that point a profit can not be made, even with zero ongoing investment in the operation.

Obviously those figures are approximate, but they should be correct in terms of order of magnitude. An industry such as this simply will not, CAN NOT, pay 10 or 20 cents per kWh and would simply close down rather than paying that amount.

Overall, I contend that if Hydro / Aurora are to maintain total revenue then they can either:

1. Raise prices to a large extent in the knowledge that consumption volumes will collapse, thus requiring that they derrive all their revenue from remaing captive customers (largely low income earners, renters and so on).

2. Raise prices moderately in the knowledge that the above scenario will not arise immediately, but that a capital strike will be triggered with consumption collapsing progressively over the next 30 years as existing plant wears out and is replaced with alternatives (heating etc) or is built in another location (industry).

3. Sell at a price that is competitive with interstate and overseas suppliers (industry) and with alternative energy forms (heating / hot water), consequently accepting losses on their unprofitable investments that produce electricity above this price.

Overall, Hydro / Aurora simply do not have long term market power in relation to 80% of present consumption, and can not realistically survive on revenue from the remaining 20%.

Prices are thus limited to the extent that consumers will maintain present consumption levels, and that price is likely to be around 4 cents / kWh for sales to industry and only modestly above present levels for other consumers. Beyond those levels, consumption and revenue would simply collapse.