We’ve spent the past few decades turning the power industry into what amounts to a casino, the utilities of old being long gone. That is an international situation in Western countries in no way unique to Tasmania.

When financial engineering trumps civil and electrical engineering at an electricity company, of all places, then you know we really have run off the rails in a big way.

The solution has nothing to do with hydro versus coal versus nuclear, gas, wind, wave or whatever. No, it is simply a matter of focusing on the core, and that should be only, business of providing electricity at the lowest possible price to consumers. With that objective firmly set, the answer to everything else becomes simple. Use the cheapest way that works and is legal.

Put an engineer in charge, not a board of directors, and leave them to work out how to keep the lights on as cheaply as they can.

Failing that, just hand it to me. I am neither an engineer nor a manager. But you can be pretty sure that I won’t be tripling administration, building power stations we don’t need and using the lakes as casino chips. My focus would be on how to get costs down, rather the present focus of how to justify a heatwave in Adelaide or a flood in Brisbane sending up the price of power in Huonville when neither added more than a small amount to the actual cost of generating electricity.

Instead of running a casino, I’d just generate, distribute and sell electricity. You know, the way that worked perfectly well for decades until the financial gurus gained control and sent it broke.
Posted by Shaun on 27/01/11 at 09:43 PM

#24

The Greens may not have opposed solar, geothermal or wind power generation in Tasmania but that is a bit like saying that airlines don’t oppose people owning cats or that pubs don’t oppose people playing golf. It is irrelevant to the question of how to economically supply electricity in Tasmania.

Solar, geothermal and wind have thus far never been a serious contender for power generation simply because they are too expensive. And power being too expensive is precisely why we’re having this discussion.

Wind is heavily subsidised and that is one thing that has directly increased electricity prices to households and small business. The same applies to solar (note that I am one of those being subsidised since I have solar at home).

Geothermal I am a big fan of certainly and it may well have massive potential. But until someone puts up their own money and signs a baseload supply contract at 4 cents a unit it is pure speculation that it may be a financially viable power source.

In terms of what is viable:

1. Large scale hydro, most notably that in the Gordon River catchment (which includes the controversial Gordon-below-Franklin scheme amongst others) under certain circumstances. Those circumstances are primarily that it be built as rapidly as possible, thus minimising interest on the uncompleted scheme, and that it be built at the right time with respect to inflation.

2. Natural gas.

3. Under certain circumstances, Basslink. Those circumstances primarily require that Tasmanian generation and transmission (but not necessarily distribution) be owned by a single vertically integrated entity and that the link be built cheaply (monopole at $430 million rather than the as-built design at $780 million).

4.Under very limited circumstances, coal. Those circumstances are limited to refiring the old Bell Bay power station at reduced capacity (around 150 MW total) using local coal and also the free 400 MW plant we were initially offered by the Fraser government if the Gordon-below Franklin were scrapped (assuming that he actual plant built would have been a 2 x 200MW brown coal plant at Rosevale and associated open cut mine).

It is a matter of historical fact that environmentalists have strongly opposed options 1 and 3 above.

It could reasonably be expected that the Greens would likely oppose the continued operation of option 4 had either of them been built (it would still be possible to convert Bell Bay to coal, though Hydro seems more interested in demolition).

Natural gas is thus the only power source which is both economic and not reasonably likely to be opposed by the Greens. However, gas is not a long term option in the event that we end up with significant carbon taxes which would (1) directly increase the cost of operation and (2) raise the price of natural gas through increased demand until the gas price matched the carbon taxed cost of coal.

In my opinion we should have taken the free coal-fired plant we were offered, and used the fact of it being built in order to protect the environment as grounds for permanent exemption from any carbon tax, ETS or other such system (poltically this would likely have been doable).

The additional $500 million cash compensation offered would then have built us an extensive natural gas network as well, supplied directly from the Yolla field rather than from Victoria (thus saving the cost of the Vic - Tas pipeline). With gas not needed for power generation, this would have been a viable option.

Had we done that, we would now have cheap gas and cheap electricity for industry and households alike. The state would also likely have advanced further in other ways too, since we would not have spent the past 30 years arguing about how to keep the lights on, and more recently about how to pay for it, and could have focussed our minds on something else instead.
Posted by Shaun on 28/01/11 at 07:10 PM

The whole argument here is that we now have a power system similar to the mess our phone system is in.

Any company can set up, buy power from the generators and then “on sell” the power to consumers.

Of course the idea is that the big users will be able to bargain to get their power cheaper.

There is no power shortage in Tasmania.

We don’t need new dams or capacity.

Basslink was put in to try to use our extra generating capacity in winter to sell power to the mainland and to buy power back at cheap rates when necessary to conserve water in the dams so that we can sell the power at a dearer rate later on.

So far it is a dismal failure.

So we do not buy power from Queensland at all. No one sends buckets of electricity down in the mail.

It comes from Tasmania or at rare times from the mainland. Same power only that you and I can’t get it at the same rate as the biggies because they have bargaining power and they make the rules.

Oh that is right I can’t buy it because I have solar power and no grid connection. My system has never had a black out in the last 9 years since I installed it. And I don’t pay the government either. Of course it is a minimalist system that suits my needs.
Posted by Pete Godfrey on 28/01/11 at 08:23 PM

Basically agreed with Pete Godfrey #31 although I must point out that Tasmanian electricity demand does in fact exceed the capacity of the hydro system and has done since the late 1990’s.

Basically, what we have now is the financialisation of the electricity industry. It’s all about trading.

Hydro is now essentially a hedge fund that also owns some dams and power stations. Just like Ford is a bank with a *sideline* manufacturing cars. In both cases, the core business has become finance, physical production of electricity or cars being useful only to the extent that it facilites the financial operations.

Two classic examples of what this means in practice are as follows:

New Zealand hydro-electric operators intentionally spill around 10% of inflows on average. This is water which could have been used to generate electricity, but was spilled instead by means of switching off the associated power station. This is done so as to force gas, coal or (preferably) expensive oil-fired generation online thus forcing up the market price.

A certain large coal-fired power station (not the well known Hazelwood plant by the way) will every now and then, usually at times of extreme peak demand, dump steam straight into the condenser. In non-technical terms this is a means of forcing the generator output below the (relatively high) minimum output of the associated boiler (below which the boiler must be shut down entirely). It results in total waste of the coal burned with the associated environmental effects. The aim is to force other coal or gas-fired generation to incur start up costs and associated fuel waste, forcing up the price of electricity in the process.

In both cases physical production is being intentionally run inefficiently, so as to optimise profits from financial trading. Trading is where the money is, not physical production. Indeed the only real benefit of having physical production at all is to provide a “stop loss” on the trades - effectively limiting the maximum extent of a financial loss.

Due to such reasons, CO2 emissions from the NEM are in fact higher than if we obtained 100% of power from efficiently run coal-fired plants. All the hydro, gas, wind and so on does nothing more than offset some of the deliberate waste that is a function of the market.

The problem here is not the physical grid. Run sensibly, there is a lot of logic in linking certainly NSW, Vic, Tas and SA since each has funcamentally different characteristics in terms of generation and consumption and real benefits can be achieved operating as one large system.

Adding Qld is of lesser benefit, since fundamental characteristics are little different to NSW (noting that NSW represents almost half of a combined NSW / Vic / Tas / SA system).

That said, adding Tasmania (or anywhere else) only makes sense up to a point. SA with its high fuel costs and relatively low cost of connection to Vic made a lot of sense certainly. Import cheap power from Vic / NSW when available, thus avoiding the much higher cost of generation in SA (most of which is from plants in suburbs of Adelaide by the way).

Tasmania also made sense. Use some of Tas peak capacity to help meet demand in the other states on a hot Summer afternoon. Use some of their otherwise unused (at that time) capacity if required to meet demand in Tas during the middle of Winter. Use any excess water in Tas to save fuel in the other states, vice versa if there is a drought. It makes a LOT of sense in terms of engineering.

Where it goes wrong is (A) the cost of building the link was such a to be larger than the benefits, at which point an old style utility would have dropped the idea (indeed this is precisely what happened when the HEC and SECV investigated the issue in the 1980’s, 1960’s and as far back as the 1930’s - they concluded that it was uneconomic despite the obvious technical attraction of the idea). And problem (B) is that Tasmania was effectively forced into the NEM by virtue of building Basslink.

Where to now?

Form one integrated generation, transmission and distribution company in Tasmania. That is, combine Hydro, Transend and Aurora into a single entity. In the interest of simplicity and restoring public faith, we’ll just call it “The Hydro”.

Serious investigation of adding water supply as a function of the Hydro, thus replacing the existing water authorities.

The Hydro would be granted the right, but not the obligation, to construct natural gas distribution networks where Tasgas has not already done so. The intention is to have two gas companies, thus creating a race to get the pipes in before the competition does which should lead to expansion of the network.

Halt the sale / demolition of Bell Bay until all options for retention of the steam turbine plant are fully investigated.

Investigate physical relocation (to Victoria) of the open cycle gas turbines (total 168 MW) as a greater opportunity both for actual use and risk mitigation.
Posted by Shaun on 28/01/11 at 09:36 PM

These comments were posted on this thread, HERE. Comment HERE

Photo from HERE

POWER FAILURE
The Mercury
Mon 31 Jan

TASMANIAN households could save up to 10 per cent or more than $200 a year on their power bills if they were allowed to shop around for the best deal, say Treasury and energy companies including the state’s own Hydro.

Submissions to the state’s independent energy watchdog, the Tasmanian Economic Regulator, in late 2009 argued strongly for full retail contestability for power customers, not just big business.

It follows revelations last week in the Mercury that the state Government has turned its back on its own energy retailer Aurora in favour of half-price power from Queensland company ERM Power

Even more shocking was the confirmation last week by Energy Minister Bryan Green tha most of the 160 gigawatt-hours of electricity being provided for $16.4 million to some of the state’s biggest government departments was being generated by the taxpayer-owned Hydro Tasmania, sold to ERM and then sold back to State Government for a cheaper rate than Aurora could provide it.

In Tasmania, homeowners and small and medium businesses must buy their power from Aurora.

However, larger businesses and industrial sites can shop around.

Retail customers in other states are able to choose between competing electricity suppliers to secure lower prices, loyalty discounts or rebates on their contracts.

Liberal energy spokesman Matt Groom yesterday released submissions from Treasury, Hydro and interstate firm Origin Energy which he said all argued that competition would cut bills.

Also, interstate company TRUenergy even quantified the savings, telling the Economic Regulator that households would pay hundreds of dollars less each year.

“In competitive markets, the level of discounting is in the range of 5 to 10 per cent,” the company said.

Based on the average annual power bill in Tasmania of $2200 a year, that would be a saving of up to $220.

And in a further insult to power users, TRUenergy has a 50 per cent stake in the state’s flagship wind energy company Roaring 40s, which is building a massive production facility in the state’s North-East, yet the Government won’t allow TRUenergy to sell the Tasmanian-generated green power to local households.

Premier Lara Giddings has said opening the state’s electricity market to competition is not on the Government’s agenda.

“Our residential customers are protected from competition from interstate because we are not convinced at this point that that would be to the benefit of residential customers,” Ms Giddings said.

But in submissions to the energy regulator, former Treasury secretary Don Challen said he strongly supported full retail contestability and in his view competition would provide “opportunity for innovation” and send a “very positive message to the broader business community”.

“I believe that the public interest is better served by moving to [full retail contestability] in Tasmania as soon as it can be implemented,” Mr Challen’s submission stated.

Mr Groom said it was time for the State Government to offer all Tasmanians access to potentially cheaper power.

“The Government should spend less time trying to defend its position and more time listening to mums and dads and small businesses,” he said.

“If they did, they would realise that their refusal to offer people a choice when it comes to buying their electricity is indefensible.”

However, Mr Green said Treasury had stressed the importance of adequate consumer protection if ML retail contestability was introduced.

“To argue that the immediate introduction of full retail contestability will automatically result in cheaper electricity prices is shallow and simplistic,” he said.

“The real question is whether the market is ready for full retail contestability.”

The state’s peak business group has joined the push, calling for full contestability for all customers and vowing to “keep Aurora on its toes” by forcing competition and allowing households and businesses to shop around for the best deal.

Tasmanian Chamber of Commerce and Industry chief economist Mark Bowles said: “Ultimately, competition on a level playing field will benefit customers and force retailers to be more resilient businesses.

“The last thing we would want to see is the Government try to artificially prop up a government-owned monopoly.

“We have very limited competition in the electricity sector and need much more, not less.” An energy sector review is underway and will report to Parliament by August.

Though Aurora stated yesterday that competition was a matter for the Government to determine, spokesman Richard Wilson said: “We will of course support full retail contestability if it was demonstrated to be in customers’ best interests.”

(Scanned version; not online yet)