Comments
I think you’ll find the bulk power users actually pay .5 of a cent per kilowatt hour.
So actually, Tasmanians all pay about 20-30 times as much as the bulk power users do.
Surely the answer to the Basslink problem is to ask the bulk power users to pay the same as the rest of us, or bugger off to somewhere else that is happy to offer such huge hidden (and ruinous)subsidies.
Then we could sell that 45% of our entire generation across Basslink at an inflated, “green” price, resulting in a massive boost for the finances of Tasmania in general and the Hydro in particular.
Given that at least one of the bulk power users is about to renegotiate their bulk power contract, and are busy placing adverts in newspapers and pamphlets in neighbour’s letterboxes spruiking the “benefits” of their presence (without mentioning the huge subsidy they receive), now is a bloody good time to have this debate.
As far as I can see, the end of the bulk power contracts is the only way to make Basslink profitable.
Yours,
Jason LovellPosted by Jason Lovell on 08/12/06 at 08:34 AMSounds like common sense, Jason. Which is the main reason why it will never be a feasible option in the “real” world of Tassie power politics.
Posted by Justa Bloke on 08/12/06 at 01:41 PMJust the tip of the ice berg - another 24 years of Basslink payments to go. This will be the single issue that busts the Tasmanian economy. I note that Hydro’s pathetic attempt to justify the situation was to put out a press release today about the dire water levels of dams. They ususally sit on this information - but now it serves as a useful means to justify the power imports - another sure sign that Mr. Barren has hit the nail on the head.
Jason you are partly right. However for Basslink to just break-even it needs to send at least 550MW to the national grid 24 hours a day, 365 days a week (ie. it needs to export constantly at full capacity). This is about the same amount of energy that all 16 Major Industries (MIs) consume. In summary Basslink is acting as a means for Tasmanian householders to subsidise industry consumption ( a new form of corporate welfare). So it’s a bit of a bind. Can’t stay here typing all day - the electricity prices are killing me.
Posted by Super Model on 08/12/06 at 04:22 PMWas that Hydro tas’s Dr. Michael C I just heard on the radio expousing the greatness of Basslink as a means of “drought-proofing” with dam levels 8% lower than normal? Golly-gosh Michael - what did we used to do prior to March 2006 when Basslink never existed. Have you sent your standard demands to Comalco for them to reduce their consumption - I think not. Why? Becasue we are paying for it! You must think we are all stupid.
Posted by idiot proofing on 08/12/06 at 05:11 PMSuper Model, sorry to rain on your parade, but I think you have been a little misinformed, not only about Basslink’s break-even requirements, but your comment that Basslink needs to constantly export at full capacity.
Jason, the suggestion that bulk power users pay 0.5c kW/h is fanciful, and I’m guessing that the spruiking nuisance to which you refer is Zinifex.
I’m not necessarily a fan of how Basslink is being operated, but it isn’t particularly relevant to revive the decades-old argument that pensioners in Moonah are subsidising Comalco’s power costs.
Facts, not speculation are needed here. If I can be dragged away from an amusing little 2004 Holm Oak pinot noir, I may provide some later.
Posted by Jarvis Cocker on 08/12/06 at 05:49 PMDoes this mean in hindsight that Bob Borwn has to step down for encouraging carbon fuel in stopping the Gordon below Franklin Hydro scheme. Maybe if we had that dam bass link would not have been needed.
Posted by John Herbert on 08/12/06 at 06:35 PMHydro Tasmania has in the past disclosed average prices paid by the bulk users whilst the wholesale price used for supply to domestic customers is as set by the regulator.
I don’t have the figures at hand but in rough terms the bulk users are in the order of $35 per MWh and it’s somewhere in the mid-40’s for the rest of us.
That domestic users have a (rather expensive in terms of supply costs) habit of not keeping their load constant 24 hours a day in itself completely justifies the gap between domestic and bulk user rates.
Also, domestic users do not have automatic load shedding systems installed. Worse still are the small commercial users which commonly shut down overnight thus making power supply an expensive operation.
Domestic users could help the situation by shifting more load to off-peak. But even with the significant financial incentive to do so, a ridiculous 90% of Tasmanian homes continue to heat water during peak demand times, a situation that would be considered outrageous practically anywhere else.
In terms of Basslink, I am neither a strong supporter or opponent of it but the facts must be acknowledged. Tasmanian load substantially exceeds the ability of the hydro-electric system to supply that load. That this would occur has been known since the days of the Franklin dam debate in the early 1980s. Indeed this is precisely why the dam was proposed in the first place.
Without Basslink, it is a fact that storage levels would now be under 29% with a projected fall over Summer of at least 20% assuming the dry conditions continue. That would lead to storages at 5 - 10% next Autumn and power rationing would be unavoidable with domestic users, given their peaky loads, necessarily hard hit since the Mersey-Forth, Pieman and King catchments would be literally empty by that time such that sufficient peak generating capacity would not be available.
It must thus be acknowledged that Basslink, regardless of its financial merits, has avoided a serious shortfall of generation capability in Tasmania. Even if storages still do fall below 10%, that is perfectly acceptable when one third of the load can be imported whereas it is unacceptable if that load were to be supplied from Tasmanian hydro generation. A point that many seem to not understand.
That said, a coal-fired power station, several large wind farms, major expansion of Bell Bay or a major new hydro-electric dam would all have achieved the same result if built sufficiently early (due to their lower instantaneous energy supply capacity).
It is ultimately all about having positive expectancy, or at least neutral expectancy, with regard to storages over the long term. Without either Basslink or some other source of new generation, we would have negative expectancy (ie outflows exceeding inflows) even with average rainfall. Clearly that is not a sustainable situation.
In regard to the actual cost of power imported via Basslink, presumably Hydro would have contracts in place with mainland generators rather than buying at spot. Most of the time, there is surplus capacity available around $15 - 18 per MWh (NSW coal-fired plant) or at least at no more than $30 (SA gas-fired). Hydro would presumably be sourcing imports at such prices plus a small margin for the generator (who otherwise has underutilised plant) rather than paying spot market rates.
The marginal cost of generation from Bell Bay (the original steam turbine units) is in the order of $30 per MWh for baseload with the newer gas turbines being considerably higher marginal cost.
Posted by Shaun Caris on 08/12/06 at 06:51 PMI’m sorry to distract you from such a fine wine Jarvis but I’m afraid that I havent been mis-informed - simply because I havent been “informed” by anyone. If you can drive a speadsheet and have a good understanding of economic modelling in the electricity industry then you can calculate the break even for a capital project over 25 years for yourself - I look forward to seeing your modelled figures. However you are correct in terms of bulk price - the price contracted to most large industries in Tas is in the order of generation cost-price (2.9 cents/kWh) - so I’m afraid the penioners of Moonah are still subsidising industry profits (by an order of about 4x).
Shaun - The spot price that Tas pays for electricity via Basslink generally varies between $15 and $87 MW/h on a weekly basis with an average of $35. Your argument about Basslink providing a means to import energy when dam levels are low is diminished by the fact that prior to Basslink (only 10 months ago) Tasmania coped just fine by regulating its energy demand to meet supply. So yes Basslink does provide a convenient alternative source - but at an horndous cost. Dam levels are now down towards 22% and still industries are operating at full-ball. This would not have been the case previously - esentially domestic consumers are subisdising corporate electricity supply and profits.
I’m glad to see the usual Hydro-aplogists and Tas Government spinners are in action - it gives the rest of us assurance that the premise of the story must be correct.
Posted by Super Model on 08/12/06 at 08:19 PMBasslink seems to be just another stuff up, add it to the Gas pipeline, the fibre optic cable, Spirit 3, the TCC, and not supporting renewable energy.
The best thing is that we may be encouraged to use less power, I know that this is sacrilige to those who believe in the economic rationalist capatilist ideal of an ever expanding economy but it is a powerful solution.
Let’s take hot water for instance.
Heating water takes up at least 25% of domestic power. Makes no sense to me when solar hot water does it all for for nothing. (apart from the initial setup cost)
So we buy power from coal fired power stations in Victoria, they burn coal to heat water to make steam. We buy the power, transfer it over here through wires and transformers that have losses. (Costs us in dollars to heat the wires up). Then we transfer the power about the state, put it into a cylinder of water and heat the water up.
Overall efficiency from mining to hot water is about 30% if we are lucky.
Pretty dumb eh.
So why don’t we have subsidised solar hot water heaters available to anyone who wants one.
People could keep paying their current power bill and the old hot water component would pay off the solar hot water system.
I know radical, socialist idealist stuff.
But with Global warming, Drought, and the real possibility of system failures in Basslink. It may be worth a lookPosted by Pete Godfrey on 08/12/06 at 08:38 PMWould one of the contributors to this thread inform us whether the water to be diverted to the new irrigation scheme in the midlands will ultimately effect the amount of water that reaches Trevallyn Dam. Will this loss of inflow in combination with the 3 million litres of water per hour being extracted for the proposed pulp mill reduce the dam level to the point that electricity generation is not possible during the drier months.
Posted by David Mohr on 09/12/06 at 07:37 AM“In summary Basslink is acting as a means for Tasmanian householders to subsidise industry consumption ( a new form of corporate welfare).”
by Supermodel
I think you’re forgetting this was always the plan of hydro-industrialisation in Tasmania, it was an indirect way of offering CHEAP LABOUR and TAXES, in order to compete with other places with better comparative advantages.
It never worked of course. But the model is used everywhere to keep the illiterate hill tribes in some sort of cap-doffing happiness with their I-work-hard-so-therefore-my-small-business-deserves -all-the-help-it-can-get-while-I- force-my-jurassic- political-views-down-everyones-neck
Posted by meika on 09/12/06 at 09:00 AMWhy was a project allowed to go ahead that is such a financial burden on Tasmania, now and into the future?
Part of the blame, I believe, lies with the RPDC. The RPDC in their assessment were called upon to commission a full, independent, economic analysis of the project. They failed to do so and instead accepted the analysis provided by the proponent.
I can’t help but wonder if the RPDC will do the same with Gunns proposed pulp mill, accepting the proponents analysis that it will be a boon for the state.
So far the RPDC have only commisssioned independents consultants reports on important technical issues such as air quality, enigneering, wood supply. Let’s the RPDC takes the impact that Gunns’ proposed pulp mill could have economically on the Tasmanian people seriously.
Posted by Isobelle on 09/12/06 at 11:51 AMTo Dave Mohr, it doesn’t matter if no water from the proposed diversion of water from Poatina/Cressy scheme to the Midlands reaches Trevallyn dam.
The farmers and investors in the Meander Dam have cheerfully opted to subsidise the water to the pulp mill project. If you check what the environmental flows are to be from the Meander Dam they seem to add up very nicely to what the pulp mill uses. As the environmental flows are supposed to keep the river healthy they should in theory be allowed to get to the Trevallyn Dam and from there they can be piped to the pulp mill to prevent the water being wasted by allowing it to flow to the ocean.
A question for climatologists here, have any studies been done on the value of letting fresh water flow into the ocean. I have it heard from many people that they think that any fresh water that is allowed to flow into the sea is a waste.
My small non-university educated brain has problems with that theory. May just be an intuitive hunch but somehow I feel it is not wasted by flowing to the sea.
Posted by Pete Godfrey on 09/12/06 at 01:47 PM“Shaun - The spot price that Tas pays for electricity via Basslink generally varies between $15 and $87 MW/h on a weekly basis with an average of $35. Your argument about Basslink providing a means to import energy when dam levels are low is diminished by the fact that prior to Basslink (only 10 months ago) Tasmania coped just fine by regulating its energy demand to meet supply. So yes Basslink does provide a convenient alternative source - but at an horrendous cost. Dam levels are now down towards 22%”
Are you certain that Hydro is in fact buying only on the spot market? It seems highly unlikely that they would be importing at $80 or so per MWh when unit 1 at Bell Bay is idle and the gas turbines are effectively only utilised to boost exports at peak times. Are you seriously saying that Hydro is choosing to pay literally double?
You are of course right if you are referring to opportunity cost rather than actual cash cost but that is not a financial loss by the normally accepted definition. A lost profit but not a loss as such.
The operation of Basslink and Bell Bay over the past few months certainly does not correspond with that which would be expected if Hydro were trading solely in the spot market with the objective of maximising profit. Hence my conclusion that they likely have contracts in place which are not simply a direct reflection of the spot price.
Regarding the present storage level, the suggestion that it is approaching 22% is simply not correct. The storage level last week was 32.9% and it could not possibly have fallen to 22% in a matter of days without literally a structural failure of the Gordon dam.
In the past, Tasmania has not regulated energy demand to match hydro availability but rather, has supplemented supply via the use of oil and gas at Bell Bay power station.
Based on present oil prices and exchange rates, the cost of oil-fired generation is about $125 per MWh. Using gas at Bell Bay it is in the order of $30 per MWh plus the fixed price paid for pipeline capacity. Assuming that contracts are in place as opposed to buying at spot, imports via Basslink are in the order of $15 per MWh plus the fixed cost of the Basslink facility fees.
Hydro’s public comments on the matter, whilst somewhat non-specific, do strongly imply that either (1) there are contracts in place in relation to energy sales and purchase and that these are not at the spot price OR (2) their public comments are outright lies and they are intentionally losing money through their trading decisions. Having contracts in place seems more likely to me.
I am not a huge fan of Basslink mainly due to the longer term implications. Specifically, the risk that Tasmania becomes a net exporter of electricity via the closure of Tasmanian industry once global gas prices are revalued as a transport fuel (sharply dragging up mainland electricity prices given the building of new gas-fired plant). With tourism and all that depends on it being only a short term economic strategy, the last thing we need is to lose manufacturing industry as well. But that said, I don’t follow the maths behind the argument that Basslink will send the state broke in the next few years unless someone is choosing to do so intentionally on a daily basis through trading decisions.
Posted by Shuan Caris on 10/12/06 at 01:29 PMIsobella,
The RPDC is currently considering whether the impacts of the world’s most intensive logging is worthy of their consideration. They say they’ll make a decision late in December.
Since that rate of logging impacts about 150,000 Tasmanians living in rural areas, it will be very interesting to see whether the RPDC thinks it has the right, and the power, to leave the impacts on those people and their businesses from consideration.
Posted by Mike Bolan on 10/12/06 at 07:56 PMShaun, in case you hadn’t noticed, we have been losing manufacturing industry for some time.
What I’m concerned about is the fact that we, the owners, are denied access to crucial facts about the prices being paid for our hydro power. This situation must be changed, and “commercial-in-confidence” be damned.
As for being a net exporter of electricity, wouldn’t our hydro generated power be better for the greenhouse emissions situation than the other states relying on coal? It might only be a tiny element in the Victorian grid, but better than nothing.
Posted by Justa Bloke on 11/12/06 at 12:53 PMShaun & Justa Bloke, the information you seek is buried in the depths of the NEMCO webpage.
Here you will find that Super Model appears to be correct - the spot prices and throughput on interconnectors is reported - and shows a disturbing story for Basslink. Indeed it would appear that tassie is being dudded with high spot prices ( and not contracted prices).
Your comments regarding cash-cost versus opportunity cost were also very interesting. This (and future value) is the single CRITICAL issue underlying the Basslink disaster. Traditionally the public sector used to ignore off-the-ledger costs such as opportunity cost and future value as these had little importance in public infrastructure capital. However this was 20 years ago and things have changed. Many people like yourself, and government agencies are still stuck in this mind-set. Unfortunately in the modern world of PPPs and the cut-throat world of capital finance, things have changed. Basslink is essentially a private project funded under public assurance - a defacto PPP - hence it has the same fiscal and non-fiscal risks.
Any modern private company worth its salt wont invest a dime in Basslink (now on the market) without first assessing the opportunity cost and the future value over 25 years (this is why the Tas govt is keeping its options open about buying). This is also why Basslink is a dud that will bite us all in the backside. As the saying goes, the poo is about to hit the fan. Keep watching.
Posted by Electric Mouse on 11/12/06 at 06:32 PMIt isn’t Basslink that’s dudded us, it’s the State government.
Lennon’s oafish methods might work in Union standover situations but they have no place in a modern economy. He thinks his bluster will protect him, in fact corporations and bureaucrats are all having a ball taking him and his government to the cleaners at every opportunity.
Anyone with any sophistication at all can see him coming and fleece we taxpayers to the max.
It seems unlikely that he’ll ever take personal responsibility for his blunders. He seems to still like blaming everyone else for his screw ups.
Posted by Dudded on 12/12/06 at 05:33 PMI am well aware of the spot price data available via the NEMMCO website. Indeed I ran my own full 12 month simulation of Basslink operation before the cable was even laid based upon this data.
But what must be understood is that much of the electricity traded is NOT traded via the spot market in a financial sense. Sure, the spot market is the basis of generation dispatch (determining the output of individual power stations) but it is quite possible, and indeed common, to contract around that in a financial sense.
For example, let’s say you own a power station with a marginal cost of $30 per MWh. You could enter a contract to sell electricity at your cost of production which, on the surface, gives no profit. But what you would do in practice is that your power station would only run when the spot price exceeded your production cost and the rest of the time your customers are supplied from the market with electricity physically generated by someone else. So your actual cost is the lower of your cost of production ($30) or the market price. Only way you’ll lose is if the price rises and for some reason (eg breakdown) your plant can not run.
So, the customer gets their guaranteed $30 through their contract with you whether the spot price is $5 or $5000. You run your plant when it is profitable to do so and buy from the market when that is the cheaper option. Worst case for the generator is the spot price is always above $30 and they end up selling their output at zero profit and missing out on profits they could have made if they sold their output at the spot price (the opportunity cost). Worst case for the customer is that the average spot price is well below the contract price - they paid too much.
This is no different for any other commodity. For example, if you were going to buy $100,000 worth of machinery from the US in 12 months time then you could protect yourself from a fall in the value of the Australian Dollar by entering a deal to sell Australian Dollars and buy US Dollars. If the Aussie Dollar falls then that deal will be profitable and will offset your increased costs of buying the machinery with a lower value Aussie Dollar. They are totally separate transactions but, as long as they are for the same amount of currency, one will offset the other thus effectively locking in today’s value of the Australian Dollar for your machinery purchase no matter what actually happens in the currency markets over the next 12 months. Either the Aussie Dollar rises and the machinery gets cheaper for you to buy but the financial deal loses or vice versa. Either way you end up with your machinery at the $100,000 you planned on spending plus a little bit which is effectively brokerage charges on the deal (not a great amount). Such contracts are VERY common.
Now, if you are a seller of a commodity then you can hedge against price falls by entering the appropriate financial contracts. If the price falls then yes you do sell your production cheaper but the profit from your hedging contracts fully offsets that. End result is you effectively get whatever price is stated in the contract. Buyers can do likewise - if the price rises then profits from the hedging offset that and the end result is no impact on the consumer from the rising price.
It is quite possible, indeed likely in my opinion, that Hydro Tasmania would have entered financial deals which effectively protect them from movements in the spot price. A generator with surplus capacity would be very well placed to guarantee a price of, say, $20 if that is above their cost of production. Worst case they need to actually run their plant rather than having it doing nothing.
So it is quite possible that, whilst Tasmania has indeed been importing some rather expensive spot price electricity, that could be completely offset via financial hedging. That is, that Hydro has entered deals whereby the loss/profit from the financial deal offsets the profit/loss on importing electricity. No matter what the actual spot price, they end up paying the $15, $25 or whatever the deal is. As long as that price is less than the cost of running Bell Bay then it makes sense given that the cost of Basslink is now payable no matter how it is actually used (whether it should have been built in the first place is another issue - I’m talking only about actual operation on a day to day basis).
Obviously I am speculating that this is the case, but it is a perfectly normal commercial practice to lock in price in this manner and I can see no reason why Hydro wouldn’t be doing so. Other generators and retailers in the National Electriciy Market (including Aurora) are certainly doing so, so why wouldn’t Hydro?
Posted by Shaun Caris on 14/12/06 at 09:07 PMFine Shaun - but you are still not seeing the issue. Regardless of contract versus spot price, the fact remains that Hydro is still purchasing power that it would previously not have purchased - someone has to pick up the tab. Your comments regard electricity sales are also fine - but the fact remains that Hydro have barely sold a kilowatt across Basslink since it commenced operation. So in summary the balance sheet shows Tassie buying power at cost and not selling anything at nil revenue - that looks like a loss on my ledger book!
Tassie has been paying a spot price average of $35 MWh which is the highest of all states and territories - are you really suggesting that it is cheaper for Hydro to buy power on this market rather than run all gas-fired units at Bell Bay at the full 345 MW capacity??
Posted by Electric Mouse on 15/12/06 at 03:43 PMHmmmmmm
The problem with all this pretending that a public service is a profit driven business is that common sense gets left outside with the rubbish bins.
On one hand we have Aurora getting everyone to save energy by installing heat pumps that get used far more often than heaters, even if they use less power when on. Having an imperitive to get consumers to use more power, Aurora seems to forget that more hours on equals more power used when talking about the efficiency of heat pumps.
On the other hand we have Hydro as the generator trying to keep up with demand.
The return on investment in demand reduction never gets analysed because those who would benefit have no control over demand and those who can influence demand have no incentive to reduce demand.
Many years ago in a previous life I read a paper on a small utility company in the USA who, when faced with rising demand and the need for more generating capacity, went out and brought an infrared camera worth several tens of thousands of dollars. They allowed consumers to take the camera home for free. The heat loss was obvious, even to untrained operators and the resulting reduction in demand avoided the capital cost of extra generating capacity.
No chance of that here, not on the intelligent island.
One other thing, we had to have the cable,otherwise we would not have had enough power to run the pulp mill, just another subsidy to the corperate welfare junkies at you know who.Posted by A view from the hill on 15/12/06 at 09:02 PM
