Issue 16 April 2006

Energy networks to spend $27 billion

The Energy Networks Association says $16 billion will be outlayed over the next five years on expanding and upgrading Australia's network system and another $11 billion will be spent on maintaining and operating networks that serve 12 million customers across 800,000 kilometres of power lines and 75,000 kilometres of gas pipelines.

The capex outlay would be higher still if the networks had been able to persuade regulators to agree to their full program -- regulators have reduced capital investment plans for the next five years by $3.2 billion in determinations over the past 16 months.

The ENA represents businesses owning assets currently worth some $35 billion.

The Association's new chief executive, Andrew Blyth, a former adviser to Federal Industry Minister Ian Macfarlane, says ENA is setting out brief energy ministers and their officials ahead of the Ministerial Council on Energy meeting in Darwin on 19 May.

Blyth notes that the MCE is expected to finalise the rules for national distribution sector regulation at this meeting. He adds that the ENA will be promoting the need for a "balanced regulatory system" to enable the networks to meet rising customer expectations, energy demand growth driven by the strong economy and the challenge of renewing and replacing the country's ageing energy distribution system.

ENA says its strongly supports a "propose/respond" regulatory model that defines the regulator's role, leads to shorter and more timely decisions and reduces the risk of regulatory second-guessing of investment decisions. Under this model, regulators, in effect, would be confined to considering a detailed service provider proposal for commercial reasonableness and how it meets a framework set of objectives and principles for service and delivery.

Meanwhile the Business Council has released a report in which it argues that Federal, State and Territory governments need to pursue a massive program of proposed infrastructure development in key areas such as energy and water supply, road building and rail services by 2007 to avoid costing the national economy up to $10 billion a year through lost growth resulting from bottlenecks.

Basslink finally 'turned on'

After a seven-year development program and months of testing the completed system, National Grid has announced that its Basslink transmission line between Tasmania and Victoria is fully operational.  The line will have a 600 MW transfer capacity between the two States.

The formal launching of the link was promptly attacked by the Greens leader, Senator Bob Brown, for allowing Tasmanian consumers access to Victoria's brown coal generators.

Credit ratings agency Standard & Poor's, meanwhile, says the advent of Basslink plus completion of the 750 MW Kogan Creek power station in Queensland will see national electricity market pool prices reduced over the next two years.

Victoria takes parrot to court

Both the Victorian Government and developer Wind Power Pty Ltd have announced that they ask the Federal Court to review a decision by Federal Environment Minister Ian Campbell to bar the Bald Hills wind farm in Gippsland because of a perceived threat to the endangered orange-bellied parrot.

Campbell has told a West Australian radio program that the Bald Hills decision was a "very unique case" where he was concerned about the threat to an "incredibly endangered bird" from the cumulative effect of building wind farms "side by side" along a long stretch of coast.  Campbell has also pointed out that the veto on Bald Hills does not mean that his Government's MRET program to produce 9,500 GWh a year of new renewable electricity by 2010 will be diminished.

The Victorian Government is accusing Campbell of using a theoretical threat to the parrot as an excuse to stop a controversial wind power development in a marginal federal seat narrowly won back by the Liberals in 2004.  The State Government will ask the court to order the Environment Minister to review his decision.

Campbell is also campaigning for State and Territory government agreement on a national development code for wind farms that will take in to account community opposition to projects.

PwC reports utility chiefs' security fears

Global professional services consultancy PricewaterhouseCoopers says its 2006 energy utilities report shows that industry executives around the world have fear of supply disruptions as their major concern.

PwC identifies five key areas of focus among executives in the global power and gas sector:

Looking at the responses from Australian executives, PwC reports that they expect energy demand to grow by 50 percent between now and 2020 and many are querying whether the present round of regulatory reform will create sufficient investment incentives. They argue that the markets are still not signalling effectively to investors when and how much to invest in new power generation, transmission and distribution.

Australian sector leaders are worried that their challenges will be compounded by a significant human resource challenge as they compete to retain key personnel and to replace an ageing workforce. In one respondent company, half the workforce is aged more than 50 and 25 per cent is older than 55.

The top five impediments to an efficient national power market listed by Australian executives are:

The Australian respondents stress the need for further interconnection between regions, arguing that this will help reduce the tendency for inefficient generation strategies to be developed on a State-by-State basis. They criticise the existing transmission infrastructure and regulatory arrangements because they create "excessively regionalised markets and the tendency to State-based rather than national solutions."

At present, PwC points out, the price of energy can vary substantially from region to region because of the lack of a fully integrated and liquid national market. A large number of survey respondents argue that the situation provides generators with excessive market power and limits interstate financial contracting.

Australian energy retailers tell PwC that their focus is strongly on obtaining greater value from, and protecting, their existing customer base. The cost of acquiring new customers, they say, far exceeds that of retaining the existing ones. Preventing customer churn, observes PwC, is vitally important and will require more sophisticated strategies.

Keith Orchison

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