Issue 19 July 2006

Fine-tuning only goes so far

The New South Wales Government-owned transmission business, TransGrid, warns in its 2006 annual planning report that little scope exists for further fine-tuning of the State high voltage network as demand continues to grow. The need for generation capacity development is likely to require the construction of major new transmission infrastructure, it says.

TransGrid adds: "Some significant network augmentations may be required over the next decade to ensure that intra-regional constraints do not markedly limit the economic operation of the national electricity market nor adversely affect reliability of supply to NSW load centres."

The network operator's planning difficulties in the face of continuing State Government failure to make major decisions about generation development are revealed in a statement that "there has not been any large-scale development of power stations in NSW since the construction of Mt Piper (which occurred in 1992-93) and there are no firm plans for development of major new power stations. Under these conditions, TransGrid goes on: "the timing of further (transmission) developments cannot be identified with certainty."

The report also contains a carefully-worded warning to the State Government about the condition the NSW network.  "A number of 330 kV switchyards on the NSW main system have short circuit levels that are approaching the rating of the switchyard plant. This is particularly the case where (any new) power station developments affect the 330 kV levels in the Central Coast, the Hunter Valley and the west."

The report says that consumption in the State has grown from 53,698 gigawatt hours in 1995-96 to 70,220 GWh in 2005-06, an average annual growth rate of 2.8 per cent, and it projections that demand by 2015-16 will range between 78,000 and almost 89,000 GWh, a situation that will demand new baseload power station development and decisions about their fuel in the near future.

The State election will be held in March next year and the fuel mix for up to 2,500 MW of new power stations is expected to be a controversial part of the political debate.

Victoria gives nod to $1 billion gas plant

Construction of a 1,000 megawatt gas-fired power station in Victoria's western districts is a step closer to reality after the State Government's approval of an environmental assessment of the Origin Energy project.

Energy Industries Minister Theo Theophanous says the endorsement of an environmental assessment of the plant leaves only final stage technical approvals before the Mortlake development is allowed to proceed. It will be the largest power station to be constructed in Victoria since Loy Yang B was completed in the early 1990s. A 78 kilometre pipeline will be built from Port Campbell's new gas processing plant to fuel the station.

The Australian Petroleum Production & Exploration Association (APPEA) has hailed the decision as another indicator of a "strong national swing to gas-fired facilities." APPEA chief executive Belinda Robinson says it brings the value of gas-fired electricity production projects announced in the past 18 months in three States (the others being Western Australia and Queensland) to $3 billion. She predicts that natural gas will fuel 22 per cent of Australia's electricity needs by 2030 -- its share stands at 14.8 per cent at present, up from 10.6 per cent in 1990-91.

'Pragmatic, rational and flexible'

Prime Minister John Howard says that Australia needs an energy policy framework that is "pragmatic, rational and flexible" to secure his Government's goals of prosperity, fuel security and environmental sustainability.

Speaking to a Committee for Economic Development (CEDA) lunch in Sydney, the Prime Minister has noted that energy security has now assumed a strategic significance for global governments once reserved for territorial security. Australia, he adds, has "massive opportunities" to increase its share of global energy trade through exports of coal, liquid natural gas and uranium.

Howard adds that energy market reform at home is also an important contributor to Australia's energy security.  Electricity sector reforms, he says, will add $7 billion to national GDP between 2005 and 2010.

Indicating that the Government will be announcing recipients of the Low Emission Technology Demonstration Fund's first grants "shortly," the Prime Minister has revealed that it received 30 applications seeking $2.6 billion worth of support for innovative projects requiring $13 billion in investment.  The Government intends to provide $500 million in subsidies and requires applicants to invest $2 for every $1 of support. Howard says the first recipients of the Government's proposed $75 million Solar Cities funding will also be announced soon.

Re-iterating his rejection of lobbying by State governments and some business sectors for the introduction of carbon emissions trading, the Prime Minister has noted that he does not reject the concept in principle but is not prepared to embrace a national scheme that would increase the cost burdens of trade-exposed industries to the benefit of developing countries that are not required by the Kyoto treaty to pursue emissions abatement.

SA lifts its renewable energy target

South Australia's Premier Mike Rann has announced the introduction of legislation that will commit the State to meeting 20 per cent of its electricity consumption from renewable energy by 2014, lifting the target from 15 per cent initially set out in the Government's strategic plan.

Government utility profits soar,but..............

The Productivity Commission, in its annual survey of Australia's State-owned enterprises, reports that the government-run electricity businesses have increased their profits by 68 per cent in real terms between 2000-01 and 2004-05.  Power GTE profits in 2004-05 reached $2.6 billion, it says. Nevertheless, adds the Commission, most power sector GTEs are not achieving a sufficient return on assets, with only eight out of 21 reporting returns of more than 8 per cent and six failing to match the 10-year government bond rate.

The Commission also notes the continuing trend of State governments to raid utility coffers for funds. It reports that the NSW Government has taken more than $5 billion in equity from its power sector GTEs in the past decade, with the enterprises increasing their borrowings to pay for the transfers.

The governments continue to receive strong dividend payments from the sector, too. In 2004-05 the NSW Government received $562 million in dividends, the Queensland Government was paid $435 million, the West Australian Government $104 million, the Tasmanian Government $68 million and the Northern Territory Government $20 million.

Kiwi cold spell strains capacity

New Zealand power consumption achieved a record on 19 June when peak demand during extreme cold weather reached 6,630 megawatts and the previous highest supply required (in August 2004) was exceeded three times in 10 days.

Government-owned Meridian Energy, the largest generator business, says it found managing the new peak "extremely challenging," because the record demand coincided with record low inflows to its Waitaki River hydro-power system. The fact that the country had to draw on all available generating plant during the cold spell is a sign that the supply system is under threat, adds Meridian, indicating an urgent need to develop more generation and transmission capacity.


While the Prime Minister has been firm in his rejection of Australia adopting a national greenhouse gas emissions trading scheme absent a global approach to carbon management, the southern State governments, a number of business sectors, including banking, non-coal generation and insurance, and green advocacy groups continue to demand an early move in Australia to a carbon price signal.

Energy-intensive manufacturers, who employ directly and indirectly about a million Australians, on the other hand keep warning against action that will impact on international competitiveness and economic growth

They point out that applying an emission trading scheme in Australia but not in most of its overseas competitor nations will result in "carbon leakage" -- industries moving offshore and continuing to be the source of emissions elsewhere.

Environmental lobby groups have upped the ante while they wait for a "green paper" on carbon trading to be issued by State governments by releasing economic studies which they claim demonstrate that the move will not be detrimental. Media commentary has tended to take these assertions at face value, with reporters clearly not taking the time or trouble to read the fine print. If they had, they would have found the following statement in the Allen Consulting Group report for the Australian Business Roundtable on Climate Change:  "It should be emphasised that an assumption of global action is fundamental to this analysis. Any large-scale unilateral action by Australia would constitute bad policy in that it would impose significant costs on the community while having a negligible impact on climate change."

It will be interesting to see how the governments of the main electricity demand/supply States -- New South Wales, Queensland and Victoria, which represent more than 75 per cent of the market -- get round this point when their "green paper" is published and whether the media challenge their response (or lack of response) to the Allen Consulting Group warning.

The basic arithmetic for the issue is in fact quite straightforward:

While it is the industrial sector that is most vocal on the issue, the media have yet to become aware of the fact that, in New South Wales for example, a 25 per cent retail price increase would represent an annual increased cost for more than two million residential customers of between $200 and $300. Coming on top of higher petrol prices, this is hardly likely to be seen as good news by voters in the coal States -- who will have an opportunity in NSW, Victoria and Queensland in the next 12 months to go to the polls and again federally in no more than 18 months.

Keith Orchison

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