Issue 6 June 2005

Gippsland energy hub chases its future

Victoria's Gippsland province has long been accustomed to being one of Australia's powerhouses -- it produces 90 percent of Victoria's electricity, 97 percent of the State's natural gas and 25 percent of the crude oil consumed nationally. What's worrying the local community, the province's industries, the State Government and even the Federal Government is what the probably carbon-constrained future holds for a region so dependent on fossil fuels and responsible for 11 percent of national greenhouse gas emissions. Which is why more than 160 business and political figures -- including two Federal ministers, the Victorian Treasurer, two Federal MPs and a gaggle of State MPs and council members -- gathered in Traralgon this month to discuss "the Gippsland energy challenge."

Loy Yang Power chief executive Ian Nethercote, an influential national power industry identity, summed up the challenge like this: "We need to build recognition that this region supports both the State and national economies. We have to optimise technologies that will use the natural resources of Gippsland while managing greenhouse gas (abatement) expectations. We need a mix of generation capacity, but the N-word is not the answer for Victoria -- and brown coal must continue to be part of the equation. This not only requires increased focus on research, but also on the demonstration and commercialisation, or delivery, phases. We need appropriate regulatory reform, appropriate transmission and transport infrastructure and we need to align our regional education and training capabilities with the Gippsland growth strategy."

State Treasurer John Brumby told the conference: "A new baseload power station must be built in Victoria in the first half of the next decade, and we need a common Federal and Victorian approach to support for low-emission technology development." In turn, Federal Industry Minister Ian Macfarlane said dewatering and low-emission brown coal technologies needed to be given priority in the approach to strategic research. Drew Clarke, a first assistant secretary in Macfarlane's Industry, Tourism and Resources Department, briefed the meeting on the $500 million low emission technology development fund and said the Federal Government aimed to announce successful bids by July next year. The Government expects minimum grants to be about $25 million and that industry will match every Federal dollar with two of its own.

Andrew Pickering, managing director of CLP Australia Holdings (owners of Yallourn power station), said issues affecting industry investment decisions in Victoria include sovereign risk arising from changes in environmental policy and legislation, labour relations and the application of competition law. He added that the Hong Kong-based international power group had set its sights on having at least 5 percent of total generating capacity sourced from renewable energy by 2010. " This means developing about 700 MW of renewable generation, and about half of this will probably be built in Australia."

ExxonMobil's Matthew Arnold, manager of the company's Gippsland gas marketing group, said it remained concerned about tax distortions in energy in south-eastern Australia, pointing out that the Federal resource rent tax on natural gas produced offshore was (in gigajoule terms) almost double the Victorian brown coal royalty and a third higher than the NSW black coal royalty. ExxonMobil, he said, is looking for a rebate on RRT for gas burned to make power to harmonise the tax regimes.

Dominique la Fontaine, new chief executive of the Australian Wind Energy Association, told the meeting that wind farm projects totalling 250MW were under consideration for Gippsland in addition to the existing 21MW Toora development. However, she added, continuation of the current mandatory renewable energy target (set at 9,500 GWh production in 2010) would see the availability of subsidies exhausted by 2007.

That man Willett

Ed Willett, commissioner of the Australian Competition & Consumer Commission, has some in the energy sector twitching again over merger and acquisition policy. In a speech to a conference in Melbourne, he has said the Commission's fears that the AGL consortium purchase of Loy Yang Power "would open the door for a cascade of vertical mergers" in electricity supply have been strengthened by recent acquisitions of TXU assets by CLP and by the EnergyAustralia and International Power joint retail venture.

He says there also has been considerable re-aggregation of generation interests in the national electricity market, reducing the number of baseload generators in Victoria to three while three government-owned companies hold 95 percent of NSW generation capacity.

Willett says it is "prudent" to consider whether independent firms can remain viable in emerging circumstances in the NEM. "In the Commission's view, illiquid contract markets are also likely to raise risks for independent generators (in a more concentrated market structure)."

Continued enforcement of section 50 of the Trade Practices Act for horizontal mergers of generation and retail is "fundamental" to protecting competition, he adds, while the Commission is of the view that additional NEM-wide cross-ownership provisions for the generation sector "could be an effective complement" to the role of section 50. Provisions could include "appropriate thresholds" for generation mergers, he says.

New green power campaign

Environmental consultant Alan Tate has told the Renewable Energy Generation Association conference in Launceston that the green lobby movement will embark on a three-year national campaign on energy issues early in 2006. Tate says green advocates have had to confront the fact that the coal lobby, backed by energy-intensive manufacturing, is too strong at present and have set out to establish a new strategy to "create a large grassroots constituency.". This, he adds, will involve green lobby teams moving across Australia -- "suburb by suburb, city by city to connect with millions of people" -- to engage the community's interest in renewable energy use and energy efficiency.

Macquarie Bank executive Ian Kay has told the REGA meeting that incentive schemes for renewable energy have got to be certain for 20 years to attract investment. Australia, he points out, has to compete for support for renewable energy projects in a global market where mandatory schemes require $US145 billion to be spent by 2010. "The single most important factor in sustaining the investor appetite," he adds, "is stability and continuity in government policy settings and incentives."

IEA warns of power shortages

In a new report -- Saving Electricity in a Hurry -- the International Energy Agency is warning member governments in more than 25 developed nations that electricity supply is struggling to meet demand and more problems of the kind that have occurred in New Zealand, Japan, Brazil and North America in the past seven years can be expected.

"There is every reason to expect that another shortage will appear soon," the 127-page report warns, adding that raising prices for consumers may be an important way to reduce the risk of power shortages in the long term. Short-term, it adds, governments can force a cut of as much as 20 percent in electricity consumption without "destroying" an economy.

Keith Orchison

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