Issue 29  May  2007

Dry argument

The nation's energy ministers have been at pains this month to radiate assurance that Australia's eastern seaboard does not face power blackouts next summer as a result of the impact of the drought on electricity generation.

"Even with the low water supply," says Federal Industry Minister Ian Macfarlane, speaking after the 25 May Ministerial Council on Energy meeting, "providing there isn't any unusual or extreme event, we should be able to supply electricity through the summer and in to the lower demand periods of March and April."

The "extreme events" to which he refers are bushfires and generator or high voltage transmission failures.

What the National Electricity Market Management Company has actually told the MCE ministers is (a) it expects to see supply reliability maintained despite the drought's impact on coal-fired and hydro-electric generation and (b) maintaining system reliability under the pressure of extreme events may need additional reserve capacity.

It also told them that Victorian generators believe the market manager has under-estimated its calculations of the impact of the drought on their baseload capabilities.

Looking further ahead to the summer of 2009, NEMMCo has warned that, in a continuing drought, which is considered "very unlikely,"  up to 2,200 MW of generation (or more than five per cent of installed capacity) could be unavailable on the eastern seaboard from late next year and other power stations would need to restrict their output, cutting production by a further three to five per cent. The situation would be a little ameliorated by Tarong power station in Queensland being able to access recycled water.

The report also reveals that the impact of continuing drought would see the Snowy scheme's ability to supply reduced to 3,120 GWh in 2008-09 compared with 4,198 GWh actually produced in calendar 2006.

Victorian Energy Minister Peter Batchelor notes that the immediate impact of the drought is that NEM average wholesale electricity prices have doubled to $60 per MWh, ensuring that large industrial users entering new power supply contracts as well as other consumers will be required to pay more.  Batchelor adds that prices rises are expected to eight per cent in New South Wales and 10 per cent in Queensland, but he will be "disappointed" if the Victorian increase is this high.

The MCE ministers are sufficiently leery about the situation to require NEMMCo to report back to them in August, while energy-intensive manufacturers are calling for updates of the assessment to be issued monthly.

No rorting

The Ministerial Council on Energy called in the Australian Energy Regulator to discuss energy-intensive industry claims that spikes in the NEM wholesale electricity prices following the drought impacts and planned outages of plants for maintenance also involved generators manipulating the market.  AER chairman Steve Edwell has told ministers his market surveillance team "has not identified any improper activity" and has promised they will continue to monitor generator activity closely.  The Energy Users Association continues to call for a federal investigation in to bidding practices in the NEM.

Saving power

The Ministerial Council on Energy claims that energy efficiency measures being put in place -- but only slowly because they were agreed in 2004 -- will be saving 7.8 million tonnes of greenhouse gas emissions by 2015. The measures include new and enhanced energy minimum performance standards for a range of appliances, minimum energy performance standards for buildings and the recent start of the federal Energy Efficiency Opportunities Program to identify savings that can be achieved by large corporate users of energy.  The measures will deliver more than $380 million of economic benefits annually, they add.

Coal build

Macquarie Generation chairman Evan Rees, writing in the NSW Government-owned corporation's new annual report, says two stages of generation infrastructure development to meet the state's growing power demand are "clear."  Gas-fired power stations are required to meet immediate peak demand "and it has become clear that new coal-fired baseload generation will be required in the coming decade."

MacGen managing director Grant Every-Burns adds: "Demand for electricity in NSW is growing at around 300MW a year. (It) is currently being met by greater utilisation of existing plant and by transfers from interstate over connectors which are reaching maximum capacity."  He says the company is "reviewing development" of a 500 MW gas-fired peaking plant at Tomago, near Newcastle, which, along with other peakers, will need to be ready for next summer's demand.

Every-Burns argues that a new baseload coal plant is needed "during the next decade" to meet demand.  Renewable power, he adds, lacks needed to meet demand.

Every-Burns says the case for building the new baseload generator in the Hunter Valley rests on the region's abundant coal resources, "adequate water," efficient low-cost rail infrastructure and "a culture of hard work and initiative."

Meanwhile in the new Delta Electricity annual report, chief executive Jim Henness says the government-owned business will upgrade both its Mt Piper units, located outside Lithgow, from 660 MW to 750 MW.  Delta expects the first 300 MW of its planned 600 MW Munmorah open cycle gas development on the NSW central coast will be in operation by August 2009. It is also looking at developing 400 MW of combined cycle gas plant at Marulan between Sydney and Canberra.


In December 2004 I wrote an "op-ed" column for the Sydney Morning Herald that began "Time, cost and politics are turning up the heat on the New South Wales Government."  I quoted a 2001 report prepared by its Department of Energy that called for between 1,500 and 3,000 MW of generation capacity to be built this decade. I also commented that "electricity is a very political commodity, but nothing is more political than the lack of a reliable, acceptable-cost supply -- and time is against the government."

That was then; forty-one months later, having put out a green paper in 2005 and having failed to produce the energy white paper it promised, having  dodged and weaved while an inept opposition failed to lay a glove on it in the long run-up to the March 2007 election, the NSW  Government's answer to its even more pressing power problem is to ask a Perth-based professor of economics to give it a report on what it should do about baseload generation -- while the state's power load continues to grow in line with what the government's bureaucrats told it would happen six years ago. In fact, the growth is slightly higher -- 400 MW versus a projected 300 MW.

The consumption of energy, to quote the state-owned high voltage network operator TransGrid in its 2006 planning report, can be explained largely in terms of population growth, economic drivers such as real income and the cost of electricity and its close substitutes, improvements in the efficiency with which generated electricity is turned in to useful services, social trends such as declining average household size and changes in the weather.

TransGrid foresees load growth rising by more than 13,600 GWh per year over the next 10 years, in line with the increase of the past decade.

In short, the power demand situation is pretty well what NSW bureaucrats in 2001 told their elected ministers it would be and they have proved as inadequate in decisionmaking here as they have in a number of other areas -- eg water, roads, rail, health and policing services -- and yet they have been rewarded by the public with four more years in office.

I report in this newsletter the comments on the need for new baseload power by the leadership of Macquarie Generation, the government's largest generation business.

The MacGen annual report also contains this quiet, but telling comment: "We acknowledge that the development of such projects will require careful consideration by governments and communities, and will need the support of people with vision, as well as recognition by the wider community of the role electricity plays in serving an essential need and driving economic growth."  Quite.

Let it be noted what has happened since the 2001 report to the NSW Government by its energy bureaucrats:  consumption in the state has grown by some 7,000 GWh a year and is now predicted to increase by another 6,000 GWh annually by 2010 while the state's generation capacity has fallen by 46 MW.  Yes, fallen.  In the same time frame Victorian generation capacity has risen by 713 MW, Queensland capacity has gone up 1,571 MW, South Australia by 334 MW and Tasmania by 67 MW.  Over in the West, state capacity has risen by 262 MW.  Queensland capacity will rise by another 750 MW when the Kogan Creek power station is commissioned in September.

The number of electricity customers in NSW (residential and business) rose by 186,500 between 2001 and 2005 (the latest date for industry data until the ESAA 2007  yearbook comes out).  In the same time frame, Victoria's customer base has risen by 150,700 and consumption by 7,570 GWh. Almost the same growth rate in much the same economic environment and one state's capacity has risen to keep pace with demand while the other has fallen.

Here are some excerpts from the 2001 energy department's report with commentary in brackets:

(1) Electricity demand in NSW is increasing rapidly. This reflects a wholesale electricity price that is attracting a number of large new customers. If this trend continues, the current over-supply of capacity will be diminished faster than previously expected. {Residents of the state should be grateful in one sense, I suppose, that in fact business customers opted to go mostly to Victoria and Queensland between 2002 and 2005 -- less than 30 per cent of the increase in business power demand on the eastern seaboard in that period was located in NSW.}

(2) Due to the increasing level of new air-conditioning load and higher average summer temperatures, NSW could become summer peaking from 2003 on. {Yes, according to TransGrid's annual planning report, it occurred, as predicted, in the summer of 2003.}

(3) Under the most likely scenario, 200 to 300 MW of new generation capacity may need to be installed every year, starting from mid-2005, for a total of 1,500 MW (by 2011).  {And the generation companies have been saying much the same year in and year out, but this cut no ice with a government focused on the Green vote in 2003 and 2007.}

The factor that is sharply different in 2007 from 2001 is the impact of an enduring drought on the water needs of a largely coal-fired generation fleet.

The inexorable lesson of fate is that governments that tempt it by dragging their feet and running away from their responsibilities get burned -- confer California in 2000-01, a situation that was very much in the minds of the public servants who wrote the report I have quoted for the NSW Government.  The problem for communities is that they get burned, too, and the pain mostly falls where it least be borne.

Keith Orchison

29 May 2007

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