Rees must take power seriously

(Commentary by Keith Orchison, published on Business Spectator website, 9 September 2008.)

Stephen Covey, American author of a best-selling book on the habits of highly-effective people, wrote that "the main thing is to keep the main thing the main thing" -- it's a message worth preaching in New South Wales at the moment with respect to electricity supply.

The intra-party coup to change the State government leadership and ministry has overshadowed the frenzied earlier debate about the proposals to privatise NSW electricity generation and power retailing. But, while dealing with all the other problems that Michael Costa's budget revelations have created, the Rees government should not lose focus on the need to maintain a reliable, cost-effective electricity supply.

The conurbation made up by Wollongong, Sydney and Newcastle is the largest electricity demand centre in the country -- a third of all the power used on the eastern seaboard is consumed within its boundaries. It is also the engine room of Australia's economy and failures in its core service need, power, would have national repercussions.

The Greater Sydney area is regional home to 223 of the top 500 companies in Australia and New Zealand, the country's main tourist venue and the base for a third of the nation's manufacturers employing more than 300,000 people. If power supply becomes unreliable or excessively expensive, the economic consequences will be dire.

The power supply system is a chain and a flaw in any section is a threat to the whole.  Reliable and reasonably-priced fuel provision is the starting point. Adequate power station capacity is critical. A strong high voltage transmission system is equally essential -- and a well-maintained urban distribution system, the last step between the raw electricity flowing from power stations and the customers' switches, is no less important. Many billions of dollars need to be invested in power plant, pylons, cables and substations over the next five years to ensure that efficient supply is maintained.

Strip away all the rhetoric of the past two years and the outlook for New South Wales can be set out like this:  (1) it is unlikely for environmental reasons that new coal plants can be built in the next decade and the continuing, cost-effective operation of existing ones may be impaired by federal carbon policy; (2) gas is the accepted transition fuel for power supply but the main NSW source, South Australia's Cooper Basin, is in sharp decline and there are hurdles -- regulatory, financial and construction -- in the way of accessing adequate new supplies in the short term; (3) unlike Queensland, NSW has failed to take steps to fast forward development of its coal seam methane resource; (4) building a series of new power stations around the State will require substantial transmission augmentation and development and this not only cannot be done quickly but there are no easements available for new lines  in to Sydney; and (5) the State's urban distribution system needs to be upgraded and extended at record pace and expense between 2009 and 2014 simply to keep up with demand trends.

By 2013 existing baseload power supply will be unable to meet demand and it is possible that the faster-growing Queensland consumption levels will reduce the amount of electricity that can be exported south. NSW power demand, now 75,000 gigawatt hours a year, is expected to be about 83,000 GWh. Peak NSW capacity needs -- for extreme weather in both summer and winter -- are forecast to exceed 16,000 MW compared with 14,000 MW today.

Meanwhile global demand for power equipment is so strong that the waiting list for delivery of gas plant parts is now three to four years  -- and development costs are soaring and expected to continue to grow.

Perhaps one of the higher priorities for the Rees government should be a new green paper on electricity supply.   The last one was published by Bob Carr shortly before he quit as premier.  A white paper was promised, but never delivered by Morris Iemma -- instead the debate sidetracked in to one on privatisation, with the Owen Report commissioned to reinforce the argument.

Keith Orchison, director of consultancy Coolibah Pty Ltd and editor of 'Powering Australia' yearbook, was chief executive of two national energy associations from 1980 to 2003. He was made a Member of the Order of Australia for services to the energy industry in 2004.