Published: 16 December 2021

MOST of us want to leave this world in a better state than it is.

All the talk of renewable energy, hydrogen and the proposed Marinus Link suggest there's hope, but trying to get answers to the many questions is like pulling teeth. The government insists all three complement one another. Maybe but who will benefit and who will pay?

That's the matter I tried to pursue at recent Legislative Council government business scrutiny hearings. Forward projections reveal lower future returns to the government from Hydro Tasmania.

Resources Minister Guy Barnett admitted the wholesale electricity market was increasingly competitive yet wanted us to accept his plan would make us better off.

I naively assumed a good place to start to understand how another interconnector will help rectify our situation was to understand how the existing Basslink connector makes Hydro more profitable.

"I'm sorry Ms Forrest we can't tell you that as it's commercial-in-confidence. Rest assured we always act in the best interest of Tasmanians," I was repeatedly told.

Having just experienced firsthand how the government bowed to the gaming machine lobby, I was not convinced.

Taking a new tack, understanding the profitability of existing wind farms may assist. Hydro owns 25 per cent of Woolnorth Wind Farm Holdings P/L (WWF), which operates three wind farms at Bluff Point and Studland Bay on the North-West Coast and Musselroe in the North East.

The other 75 per cent of WWF is owned by a Chinese stateowned company.

I tried another line of questioning. Why did WWF's electricity sales fall from $90 million in 2019 to $35 million in 2020? After a preamble about variable wholesale electricity prices, I was told the figures I quoted contained revaluations of electricity contracts. I had a feeling I was being fobbed off. A subsequent recheck found this was indeed the case. Electricity sales in the latest year had plummeted to $35 million requiring Hydro to pay WWF $14.66 million pursuant to a Power Purchase Agreement (PPA). If prices are low, Hydro pays WWF. If the reverse occurs, WWF pays Hydro. That's how this PPA seems to work. WWF returns are guaranteed. Hydro bears the risk. In other words, Tasmanians bear the risks.

There are also contracts between Hydro and WWF covering large-scale generation certificates (LGCs).

Under the Renewable Energy Target scheme renewable energy generators produce one LGC for each MWh of electricity. Retailers are required to buy a certain amount of LGCs each year.

This provides extra revenue for renewable energy generators. In this case Hydro has contracted to buy WWF's LGCs at an agreed price.

Again, this provides WWF with a guaranteed return.

Hydro bears the risks.

In the latest year the market spot price for LGCs was below the contracted price, meaning when Hydro on-sold the LGCs to retailers, it suffered a loss, possibly about $10 million in the latest year.

Furthermore, accounting standards require WWF to estimate the future expected value of the contracts covering LGC sales to Hydro and record the amount in its financials. With the contract prices being much higher than expected market prices, there's a $96 million asset in WWF's books representing the expected value of future LGC subsidies from Hydro. There will be a corresponding liability for an onerous contract in Hydro's books.

Hydro's 25 per cent interest in WWF enabled it to receive dividends of $4 million in 2020 but this was dwarfed by the $26 million paid back to WWF to prop up electricity and LGC sales. HT's share in WWF may be listed as being worth $71 million but taking into account liabilities that relate to onerous contracts Hydro's share in WWF is negative.

As for ongoing jobs at wind farms, in the latest year WWF paid wages of $4.4 million.

There were six employees, an average of $750,000 each.

It appears the deals to enable the Granville Harbour and Cattle Hill windfarms to proceed also involve a PPA and a contract for purchase of LGCs. In the case of Granville Harbour it's obviously a contract Hydro was directed to sign by the government, because it lists the annual costs of the Granville contracts as a Community Service Obligation alongside sponsorship of the Hobart Hurricanes and Cricket Tasmania, not as a commercial arrangement.

What happens to future projects? This is the worrying aspect of all the manoeuvrings in the renewable energy space.

We aren't being told the truth, the whole truth and nothing but the truth. Far from it.

If "renewables" infrastructure, possibly also including Marinus Link being underwritten, subsidised or have guaranteed returns at the expense of our GBE's such as Hydro and thus the Tasmanian consumers, this should be disclosed. Details of the agreements and/or the contracts and the policy or reasons for these decisions must be provided to parliament at a minimum.

It is more important than ever to ensure regular scrutiny of the electricity companies to ensure the best possible outcome for Tasmania.

It is the only way to help understand the complexities, costs and difficulties facing us and which have too easily been sidestepped by misinformation and a code of silence.

The Mercury, Thursday 16 December 2021


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