Published: 28 October 2022

Doubts remain over the merits of another Bass Strait interconnector, says Ruth Forrest

The Australian government may well have agreed to find finance for Marinus but there are still a multitude of unanswered questions, many awaiting answers in the Legislative Council.

There is no clarity around how another interconnector will unlock the second wave of hydro industrialisation for Tasmania and keep a cap on power prices.

The first wave of hydro industrialisation was based on providing local power to large industrials at concessional prices.

The second wave will transport locally produced wind power to the mainland, the exact opposite of the first wave.

There may be FIFO jobs during construction, but wind farm operations involve few jobs.

We know this from the three large wind farms currently operating in Tasmania. Another thing we know from the three operating wind farms is that they would not have been built, or in the case of the Woolnorth/ Musselroe, would not have been bought by the current owners, had not the government's electricity companies agreed to a power purchase agreement which gives the wind farms guaranteed prices and shifts all commercial risks to the government.

Even if Marinus proceeds there is nothing to indicate more wind farms will be built unless someone offers them a guaranteed price for their electricity via a power purchase agreement.

Without it wind farms will have to compete with mainland wind farms, mainland solar and mainland batteries.

We kid ourselves about our comparative advantage in wind power.

The distance from major mainland markets soon cancels out any advantage of a windy site. And we are at a distinct and growing comparative disadvantage when we compare our renewable power with mainland solar and battery power.

Both can be marketed with a marginal cost of zero. One extra unit of solar power or one extra unit of power from a battery has a zero cost once the solar power or battery unit has been built.

How can a Tasmanian wind farm compete with that and make money?

Therein lies the key to understanding how electricity prices are set by the market. Prices are determined on the margin.

It's the offers from those electricity producers who help clear the market which determine the market price. Mainland prices have been high because gas producers paying high prices for gas have been the market setters. Soon more power from wind solar and batteries will force prices lower.

New local wind farms will have to compete with these prices. These wind farms won't produce a second wave of hydro industrialisation as suggested by Marinus' spruikers.

The only thing it may precipitate is the government reaching into its pockets to find even more funds to help support the building of wind farms needed to give Marinus a fig leaf of commercial respectability, but then only to produce power for the mainland not for any local projects.

If there was a local project that stacked up which needed lots of power, it would be a simple matter for the project to enter into a power purchase agreement with a wind farm proponent and for Hydro to provide backup firming power.

We don't need a $4bn Marinus white elephant for that to occur.

The second nonsense assertion that is bandied about is that Marinus will keep a cap on electricity prices.

Local retail electricity prices are determined by local wholesale prices and transmission costs. The existence of more local wind power will have little or no effect on local wholesale prices as clearing prices will be determined by offers from Hydro, the dispatchable producer.

What Hydro offers will depend on Hydro's position at the time. For instance, if during a wet period when there's plenty of power from run-of the-river sources, wholesale power prices will be low.

In any event the government can instruct Hydro to offer discounted prices to retailers as it does with major industrials. We don't need Marinus to put a cap on prices.

Also TasNetworks can offer less than the regulated price it is allowed to charge for transmission and distribution. It doesn't need Marinus.

On the contrary, it's difficult to see how Marinus won't lead to higher prices given that Marinus, the expanded TasNetworks transmission system plus Basslink with new owners looking for a return, will greatly expand the regulated asset base for the local transmission networks, which can only lead to higher transmission prices. I have repeatedly tried in vain to ascertain the likely increased net returns to government businesses resulting from Marinus but have always been told the calculations are yet to be done.

If it was likely to be good news, I'm sure the calculations would have been done by now and they would have been made public.

It's time to tone down the hyperbole and start treating us like adults with a stake in the game.

The Mercury, Friday 28 October 2022

Go Back