In an illuminating answer on November 10th to my Question on Notice, Resources Minister Barnett gave a fresh insight into Hydro Tasmania.
Without Marinus, Battery of the Nation (BotN) projects proposed by Hydro won’t proceed leaving Hydro struggling to maintain its “existing and ageing assets”, Minister Barnett revealed.
The glory days of the first wave of hydro industrialisation are over.
It’s been 30 years since the last hydro power station was built, yet Hydro still owes $720 million and is finding it more difficult to hang onto funds needed to look after its ageing assets, in part due to the point-blank refusal by successive governments to find other sources of revenue, instead using Hydro as a convenient ATM.
We are now being promised a second wave of hydro industrialisation via Marinus.
Scrape away the PR gloss however and what’s left looks a bit like a Hydro assistance package.
Hydro’s business model needs upgrading.
With Marinus it is hoped that more wind generators together with BotN projects will allow Hydro to have more power available to take advantage of high-priced events on the mainland.
Although BotN requires Marinus, Marinus will, by design, reduce the price differences which BotN is designed to exploit.
It’s a conundrum the Minister needs to explain before we embark on the largest infrastructure project in the State’s history.
And while he’s at it he can explain why the claimed lower wholesale electricity prices resulting from Marinus won’t also lower Hydro profits, the very thing Marinus and BotN are supposed to address.
TasNetworks too also needs to change its business model according to Minister Barnett. A year ago, new Chair Roger Gill told a Legislative Council scrutiny hearing that TasNetworks was building a completely new electricity system for the 2030s. Minister Barnett gave a few more details in answer to my questions, stating Project Marinus will hopefully see significant growth in unregulated transmission developments (i.e. delivering transmission connections for new generators), which has been identified as a key driver of growth for the business into the future.
Currently TasNetworks’ assets are its regulated transmission and distribution assets. The Australian Energy Regulator (AER) determines a value for those assets and sets network prices which allow TasNetworks to cover costs and make a return. It’s a cosy arrangement. If costs rise, then the AER will always increase prices to allow increases to be recouped from consumers.
TasNetworks started life as Transend with zero debt, spun off in 1998 from the old Hydro Electric Commission. Debt increased when it took over Aurora’s poles and wires in 2014. But most of the debt increases have been needed to pay returns to government and make capital transfers to prop up other government businesses, always safe knowing regulated prices would allow increased debt to be serviced.
As with Hydro, TasNetworks has been used as the government’s ATM.
To date TasNetworks has always been able to service borrowings. However, repaying loans and having enough space for the business to respond to changing needs, is much harder.
The current model is reaching its use by date. Borrowings are now $2.1 billion secured by its regulated assets valued at $3.1 billion.
Regulated network prices might enable borrowings to be serviced even if interest rate rise, but will consumers be able to pay higher retail prices that will inevitably follow with network/transmission costs making up 40-50 percent of the price?
Hence TasNetworks is seeking new sources of revenue from non-regulated connections for new generators once Marinus is built.
But it adds another level of risk. More debt will be needed to service new generators who will only build if someone offers to buy their output. A house of cards awaits us.
Electricity markets are constantly changing. What may look like a good idea can soon become a debacle. Take Basslink for instance. We have never been told exactly how much Basslink has cost us but since 2006 it is likely to be as much as $1.6 billion, almost twice the original cost of the cable. Have any actual or intended benefits been overshadowed by the costs?
Once the Basslink Services Agreement was abandoned in February 2022, Hydro’s position improved because future liabilities which exceeded future expected income were both written off. The Basslink deal was a 25-year agreement with a 15 year option, abandoned after only 16 years.
With every passing week comes another announcement about solar, wind and battery storage undercutting the need for long term storage as envisaged by Marinus and BotN.
Marinus is starting to look like its time has already passed.
What is being sold as a plan to save the planet is slowly being revealed as a plan to rescue Hydro and TasNetworks from their current predicaments caused mainly by past failures.
Throwing good money after bad is rarely the answer.
The Mercury, Saturday 26 November 2022