MARINUS Stage 1 WHOLE-OF-STATE BUSINESS CASE (WoSBC) – Number 5

Where to now?

Appealing to higher and more noble motives, Marinus Link was always sold as a “nation-building” project – an interconnector that would help accelerate the energy transition across the National Electricity Market (NEM). Is this the case or was it just the sales pitch to get Tasmanians on board? The government’s less than stellar recent record of signing up for deals chock-a-block with known unknowns and a few unknown unknowns ones as well, is enough to make even the most sanguine clutch their pearls. As part of the national network will the cost for Tasmanians be commensurate with the share of benefits expected ?

In an answer to a question in Parliament on September 9^th this year, Premier Rockliff reminded us of the other reasons for Marinus:

 “……..we need more energy in Tasmania to support our major industrials but also Marinus, to attract more major industrials and businesses to Tasmania as a result of that increased energy capacity. What is also crucial about Marinus is the ability for us to generate our own state sourced revenue. That is limited at this particular time because, I believe, more than two thirds of our revenue comes from the federal government and then we have limited opportunities. What the business case demonstrated is that, on average, around $400 million per year or more will benefit Tasmania’s bottom line. That’s on top of the existing Hydro profits.”

So according to the Premier, it is not more energy for the NEM, but more for major industrials and other businesses, and more profits for Hydro, an average of $400 million more each year.

The Premier’s concerns might simply have been addressed by evaluating the strategic option of No Marinus and increased on-island generation. There is no evidence this has ever been undertaken.

So what exactly is the likely path forward? What can we expect to be the sequence of events? What are the expected outlays through the transition period? How will the Government fund its share? When and how much? How will this impact the all-important budget for the general government as it takes the first tentative steps towards fiscal sustainability given its last plan was recently red carded?

This complexity is highlighted by the statement in the Marinus Final Investment Decision (FID) Expert Advisory Panel Report: “The Panel recommended a senior taskforce of Heads of Agencies (accountable to the Premier and Energy Committee of Cabinet) to sequence projects and plan and implement supply, transport, housing and labour initiatives regionally and statewide before it constrains energy infrastructure development. The key is for taskforce members to have the responsibility to plan and coordinate enabling action and to manage emerging issues.”

I would suggest the need for such a governance arrangement needs to be expanded to fully investigate and monitor the implementation path for all components of the WoS Marinus Stage 1 and proposed Stage 2 projects. The interdependency across Hydro Tasmania, TasNetworks, ReCFIT, Treasury and Government is such to warrant this being put in place.

Did Tasmania Settle Too Cheaply on Marinus?

When Marinus was first conceived, the business case split the benefits 6% to Tasmania, 28% to Victoria, and 68% to the other mainland states (Queensland, New South Wales and South Australia). In other words, the lion’s share of benefits was forecast to flow interstate.

Fast-forward to the final agreements, and Tasmania is now responsible for 27.6% of Marinus costs, Victoria 72.4%, and the rest of the NEM nothing at all. This is somewhat guided by NEM Rules but Rules can be changed. Yet the June 2025 Marinus Revenue Proposal to the Australian Energy Regulator openly acknowledges that Queensland, NSW and SA will enjoy significant benefits.

Tasmania has moved from paying a share in proportion to 6% of benefits, to now paying 27.6% of the costs. Meanwhile Victoria with a population and economy some 12 times larger than Tasmania will pay just 3.6 times the Tasmanian contribution. This is a profound failure of bargaining to ensure this is in Tasmania’s best interests.

The Marinus FID Expert Advisory Panel report did highlight the strength of the Tasmania position in helping Victoria transition to renewables as follows: “Project Marinus is vital in order to support Victoria’s long duration storage demand. The Panel agreed that the remaining coal fired power plants (Yallourn and Loy Yang A and B) in Victoria’s Latrobe Valley are aging with reliability increasingly at risk. To maintain capacity, the Victorian Government may seek to extend the life of the large coal fired power plants but given their age, unreliability is an issue. When these large generators exit the NEM, the Panel agreed that Victoria, and by extension the southern part of the NEM, will likely face a shortage of dispatchable energy and installed capacity.”

Defenders of the deal point to recently negotiated additional concessions extracted by Tasmania. These include:

1. $346 million federal grant to be applied to the entire TasNetworks Regulated Asset Base (RAB), that will include the NWTD when completed and thus reduce the costs of transmission as a result of the reduced value of the RAB.
2. $650 million concessional finance for Tarraleah redevelopment.
3. Capped equity stake in Marinus (17%), with no requirement to increase equity in the event of cost overruns, rather a reduction in our equity share.

The NWTD financing model has been described as under-recovering compared to its debt obligations for decades, with TasNetworks initially facing losses of $93 million over the first five years and a further $205 million to 2050. The late injection of $346 million from the federal government may offset some of this, but the underlying risks remain.

It appears that Tasmania secured some concessions – but not enough to counter the imbalance in the benefits allocation.

So, could Tasmania have driven a harder bargain?

If we are to accept the oft repeated position of Tasmania’s enviable renewable energy (RE) resources, Tasmania held a strong negotiating hand.  Has Tasmania accepted a deal that shifts a disproportionate burden onto its own customers, while allowing the rest of the NEM to enjoy benefits free of charge. Could Tasmania have leveraged its attractive RE resources to secure a lower cost Marinus burden of say 10% for Tasmania and 90% for Victoria, with 100% federal funding of NWTD.

But is it the case that our RE resources give us a strong bargaining position? Hydro has underpinned Tasmania’s electricity system, but rainfall patterns are changing and assets are aging. Wind may produce more electricity in Tasmania but construction costs are higher. For every opportunity there’s an accompanying risk.

And did Premier Rockliff undermine Tasmania’s position by positing that we need more electricity for our own needs as well as greater Hydro profits to contribute to more own source revenue to fund government services?

Transition and sequencing issues

It’s the implementation process rather than the decision itself which contributes most to effective public policy. Where the decision is problematical and shrouded in secrecy and hidden from view by black marker pens the implementation process is even more crucial.

That’s the current state of play with Marinus Link.

Has anyone bothered to set out the possible way forward between now and when Marinus starts transmission. It’s fine for the Premier to talk about averages over a 25 year period, but costs have a habit of occurring well before revenues and that is the crucial issue for a fiscal basket case like Tasmania.

There are a lot of things that may or may not happen over the transition period. Even more important is in what order they occur.

• First and foremost is what will happen to returns from government businesses. The now binned 2025/26 state budget forecast a massive drop in revenue from Hydro over the forward estimates due to the current dry conditions. Indications are  that 25/26 mightn’t show much improvement. Hydro Tasmania’s storages usually peak end October/early November. If consumption, as per NEM data hadn’t fallen by 8 per cent compared with the peak 2 years ago the gas fired AETV would have run for much longer than it did recently in August of this year.  Annual returns over the past 5 years have averaged $171 million to which the WoSBC estimates another $470 million nominal ($320 million real) will be added when Marinus comes on stream. What do we do whilst waiting first for average rainfall to return in order for the benefits of Marinus to kick in and thereby to fund the required subsidies and rebates to Tasmanian electricity customers through the much-touted increased returns to Hydro Tasmania.  Tighten our belts a notch every year?
• The NWTD won’t pay its way for a long time. The cash deficits will not only eat away some of the profits from the existing networks but will require more borrowing each year if concessional finance is to be repaid on schedule.
• 800 MW of new Wind and Solar (with associated Power purchase Agreements) will need to be built in time to utilise Marinus for export immediately after commissioning in 2030-31. Tarraleah Redevelopment needs to be completed in similar timeframes.
• Extra local generation could push prices down, making it harder for new projects to make money. In the past, wind farms relied heavily on renewable energy certificates to stay viable, but these certificates (LGCs) will be phased out by 2030. The new version (REGOs) is voluntary and untested, leaving investors uncertain. The Whole-of-State Business Case doesn’t count possible returns from REGOs, presumably due to this uncertainty.
• When Marinus is commissioned, prices in Tasmania and Victoria will move closer together, but both will be higher than they would have been without Marinus (see blog number 2 in this series). Hydro Tasmania might earn more from higher prices, but there’s a lag before those profits reach government. By the time any rebates or discounts are offered, households may see little real benefits if any.
• In parallel with the above, feasibility and design for Cethana Pumped Hydro to inform the Business Cases for it and Marinus Stage 2 and NWTD 2 needs to be completed.

There are so many inter-related steps in the transition. The likelihood of things happening as and when planned is inconceivable. Not that we can be too sure about that given we don’t know what the implementation plans are.

We have no idea of the required commitments from government, from direct amounts needed, to indirect amounts via PPAs, to additional commitments from other arms of government. Large projects have large impacts and costs always precede benefits.

We only have a vague idea about how in the long run benefits are forecast to exceed costs. For a State with struggles aplenty that’s not particularly comforting.

It cannot be stressed how crucial extra own source revenue is for the fiscal sustainability of the State budget, and whilst it’s pleasing to see steps being taken it is beyond scary when one considers the risks, and the downside for the State if it doesn’t work as planned.

I AGREE WITH THE SEPERATION OF THE FOLLOWING INTO NOTE 6. I HAVE YET TO REVIEW.

 Lessons from Stage 1 and planning for Stage 2 – Number 6

As we now move forward, risk mitigation is essential.

The deal for Marinus Stage 1 is done. The sunk costs are locked in. The only sensible course now is to look forward and aggressively mitigate the risks. All options need to be considered with some possible options below:

• Recognising Tasmania’s leverage: Victoria’s dependency on Tasmanian renewables during the transition with the withdrawal of coal-fired power stations  and must be used as bargaining power in future negotiations.
• Considering regional integration: Combining Tasmania and Victoria into a single NEM region would spread costs across a base twelve times larger and reduce Tasmania’s exposure.
• Federal underwriting: Nation-building projects should see greater federal risk sharing. Tasmania must press for this principle before Stage 2.
• Scrutinising AER submissions: More than half of the Marinus Stage 1 costs are still to be validated. Every detail must be checked.
• Delivering Tarraleah: $1.9 billion in redevelopment costs demand best-practice governance. Time, budget and quality are non-negotiable.
• Cethana as a gatekeeper: Stage 2 of Marinus should proceed only if Cethana pumped hydro proves viable on its own terms. Otherwise, Tasmania should insist Victoria and the Commonwealth bear 100% of the cost.
• Subsidy design: The Stage 1 deal has real implications for Tasmanian customers, particularly businesses and major industrials. Subsidy schemes must be developed now and legislated to provide certainty, not left until bill shocks arrive. We may then have some idea of the full impacts on the State’s own source revenues.
• Smarter power purchase agreements: Hydro Tasmania should not automatically carry the risk of contracting 750–800 MW of new wind and solar. Generators should tender openly.
• Reviewing Hydro’s role: If Hydro’s uplift in profits underpins Tasmania’s viability in this arrangement, then stronger oversight of its governance and integration with Treasury is essential.
• Regulatory reform: Wholesale pricing arrangements linking Tasmanian prices to Victoria must be reviewed to ensure Tasmanian customers receive fair value.

If we are to take lessons for Stage 2 and beyond we need to start now.

The WoSBC itself admitted: “given the numerous risks and significant scale of these projects, it is challenging to see the basis upon which Marinus Link Stage 2 and related projects could be progressed.” That warning should be taken seriously. Stage 2 of Marinus, NWTD2, and Cethana must not repeat the mistakes of Stage 1.

A tougher, clearer, and more transparent negotiation strategy is essential. If Tasmania fails again to assert its position, we risk being locked into decades of higher costs, subsidising the mainland, and explaining to our own citizens why their bills are rising while benefits flow elsewhere.

Marinus Stage 1 is now a sunk cost. The task ahead is not to dwell on missed opportunities but to ensure they are never repeated. For Stage 2, NWTD2, and Cethana, Tasmania must insist on a settlement that reflects its true strategic value.

That means federal underwriting, Victorian cost-sharing, and project governance that does not leave Tasmanians holding the bag. Anything less, and we will once again be left wondering why a nation-building project left the nation richer and Tasmania poorer.