Legislative Council, Wednesday 22 March 2023

Ms FORREST asked the Leader of the Government in the Legislative Council, Mrs Hiscutt  

With regard to proposed reform in the energy sector and Marinus Link Minister Barnett on 10 November 2022 in answer to a Question stated:
“Project Marinus is expected to attract significant new generation in Tasmania which will provide greater competition and contractual opportunities for existing and new entrant major industrials.”

Question (1):
What does greater competition and contractual opportunities for existing and new entrant major industrials imply;

Answer:
Increased interconnection and integration of the Tasmanian electricity system within the NEM is expected to open-up more diversity of contracting opportunities for both generation and loads physically located in Tasmania than is currently the case.

Question(2:
(a) Does Hydro Tasmania envisage that new renewable generators will be able to offer a better deal than it currently provides to major industrials; and
(b) if so, will this free up more power for Hydro to seek to gain higher prices through baseload firming generation?

Answer:
In pricing any contract for energy or capacity which is related to a specific load (rather than being a fixed volume), it is usual to take into account factors such as the size and consumption patterns of the customer, any other services provided by the customer as well as the length of the contract. In addition, the market circumstances at the time of contracting will affect the price offered.

As a consequence, new entrant major industrials might negotiate and enter financial contracts with more than one party to hedge their electricity costs. (For example, to purchase an offtake from a wind farm and firming from Hydro Tasmania). It is therefore not straightforward to compare prices in the manner requested.

Financial energy contracts transacted by new generators with existing Tasmanian customers would reduce the demand for financial energy contracts from Hydro Tasmania allowing Hydro Tasmania’s physical assets to contract more capacity based products and firming. Hydro Tasmania anticipates being a greater provider of flexible dispatchable energy as a consequence.

Question(3):
Does the Marinus modelling show that new wind generators will be built if prices are at or below prices currently paid by major industrials; and

Answer:
The modelling undertaken for Project Marinus RIT-T and ISP is focused on the whole of system least cost approach. The modelling, consistent with energy market modelling globally, seeks to recover short-run marginal costs (SRMC) for existing generators and long-run marginal costs (LRMC) for new generators. As outlined in the AEMO’s ISP Methodology report, (see https://aemo.com.au/-/media/files/major-publications/isp/2021/2021-isp-methodology.pdf?la=en ) the modelling does assess the commercial viability of all new generators across the NEM. The commercial in confidence nature of Power Purchase Agreements (PPAs) and contractual agreements paid by customers, means the modelling does not assess individual projects (load or supply).

Question(4)

Does Hydro expect new entrant major industrials to be offered the same prices as the current major industrials, noting the question does not seek details of actual prices offered to major industrials?

Answer:
Increased energy required by proponents will be matched through increasing amounts of new on-island generation, most likely through wind.

As a consequence, new entrant major industrials might negotiate and enter financial contracts with more than one party to hedge their electricity costs (for example, to purchase an offtake from a wind farm and firming from Hydro Tasmania). It is therefore not straightforward to compare prices in the manner requested.