Legislative Council, Thursday 10 November 2022

Ms FORREST question to LEADER of the GOVERNMENT in the LEGISLATIVE COUNCIL, Mrs HISCUTT

QUESTION(s): With regard the recently announced funding arrangements for the proposed Marinus Link:

(1) What was the date of the Business Case that has guided this decision making?

(2) Has the Business Case been updated recently to factor in:

(a) rising costs of materials;
(b) availability of materials;
(c) rising costs of labour; and
(d) availability of labour?

(3) For the following time frames, identified separately, that is over the short, medium and long term (ie 10 years plus), will the proposal serve the best interests of Tasmania with regard to:
(a) The impact on Hydro Tasmania, financially and operationally;
(b) TasNetworks and the island transmission network;
(c) The impact on Major Industries (MI’s) through the regulatory process;
(d) Power prices for residential customers;
(e) Wind energy including power offtake agreements; and
(f) Hydrogen power?

(4) (a) Has a full risk assessment been undertaken for all stakeholders including:
(a) Hydro Tasmania;
(b) TasNetworks;
(c) Major industries;
(d) Residential customers;
(e) Commercial customers;
(f) Hydrogen energy proponents;
(g) Other renewable energy generators; and
(b) if so, will these risk assessments be made public; and
(c) if not, when will this occur?

ANSWER:

You have asked a range of questions on the recent Project Marinus and Battery of the Nation (BotN) announcements from the Australian, Victorian, and Tasmanian Governments on 19 October 2022. These announcements provide certainty on the post-Final Investment Decision (FID) arrangements for ownership, funding, and cost allocation for the projects, should a positive FID be taken.

The projects are still in the Design and Approvals phase and FID is planned for late 2024. For this reason, final business cases have not yet been (and cannot be) prepared as key project requirements are yet to be completed (e.g. approvals, tender processes, technical designs).

1. There have been a number of business case or reports over the course of recent years that have given confidence to the Tasmanian Government to continue with the design and approvals phase of this project, including:
• Feasibility of a second Tasmanian interconnector – aka the Tamblyn Report 2017.
• Initial Feasibility Report – 2019
• Business Case Assessment Report – 2019
• Regulatory Investment Test for Transmission – Project Specification Consultation Report (2019), Project Assessment Draft Report (2020), Project Assessment Conclusion Report (2021)
• Australian Energy Market Operator Integrated System Plan (ISP), both the inaugural 2020 ISP and the most recent 2022 ISP.
 
Progression of the projects to the construction and operations phases is subject to a positive FID from the Boards of the respective energy businesses and from the Tasmanian Government as the Shareholder. The Tasmanian Government will decide on the final business cases for the projects individually and holistically to ensure that progression of the projects is in the best interests of Tasmania. Given the recent announcements, the Victorian and the Australian governments will also need to make decisions on the final business case for Marinus Link.
The Tasmanian Government will ensure that the basis for decisions at FID will be clearly and publicly articulated.

2. The final business case will be prepared for FID in late 2024 and will factor in all relevant Project elements at that time, including those you have mentioned and others such as having all necessary approvals, procurement contracts in place for execution and revisiting the cost benefit assessment for the Project.
The implications of some of the issues you have raised e.g. ‘the rising cost and availability of materials/labour’ will only be known once tender processes are completed. The current project timeline will mean the cost of key components (converter stations and cables) will likely be known in mid-2023. The recent partnership agreed with the Australian Government has provided the project the requisite certainty to progress to those next steps.

3.
a) Hydro Tasmania
• Hydro Tasmania has advised that the BotN projects, enabled by Project Marinus, present the best commercial opportunity for business growth and will lead to increased revenues to the business, some of which would be expected to flow through to Tasmanians in the form of dividends.
• Essentially the opportunity for the BotN projects is to target high priced events in the National Electricity Market which occur when coal exits given the need for firming of variable renewable energy.
• The increased commercial opportunities from BotN will assist the business in maintaining the Capital Expenditure Program for existing and ageing assets and provide a stable, commercially viable future for the business.
• Without Project Marinus, the BotN projects cannot proceed.
b) TasNetworks
• If Project Marinus proceeds, potential new generation and load is drawn to Tasmania and these parties will share in the costs of the new infrastructure.
• Project Marinus is also likely to 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.
• There is also the possibility that TasNetworks may have an unregulated opportunity as a Renewable Energy Zone (REZ) constructor. The siting of REZ and the offering provided to generators who locate in them are still being developed but providing REZ transmission infrastructure more efficiently for generators may have a commercial upside.
• Without Project Marinus, the business will have lower growth in regulated and unregulated transmission developments.
c) Major industrials
• Project Marinus will unlock opportunities to support new major industries, including hydrogen and expansion of existing industries seeking to leverage off Tasmania’s renewable credentials.
• 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.
• Marinus also provides the opportunity to increase the state’s energy “firming” capacity, which allow for large scale creation/expansion of load that cannot be sustained by variable renewable energy alone.
• There will be direct and indirect job opportunities from larger scale industrial load.
d) Power prices for residential customers
• Based on modelling undertaken by Marinus Link Pty Ltd, Tasmanian residential electricity bills will be lower than they otherwise would be following the construction of Project Marinus. This is because of downward pressure on wholesale energy prices arising from the national rollout of lower cost new renewables.
e) Wind energy including power offtake agreements
• Project Marinus is expected to unlock up to 3GW of additional electricity generation which would more than meet the Tasmanian Renewable Energy Target.
• Without Project Marinus, significant generation growth and load growth is unlikely to occur at the scale and timeframes currently envisaged.
• Given Tasmania’s wind resource has some of the highest capacity factors in the country (which makes its cost per MW of generation lower). Marinus is expected to facilitate mainland retailers contractual offtakes with Tasmanian wind generators.
• It is understood that many Tasmanian wind proponents are in discussions with prospective load proponents (such as hydrogen producers), with a view to reaching commercial terms to offtake their generation.
f) Hydrogen energy proponents
• As indicated above, hydrogen proponents are in discussion with wind proponents.
• Without Project Marinus, significant load growth and generation growth is unlikely to occur at the scale and timeframes currently envisaged as there are constraints to the amount of new renewable energy that can be “firmed”.

4. A full risk assessment will be prepared for FID as part of the final business cases for the projects. The risks will vary by owner, stakeholder and project.
Private sector market participants will need to undertake their own risk assessments of their respective energy sector projects, many of which are contingent on Project Marinus or significant load proceeding.
The Tasmanian Government will clearly and publicly articulate the reasons behind its FID.
The Tasmanian Government will always put the best interests of Tasmania front and centre in considering a final decision for the projects.