Marinus: Risk, Uncertainty, Subsidies and the House of Cards
The words “risk” and “uncertainty” appear with monotonous regularity in the documents used to justify Tasmania’s decision to back Marinus Link. In fact, “risk” is mentioned 295 times in the 400-page Whole of State Business Case (WoSBC) and another 135 times in the 111-page FID Assessment Report. When a government’s signature energy project can’t be described without repeating “risk” on nearly every page, Tasmanians are entitled to ask: what exactly are we signing up for?
Read closely, the answer is troubling. Even the most optimistic scenarios depend on a precarious set of assumptions. Strip away the rhetoric of “nation-building infrastructure” and “renewable superpower,” and what emerges looks less like a stable platform for growth than a house of cards.
At the heart of the WoSBC lies the so-called “Base Case.” This is meant to represent the “most likely” outcome, the scenario against which costs and benefits are measured. But scratch the surface and the base case looks less like “most likely” and more like “best case.”
Residual risks—cost overruns, higher interest rates, weaker demand, lower inflows—are substantial. A true “base case” should reflect moderate levels of risk, not lean heavily on everything going right. The WoSBC Downside Case, which includes 30% project cost increases and a 100 basis-point rise in Tascorp borrowing rates, may be closer to the real base case Tasmanians should prepare for.
Whist the WoSBC does model the economic impacts of Project Marinus – including energy market outcomes, price effects, and benefits to Tasmania it does not provide a transparent breakdown of the impact on returns to government from Hydro Tasmania and TasNetworks. It is impossible to see or understand how future returns from Hydro will feed back into the general government and there is no information that provides an overall reconciliation of benefits when all energy businesses are considered. The WoSBC reminds us of the crucial role our energy businesses play. Over the past 15 years they have provided an average of 73 per cent of total returns per annum from government businesses. For those interested, the remainder principally was contributed by MAIB.
The financial implications are stark. The Tasmanian Government has trumpeted that Hydro Tasmania (HT) will, on average, deliver an additional $470 million in dividends and tax equivalents each year ($nominal), my estimate puts that to be equivalent to about $320 million in today’s money over the 2031-2050 period considered in the WoSBC. Add to that Hydro’s current returns to Government which have averaged $171 million per year in the five years to 2023/24 and we’re asked to believe in future profits of some $491 million a year, a threefold increase from current levels. The task is even more daunting given the revelations of a 40 per cent reduction in returns to government from Hydro over the Forward Estimates contained in the now discarded 25/26 Budget tabled just before the recent election, due to the current catastrophically low inflows.
The WoSBC Downside Case tells another story. Under this scenario, the dividends and tax equivalents flowing to government are forecast to decrease by 46% implying a reduction in today’s money from $320 million to around just $170 million a year. That is a $150 million black hole in expected revenues. And that’s without modelling the possibility – strangely omitted from the Downside analysis – that wholesale electricity prices in the National Electricity Market (NEM) might ultimately fall. Given that wholesale prices are the engine driving Hydro’s profitability, leaving this out is like a doctor conducting a health assessment without checking for a heartbeat.
The other problem with deciding on projects based on long run averages of costs and revenue is that it overlooks the sequencing issues. Where serious amounts will need to be borrowed to build major redevelopments such as Tarraleah, and Cethana pumped hydro (if Marinus Stage 2 proceeds) there will not be much profit available, and therefore likely less cash in the first decade as debt is serviced (and repaid). The financial benefits if any won’t come till later years.
And then there’s Tas Networks. Over the five years to 2023/24 returns to government averaged $59 million per year.
It’s important to recognise that TasNetworks faces a completely different set of risks and uncertainties as does Hydro. Hydro sells into a competitive market the National Electricity Market (NEM). TasNetworks’ revenue is determined by the Australian Energy Regulator (AER) and directly recovered from Tasmanian electricity customers.
TN’s North West Transmission Development (NWTD) also poses sequencing issues. WoSBC states that for two thirds of its asset life the NWTD will not be able to generate enough revenue to meet its debt obligations and other expenses . That’s why the Australian Government offered a $346 million grant. That will just enable TN to make it to the start line. TN will be on life support from the beginning.
Who honestly believes costs won’t be more than initial estimates. Concessional finance from Clean Energy Finance Corporation CEFC also assists but when costs are yet to be finalised, concessional finance can lull a proponent into a decision that otherwise wouldn’t have been made. Additional funds from Tascorp will be needed to repay CEFC on time. Returns to government will suffer. However, all will be resolved – according to the WoSBC – in the “very long term” – not just the “long term’ but the ‘very long term’. It was a very pointed comment. In the very long terms returns will be substantially higher so we’re told. The long term is often 20 to 25 years. The very long term could be 50 years. Who knows?
The WoSBC reminded us that the scale of the projects involved are very significant in the context of the State Budget and the financial position of the Total State Non-Financial Sector. The WoSBC Downside Case has Hydro with $10 billion of borrowings on its books once Tarraleah and Cethana are built (described as ‘more than double’ the borrowings on all government businesses at June 2024 which we know to be $4.1 billion). That is a huge increase on current borrowings of $800 million. Even the cost of the Tarraleah redevelopment alone of $1.9 billion is half the value of Hydro’s entire suite of generation assets comprising 30 power stations and 50 major dams.
The Marinus EAP, the expert panel couldn’t be expected to consider the overall financial position of the State. That’s the job for Cabinet. Did they? Did they bring a switched-on awareness to the cabinet table when they considered Marinus? Did they detect an unerring similarity with all that is occurring, TN unable to service borrowings on the network needed for Marinus, Hydro potentially ending up with ten times the debt it currently has, Tas Water heading for a more than doubling of debt in the next 5 years to over $2.1 billion and a general government currently on an unsustainable trajectory desperate to spend more than $1 billion on a stadium. How is it remotely possible for Cabinet to make a decision on a project like Marinus without a 10 year plan before it showing what else is happening across the Non-Financial Public Sector?
For Tasmanian households, the WoSBC dangles the promise of savings: $71 a year, thanks to reduced wholesale costs from Marinus, transmission offsets, and the so-called Tarraleah rebate. But when these “savings” are stacked against the bigger picture, they vanish into insignificance.
Because once we are tied more deeply into the NEM, Tasmania inherits the price volatility and structural cost increases sweeping the mainland. Even in the “No Marinus” case, the WoSBC states that household bills are expected to jump by $520 a year—a 23% increase on the estimated $2,220 bill for 2024-25. Add Marinus, and the net increase still stands at $449.
For small businesses, the arithmetic is worse. While Marinus might deliver $142 in savings, average bills are forecast to climb by $1,270 even without the project. Net impact after Marinus: $1,128 more per year, a 25% increase on current bills of around $5,070. For cafes, mechanics, corner shops and some larger businesses that do not qualify to be considered major industrials (MIs), already juggling costs, this is not a recipe for resilience.
Tasmania’s handful of MIs carry enormous weight in the system. Collectively they account for about 50 percent of transmission network use and, under Marinus, will shoulder a big share of the costs.
Transmission charges for MIs are expected to rise by $20 million a year under Marinus Stage 1, on top of a current cost base of around $45 million. If Stage 2 proceeds, that jumps another $10 million. These are not marginal increases; they are deep structural shifts that could make or break investment decisions for the industries that anchor whole regions of the state economy.
And it’s not just transmission. Once again, tying Tasmania more tightly to the NEM means that MIs are exposed to national wholesale energy prices as well. The fine print of their contracts with Hydro and TasNetworks may shield them temporarily, but over the long term these costs will flow through.
Basslink was our first great leap into interconnection. Since 2006, this has been a Market Network Service Provider (MNSP), an unregulated interconnector in other words, that has derived revenues based on the volume of energy flows and price differences between energy markets.
Basslink is now proposed by its new owner APA and agreed by the AER to be a Transmission Network Service Provider (TNSP). The key difference is that a TNSP operates under a regulated framework, building, planning, and maintaining transmission networks with revenue determined by the Australian Energy Regulator (AER). MNSPs have incentives to strategically reduce capacity to increase price differentials, whereas TNSPs are incentivised to invest in and maintain the network for long-term capacity and stability. The proposed conversion would make Basslink a regulated TNSP, bringing it under the AER’s framework with a revenue determination process.
That means Tasmanian and Victorian consumers will both pay for it through annual regulated charges from 2025-26 with Tasmanian consumers estimated to be paying between $20 million (if costs are split 25/75 with Victoria) and $40 million (if split 50/50).
Given that the Tasmanian Government’s track record in negotiating Marinus terms was far from stellar, this fresh round of talks with Victoria regarding Basslink represents a crucial opportunity. Unless Tasmania drives a far harder bargain, our consumers will once again pay more for less.
Layered on top of all this is the subsidy dilemma—a political time bomb hiding in plain sight.
Tasmanian households, businesses and major industrials will likely not see the claimed benefits of Marinus, because the forecast NEM-driven price increases will swamp any local offsets. That reality makes subsidies inevitable. But subsidies will eat straight into Hydro Tasmania’s profits, which are ironically inflated by those same wholesale price rises.
The numbers are unforgiving. Based on WoSBC modelling and reasonable estimates, my assessment of the subsidy bill could look something like this:
- Major Industrials – Network charges: $30 million
- Major Industrials – Energy charges (estimated): $50 million
- Small Business (38,000 customers × $1,128 increase): $43 million
- Other Businesses (estimated): $25 million
- Residential (270,000 households × $449 increase): $121 million
- Total subsidies required: $269 million per year
Now compare that with Hydro’s capacity to pay:
- Under the Base Case, $320 million in additional dividends and tax equivalents shrinks to just $51 million once subsidies are deducted.
- Under the Downside Case, the $170 million collapses into a deficit of $99 million—meaning taxpayers must step in to fund subsidies over and above Hydro’s contribution.
With TasNetworks returns to government are almost certain to fall. The WoSBC admits subsidies will be required but fails to provide hard numbers. And no wonder: in the downside case, the supposed rivers of gold not only dry up, they turn into a fiscal drain.
Put all of this together and the contradictions are impossible to ignore. Tasmanians are told Marinus will lower bills, strengthen Hydro, and boost state revenues. In reality, consumers bills rise, Hydro’s profits are recycled into subsidies, and government budgets are further strained.
This is not a foundation for sustainable energy policy. It is a house of cards – one that risks collapsing under the weight of its own contradictions. Tasmanians deserve the truth: Marinus looks a lot less like a gift horse and more like a gamble, with households, businesses, with the state budget on the line.