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Energy – Marinus Link Cost Allocation


Rosalie Woodruff MP

Rosalie Woodruff MP  -  Thursday, 26 November 2020

Tags: Renewable Energy, Energy

Dr WOODRUFF - The Australian Energy Market operator has drawn up a list of projects that could be actionable for funding and has put two conditions on Marinus and Battery of the Nation for it to be included in the action and decision rule list. One was that the renewable energy target needed to be passed by 2023 and the other is that a fair cost allocation for the project must be determined. What progress have you made in securing any agreement on the fair cost allocation?

Mr BARNETT - I am glad you have made reference to the renewable energy target legislation, which I mentioned in my opening remarks and has passed through the parliament. You also made reference to it being an actionable project in what is called the Integrated System Plan that is being put forward and released publicly by AEMO. They have identified not just the first cable, not just the second cable, but also the design and approval process as actionable projects.

Dr WOODRUFF - That is not true. The second cable is not an actionable project.

Mr BARNETT - It is an actionable project. It has been identified as that.

Dr WOODRUFF - It is not on the list.

Mr BARNETT - It is on the list. We can clarify that for you, but the second part of your question -

Dr WOODRUFF - The question was about what progress have you made on fair cost allocation?

Mr BARNETT - As I was about to say, fair cost allocation is very important. That is a matter for the Energy Council and it has been discussed and the federal government is taking a lead role, with the support of Tasmania and perhaps other jurisdictions. I will pass to the director of Energy Policy to respond on the process but I can indicate that the feedback and advice is expected in and around mid-next year.

Mr TERRY - That is correct, minister. The Energy Security Board has already done some preliminary work on what a fair cost allocation model may look like. They have looked at a number of models; some of these models are postage stamp pricing, beneficiaries pays model and energy flow models. They provided that preliminary work to the Ministerial Energy Council in about July this year. Off the back of that, the Commonwealth is now leading some work to pick that up and there is some further analysis to come up with the most appropriate fair cost allocation model. They have recently formed a working group that Tasmania has been invited to participate in. We are an active participant in that working group and that process has only just kicked off.

A lot of work has already been done, though. It has already been done through the AEMC and the Energy Security Board so we will pick up some of that modelling. We will build on that work to identify the most appropriate fair cost allocation model. What is now emerging in the market is that is not just an issue for Marinus. This is going to be an issue as we build our other interconnection under the ISP. There are a whole lot of challenges with how you allocate the cost between -

Dr WOODRUFF - Four state interconnectors.

Mr TERRY - That is right, interjurisdictional interconnectors, that is correct.

Mr BARNETT - Some clarification was sought or a question about the actionable projects. Could the secretary clarify that for the member and the committee?

Mr EVANS - Turning to the ISP from earlier this year, the minister is correct that the ISP in terms of an actionable project refers to both cables. The first 750-megawatt cable to be completed as early as 2028 29.

Dr WOODRUFF - Under which scenario?

Mr BARNETT - Can we allow the secretary to finish and then you can have another follow up if you like?

Mr EVANS - Should the Tasmanian renewable energy target be legislated or the fast-track scenario emerge and the cost recovery be resolved, all of which we are working on as you would be aware, the second cable to be completed as early as 2031 32, again another 750-megawatt cable. Marinus is progressed in two stages with the first cable laid as early as 2028 29 and with the second cable thereafter.

Dr WOODRUFF - Why would Victoria pay when it has paid towards a Marinus Link interconnector when it has some very ambitious renewable and battery storage strategy of its own? Why would it pay to bring pumped hydro energy across to Victoria?

Mr BARNETT - As the independent Australian Energy Market Operator has made it clear, we are going to need batteries. We are going to need dispatchable energy from Tasmania and we will need a whole range of sources to secure our energy future in Australia. This is long-term planning and what we have in Tasmania is affordable, reliable, dispatchable energy, which is absolutely fantastic. The batteries that you refer to are obviously more short-term in terms of hours -

Dr WOODRUFF - Can you define 'short term', please?

CHAIR - Dr Woodruff, the minister is answering your question and then it goes to Mr Ellis. I ask you to let the minister talk, please.

Mr BARNETT - I am happy for the Director of Energy Policy to back me up. Batteries are definitely part of the process going forward. There are no issues or concerns. That's all part of the tapestry going forward and, likewise, Tasmania's dispatchable energy and access to that going forward. That is through our pumped hydro and our existing30 power stations, the enhancement of that, and access to that going forward.

That is why it has been dubbed the Battery of the Nation and across the country has been seen as a priority infrastructure project by Infrastructure Australia. It has been deemed as a priority project for the federal government, one of the top 15 infrastructure projects and one of the top three transmission infrastructure projects for the energy system. There is $250 million in the federal government budget released a couple of months ago -

Dr WOODRUFF - Not towards Marinus Link.

Mr BARNETT - It has identified Marinus is one of the -

Dr WOODRUFF - It's not towards Marinus, though. That's not actually towards doing that work. Don't be disingenuous.

CHAIR - Dr Woodruff, you're not a substantive member of this committee so I ask you to stop interjecting and allow the minister to finish his response. The call then goes to Mr Ellis.

Mr BARNETT - I'm trying to assist the member and members of the committee to identify and be aware that the federal government budget includes $250 million for three major transmission projects across Australia, one of which is Marinus Link. We are delighted with the federal government identifying Marinus Link as one of those priority infrastructure projects in terms of the transmission system. We are in a very good place. On top of that, the Prime Minister has identified it for fast-tracking in the planning and approval process, not short-cutting in any way but providing the resources to ensure it proceeds as soon as possible.

Dr WOODRUFF - No-one believes what the Prime Minister says in that regard.

Mr BARNETT - That is the view of the Prime Minister and from our Government's perspective we also want to proceed as soon as possible.

 

Dr WOODRUFF - Minister, with the Marinus Link and Battery of the Nation project a fair cost allocation must be agreed to as one of the conditions. Will those projects proceed if mainland states do not want to be party to funding them or to the ongoing operation and maintenance costs of them?

Mr BARNETT - It is important that Tasmania gets a good outcome for this that's in Tasmania's best interests. That is our top priority. The federal government is aware that we want to advance Tasmania's interests regarding energy security, jobs, investment, downward pressure on prices. They are all key objects that we have outlined to them. They are very invested in progressing through the fair cost allocation assessment and the methodology. We have already had quite a bit of work done by the Energy Security Board that has been brought to the Energy Ministers Council. Further work is being done which is led by the federal government.

At every stage we have said we do not want to pay any more than our fair share. That remains the case.

Dr WOODRUFF - You did not quite answer the question. Would we proceed if they did not want to pay any share, if Victoria did not want to pay a share? That was my question.

Mr BARNETT - The principle behind Marinus Link is what is called beneficiaries pay. It is a key important principle. If you get access to affordable, reliable, clean electricity and those benefits are heading north, particularly in excess of 90 per cent across the cable, then those who are using that, as the principle applies, should pay.

Dr WOODRUFF - Minister, my second question was, given that Tasmanian power prices have tracked Victorian prices because of our existing interconnection, Basslink, how can you guarantee that there will be no more power price rises in Tasmania as a result of more interconnection? You could legislate to keep prices down. If you did, would Hydro Tasmania be expected to borrow to cover the shortfall?

Mr BARNETT - There are a lot of characterisations and comments expressed in that question that I wouldn't concur with. I will attempt to respond. The Government is all about lower electricity prices wherever possible. We are all about keeping down the cost of living, about keeping the cost of doing business down. In July this year we had a 1.38 per cent reduction in our regulated electricity prices. In the lead-up to that we had capping of electricity prices at a maximum of CPI. We have a track record. In nominal terms a bit over 2 per cent and in real terms a reduction in our term of Government. Under the previous government there was up to a 65 per cent increase. People know in Tasmania that we have a track record of keeping prices down.

Dr WOODRUFF - I draw your attention to the question, minister.

CHAIR - Order, the minister is answering the question, I ask that he is allowed to respond in peace.

Mr BARNETT - Thank you, it was a very lengthy question. Victoria has been made clear by the former Premier and myself at Lake Gordon in the lead-up to the election we had plans to have the lowest regulated electricity prices in the nation by 2022. Likewise, to be 100 per cent fully self-sufficient in renewable energy by the same date. That is progressing very positively. That process is about a delinking process. Treasury is undertaking that process. Regarding the technical aspects of that, I am more than happy to pass to the director of energy policy if you would like further detail.

Mr TERRY - I am no expert in the wholesale pricing arrangements. Treasury looks after economic regulation of pricing. As the minister said, they are progressing that work. We are focusing on the fair cost allocation and how to appropriately allocate the cost of interconnectors throughout the ISP. I will reaffirm what the minister said, that Treasury is responsible for progressing the wholesale pricing reform.

Dr WOODRUFF - So if we are linked to Victoria, then who is going to catch the shortfall?

CHAIR - Dr Woodruff, it is Mr Ellis's call. You can ask your question on the next round.

 

Dr WOODRUFF - Yes, big batteries are rapidly coming down in price. They provide emergency security response, frequency control and storage for increasingly long periods of time. Last week the Australian Energy Regulator. I will just wait until the minister is finished so he can hear the question.

Mr BARNETT - Yes.

Dr WOODRUFF - Last week the Australian Energy Regulator had a report that makes it very clear that the trend towards smaller scale and decentralised generation and storage technology raises deep questions, they say, as to the long-term centrality of large-scale transmission infrastructure in an efficiently organised electricity system. They say, at a minimum, these trends have the potential to expand the envelope of substitutes for large-scale transmission investment.

What evidence do you have that by 2028 at the earliest, or 2035, which is most other scenarios, the energy storage of more than 12 hours that pumped hydro might provide would not, instead, be met by a combination of batteries deployed closer to the electricity market? What evidence do you have that this pumped hydro will be able to compete with the increasing and rapidly-changing deep storage that's provided by batteries?

Mr BARNETT - I have referred to the Australian Energy Market organisation and the identification of Marinus Link - cable 1, cable 2 - likewise, the design and approval process as actionable projects. In addition, in their integrated system plan they identified the need for dispatchable energy and the need that they identify over the long term is between 6000 to 19 000 megawatts.

That's a huge amount going forward and Tasmania has what the nation needs and wants and that's affordable, reliable, clean electricity and we've got that dispatchable electricity. Now, Snowy 2.0, for example, has got about 2000 megawatts and we have, based on the Hydro Tasmania report that was released on the public record, some 3400 megawatts potential. We're in the process of identifying one of the best three to progress at an initial level. As I said earlier, that's Lake Cethana, Lake Rowallan, Tribute Power Station on the west coast, so one of those three.

We're in a very good position to be able to meet the needs that the independent regulator has identified requiring dispatchable energy going forward.

Dr WOODRUFF - You did not answer the question but I will put it to you in another way. After that ISP report was released by AEMO, now we have a new report from the Australian Energy Regulator, the body responsible for energy regulation. They raise questions about the ability for large-scale transmission investments to compete with the increasing rise of batteries, also increasingly capable of providing dispatching capabilities.

I asked you what evidence you have for 2028-35, what evidence Tasmania has collected that we will be able to compete in that time frame? Please don't again point to the AEMO. I'm asking what Tasmania has mounted as its case of evidence?

Mr BARNETT - AEMO is the system planner. They are the independent expert.

Dr WOODRUFF - But we didn't provide evidence to them?

Mr BARNETT - Their advice, their information is based on analysis and rigour and review; a host of consultants, no doubt, to put forward what is called the integrated system plan which is a plan for the long term - 20 to 40 years in the National Electricity Market. They are the experts and then they put that out for public comment; they get feedback on it, and then they will provide a further report in due course. I will just pass to the Director of Energy Policy to add to that answer so that you can be clear as to the process and the importance of an independent assessment.

Mr TERRY - As the minister said, AEMO is the central planner through the ISP. The build which they just released the 2020 ISP, through that process they look at all the very issues you have raised. They look at the cost of the factories, they look at the cost of gas, they look at the cost of pumped storage, they look at the long-hour duration storage, they make assumptions around population growth, demand, loss, ageing coal, thermal generation. My team, and I know TasNetworks - and I think Hydro - have worked closely with AEMO as they have developed their model, making sure we road test the inputs and that they are robust and they fully appreciate the Tasmanian situation. Then the output of that was the 2020 ISP, that is essentially the model that Marinus fits in under their optimal development pathway.

Dr WOODRUFF - This latest report from the Australian Energy Regulator, how do you respond to that?

Mr TERRY - I am not aware of that report. I do not know the detail of it.

Dr WOODRUFF - But it is a risk, isn't it, that we have this competitive battery market developing very, very fast?

Mr TERRY - The ISP is reviewed two years. Obviously you have seen a whole lot of jurisdictions pursuing - they also take into account impact of our policy, jurisdictional policy initiatives. Obviously, the Tasmanian renewable energy target we legislated influenced the ISP. Another ISP will be done in 2020, 2022, where they will recalibrate a lot of the inputs and the assumptions. As it stands at the moment, Marinus is in the optimal development pathway under the 2020 ISP.