Hydro Tasmania outlines financial impact of energy crisis

Hydro Tasmania has told the Tasmanian Parliament how record low inflows, combined with the six-month Basslink outage, have financially impacted the business.

Hydro Tasmania chairman Grant Every-Burns said most of the impact of responding to the energy supply challenge would occur in the current financial year, with some cost carried across to 2016/17.

“As a result, this year’s profit will be eliminated and a loss of $90 million is expected. In the year ahead Hydro Tasmania intends to build storages and target a break-even or small positive financial result for 2016/17,” he said.

“The cost of the Energy Supply Plan is substantial, but we recognise the absolute importance of maintaining confidence in energy supply given its economy-wide significance.”

Mr Every-Burns said the period in question was one of the driest in 100 years which, when combined with the Basslink failure, led to extraordinary challenges.

“The consequences of this failure were magnified by a repair time amounting to 176 days against our prior expectation of 60 days,” he said.

“In my 45 years’ experience in the power industry as a power engineer, senior executive and board Director I have rarely seen a situation more difficult than that recently faced by Tasmania and I have never seen a response so effectively executed.

“In the space of just six weeks we have moved from a period of record low rainfall, with the potential to limit electricity supply in Tasmania, to a situation of record-breaking rainfall and damaging flooding in many of the catchments, regrettably with some loss of life.”

Hydro Tasmania CEO Steve Davy said the financial impact was the result of foregone generation and related inability to produce Large-scale Generation Certificates (LGC), lost electricity sales, the increased cost of generation for electricity sold and a range of other costs associated with the low inflow/Basslink situation. The adverse effect of these impacts is partially offset by reduced Basslink costs.

Hydro Tasmania has low variable costs and, therefore, a low marginal cost of production from hydro generation. The business is also highly contracted for Tasmanian electricity consumption. When Hydro Tasmania receives low inflows, the business foregoes hydro generation, and this must be replaced by generation from other sources, Mr Davy said.

“Over 2015/16, the alternative sources have been Basslink imports (from September to December 2015), gas and diesel generation,” he said.

“Some of Hydro Tasmania’s foregone generation has taken the form of agreed load reduction with some major industrial customers, whose assistance was greatly appreciated.

“All of these alternative sources result in a loss of revenue or increased cost of production for Hydro Tasmania.”

Prior to the heavy rainfalls in May and early June, Hydro Tasmania calculated the extended dry would result in a shortfall of approximately 2025 gigawatt hours (GWh) compared to normal yield.

Replacement generation comprised 900GWh of Basslink imports, 745GWh of gas generation, 325GWh of load reduction and 55GWh of diesel generation.

Hydro Tasmania estimates the net cost of responding to the energy supply challenge is between $140 million and $180 million, including an offsetting reduction in Basslink costs. This takes into account that Basslink has been back in service since June 13, and assumes a return to normal inflows going forward. The net cost includes:

  •  Gas-fired generation: approximately $47 million.
  •  Diesel generation: approximately $64 million.
  •  Net reduction in the value of LGCs produced: approximately $15 million.

The remainder is related to the cost of imported energy over Basslink, a variety of contractual arrangements, and the cost of managing the situation.

The full impact of the Basslink outage is not yet known, as the cause of the outage, and its contractual impact, has not yet been determined.

Mr Davy said Hydro Tasmania’s focus is on rebuilding major storages back to secure levels over winter.

“Lake Gordon and yingina/Great Lake are steadily recovering, and we expect them to be at satisfactory operating levels by the end of winter,” he said.

Hydro Tasmania has funded its response to low inflows and the Basslink outage through additional debt.