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Hydro Tasmania faces losses at it turns to diesel generation

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Hydro Tasmania – the state-owned utility often dubbed the “Treasury”, because of the big dividends it delivers to government – says it is now facing an operating loss as it turns to expensive diesel generation to deal with its growing energy crisis.

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The state-owned generator confirmed on Tuesday that it is looking to install up to 200MW of diesel gen-sets (100MW by the end of March and another 100MW by the end of April) in locations across the country to deal with any potential outages or supply shortfalls.

The island is facing its biggest energy crisis ever following the record low rainfall that has seen its average water reserves fall to just 16.8 per cent, and the loss of the Basslink grid cable connection to the mainland in late December. It is not known when that link can be repaired.

Hydro Tasmania CEO Steve Davy said the company is taking a “range of actions” to deal with the “unprecedented situation” it is facing.

“We plan by taking into account all known information and credible events,” he said, adding that Hydro Tasmania was now planning to be able to meet all Tasmania’s energy demand without Basslink.

The company and its government owners have been criticised for their lack of commitment to more locally sourced renewable energy generation.

On average, hydro resources can meet only around 8,500GWh of the state’s annual demand of around 10,500GWh, but there is not enough wind or solar capacity built to make up the remainder, so up to 15 per cent has to be imported from Victoria. That is not only expensive, but is also emissions intensive.

Davy said it was now clear that Basslink would be closed for a longer period than forecast (initially the end of February), and Hydro Tasmania was bringing in diesel to meet future energy needs.

“We are now planning to be able to meet all Tasmanian energy demand without Basslink in operation, even in the event of a cool, dry May, and with allowance for an additional adverse event that would have an impact on energy generation, such as loss of a major power station,” Davy said in a statement.

Sites across Tasmania are being considered for the diesel generation, including the Catagunya Power Station, Meadowbank Power Station, and several potential sites within the Bell Bay industrial precinct including the George Town Substation and the Bell Bay Power Station.

Davy said Hydro Tasmania was now facing a loss. The extent of that loss is not known, as Hydro Tasmania does not release its hedging strategy.

Analysts said, however, that it would have hedging strategies with its main customer, the Aurora Energy electricity retailer, while large industrial users would likely have heavily contracted pricing. But because diesel was so expensive,  the cost would likely be beyond any hedging strategy.

The wholesale price of electricity, which is set by Hydro Tasmania because of its virtual monopoly power, has jumped from an average of $40/MWh to nearly $200/MWh in recent weeks and months.

“There is no question that managing the current challenge comes at a cost,” Davy said. “In particular diesel generation is expensive. Actual cost will depend on how much of the diesel generation is operated, and for how long.

“We will run the diesel generation if we receive low inflows into our storages or Basslink has not returned to service.”

Last year, Hydro Tasmania posted a $62.3 million profit before tax and revaluations for 2014-15 — a sharp drop from two years of record profits in excess of $200 million during the carbon price regime, when it operated its hydro resources at much higher output and capacity. It has recorded operating profits for the last decade.


  

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  • Ken Dyer

    I have no sympathy for Hydro Tasmania. They had an opportunity nearly three years ago to install a 600MW wind farm (The Taswind Project) but cancelled it. It would have made Tasmania’s energy independent of the mainland.

    http://www.hydro.com.au/energy/taswind

    The Taswind decision was totally at odds with Hydro Tasmania’s vision statement
    “Australia’s leading clean energy business inspiring pride and building value for our owners, our customers and our people.”

    An absolute triumph of poor forward planning and timid thinking. They are now reaping the expensive consequences. Poor bloody Tasmanians, they have been poorly served by Hydro Tasmania, and the Tasmanian Government.

  • phred01

    @ Around 1$/ l less road tax & excise the cost / l must be below 1/2$

  • onesecond

    That’s the most stupid thing I have heard since Hinkley Point. The Tasmanians could also switch their lighting to kerosene while they are at it. Are they mentally impaired or what? Didn’t they notice this huge bright thingy in the sky or their extensive windy coastlines? Sometimes it is really hard to believe that humanity is going to make it. Maybe we should all just take a short cut and jump off a cliff and Tasmanians first.

  • Ian

    Mean as it sounds I hope that the massive increase in the wholesale price to Tasmanian electricity is fully passed on to households. this may force people to install solar and cause an outcry over the missed opportunities to install find farms. As others have said their hydro resources are a huge battery, wind and solar can so cheaply conserve this storage by displacing hydro generation. An intact Bass link could have helped Tasmania provide the Victorian grid enhanced hydro storage services.

  • Glen S

    So our state is on fire, our dams are empty and the Libs have decided that gas and diesel is our savior at since we can’t get brown coal power from Victoria. Oh they also want to add burning trees (in furnaces to complement the ones burning in the forests) to our generation mix with a biomass “renewable energy” plant in the south.

    Brilliant stuff.

  • Michael Anthony

    Surely you are joking Giles? Is it April fools day???? Goodness me we spend our time talking about how we can get third world countries off their diesel habit?