The South Australia Liberal government is to conduct a tender to lease out the state’s emergency back-up diesel generators, following a special investigation that has uncovered the eye-watering costs of the machinery.
In contrast to the then Labor government’s investment in the Tesla big battery – $40 million over 10 years for technology – that has changed the way people think about the grid, the investment in the 9 aero-derivative diesel generators were destined to cost 15 times that much – $605 million – and may not have ever been needed.
South Australia stepped into the market following the load-shedding event in February 2017, when a tragically laughable series of errors from market operators and participants resulted in more than 100,000 people losing power, triggering yet another political bun-fight over the merit of renewables and “baseload”.
South Australia responded with a series of initiatives that ultimately delivered the Tesla big battery, the promise of the 150MW solar tower with storage near Port Augusta, and numerous smaller storage projects and studies. But the bulk of the funds were directed, controversially, at the emergency diesel back-up.
Despite urgings from the market operator and demand-side suppliers such as EnerNoc (see our story at the time South Australia urged to dump diesel plan and think smarter) the state went ahead with the lease of the generators, arguing that the idling of the Pelican Point gas unit meant it no longer had confidence in the private sector to deliver power when needed.
Worse, however, rather than leasing the diesel generators for the two summers identified as worst-risk by AEMO, South Australia committed to buying the generators outright and then moving them to a permanent location.
According to the analysis conducted for the new Liberal government by Mark Livesy, QC, says the purchase price added $227 million onto the initial $115 million lease cost for the first 13 months, plus another $267 million to move them and maintain them.
That would make a grand total of more than $600 million, which the new Liberal government hastens to point out is four times the money committed to the cost of the Renewable Technologies Fund, which accounted for some of the contracted arrangements with the Tesla big battery, and other arrangements.
The new government says that all in, of the $801 million committed in the process, only $168 million was directed to clean energy technologies.
And what did South Australia get for that money? Possibly piece of mind over the last summer and this summer. The diesel generators are rated at 276MW, but AEMO only gives them a rating of 170MW given the likelihood of lower output due to the impact of heat, the very conditions they will be required to operate in.
So far, they have not been used, apart from maintenance, despite attempts by the former federal energy minister Josh Frydenberg to claim otherwise.
South Australia’s new energy minister Dan van Holst Pellekaan is now initiating a new tender process that will dramatically reduce the cost to government for the generators. The headline decision is to lease the generators out to private interests – on the condition that they are made available at peak times, so presumably there will be a Tesla battery-style contract to be on standby.
This is despite the fact that van Holst Pellekaan is not convinced that they are actually needed, even as the grid dramatically increases its share of renewables in coming years. (AEMO says renewables could contribute the equivalent of 100 per cent of the state’s electricity demand by 2025).
“In all likelihood, these generators will not be needed for emergencies,” van Holst Pellekaan told Parliament on Tuesday, according to the Adelaide Advertiser. “By leasing them for 25 years, they can help deliver more affordable and reliable power.”
That leasing arrangement will likely save the government nearly half the costs identified by Livesy – because they won’t have to pay for the move to a permanent location, or the upkeep of the diesel generators.
Who would be interested in such a deal? Well, possibly quite a few.
Both AGL and Origin are looking to replace some of their conventional but ageing gas generation in the state with fast-start aero-derivative style technology, that they estimate can respond quickly to fluctuations in demand and output from renewables.
These and other emerging retailers like Simec Zen Energy may also be interested as they build their own portfolio of renewables and storage, and use them to hedge their risk against peak pricing events and potential supply shortfalls.
van Holst Pellekaan told Parliament that the Livesy report raised questions about the process – and the advice from SA Power Networks and others that led to the leasing and then commitment to purchase.
The former energy minister Tom Koutsantonis replied via Twitter by saying that the decision to lease the generators out to the private sector meant that “the state will now be at the mercy of the private sector thanks to the Liberals.”
