When Minister Bowen announced that the Australian government would now take 50% of the equity in the proposed Marinus Link, now reduced to just one 750MW cable, he is reported to have said that “all the expert analysis and evidence I’ve seen supports this project being built.”
Perhaps it does not meet Mr Bowen’s standard of expertise, but our previous analyses here, here and here concluded that Marinus would be a boondoggle.
Here is another note on the same lines, using the latest information.
Let’s start with prices. The chart below shows the average quarterly price in Tasmania and Victoria from the start of 2012 to the end of June 2023. It shows that other than in Q4 2015 to Q2 2016, the gap between the quarterly average price in Tasmania and Victoria is small.
Effectively, Basslink has made Victoria and Tasmania a single market for most of the time. This is not surprising.
Basslink has a transfer capacity of 500MW, Tasmania has an average Operating Demand of around 1100 MW, so interconnector capacity is large in relation to average demand in Tasmania and so can be expected to equalise prices in Tasmania and Victoria.
The three-quarters over this period in which there is a big price gap is explained by Basslink’s outage from December 2015 to May 2016.
During this period – which covers the period that Basslink mainly flows south – expensive gas generation in Tasmania was needed to make up for cheaper coal-fired generation in Victoria. This is shown in the chart below.
Ah, I imagine you are thinking; that means that Basslink has brought spot prices down in Tasmania. So, more such interconnection would bring them down even further. That would be the wrong conclusion.
Certainly, in the earlier years that it was in service, I think it would be true to say that Basslink reduced spot prices in Tasmania from what they otherwise would have been by displacing gas generation in Tasmania with coal generation in Victoria. But that is certainly not true now since renewable electricity has expanded in Tasmania.
This is shown in the chart below where you can see that gas now has an inconsequentially small role in the Tasmanian power system (hydro is not shown so that we can see more clearly the trends in gas generation and renewables).
Gas generation’s last wheeze was when Basslink failed. If Basslink fails again, gas generation in Tasmania would likely not get more than a little gig on the fringe – it has been displaced by wind generation.
Basslink now no longer has a role in ensuring supply security in Tasmania. Contrary to Minister Bowen’s claims, Tasmania has achieved energy independence from the mainland.
The existing interconnector has become largely superfluous in ensuring security of supply in Tasmania and so a new interconnector can’t be justified on these grounds.
Basslink does, however, have a role as a facilitator of trade. It exports to Victoria (positive values in the chart below) that consistently peak in the third quarter of each calendar year and imports from Victoria that consistently peak in the first quarter of each year as shown in the chart below.
As an aside, the aberration in 2013 and 2014 is explained by the carbon price, withdrawn in July 2014.
So, what difference will another 750MW Marinus cable make to trade? Well, not much. The small gap between Tasmanian and Victorian spot electricity prices will narrow to nothing.
Empty claims of Marinus reducing prices in Tasmania and Victoria will no doubt continue to be made. Such claims are rubbish: the value of more interconnection is purely in energy market arbitrage in the dominant Victorian market, and Tasmania has no competitive advantage in that.
Much cheaper and more profitable arbitrage will be done in Victoria using batteries. Shell is already investing in this in Victoria, without asking for a cent from the public’s pocket.
So Marinus will be a dead-weight, facilitating a trade in which Tasmania has no competitive advantage. It will raise electricity prices by increasing transmission charges by between $400 million and $450 million per year for about 50 years, divided in some way between Tasmania and Victoria.
To put that number into perspective, it is more than three times – yes, you read correctly – three times, transmission charges in Tasmania today. How ridiculous! And that’s before counting the additional billion or so of transmission expansion in Tasmania needed to get capacity to the coast.
Basslink was built for less than half the cost, per MW in today’s money, as what TasNetworks is saying it will cost to build Marinus.
Basslink has been a spectacular failure for Tasmania Inc. and for Singapore’s sovereign wealth fund. Britain’s National Grid Company made money on it after selling it shortly after they commissioned it. They and their contractors have been the main beneficiaries.
In the NEM, generators do not pay for the use of the shared transmission network. Will the governments of Tasmania and Victoria try to foist the Marinus boondoggle onto their electricity consumers? Will Minister Bowen seek to impose the cost on tax-payers? The ghastly rescue of Snowy 2.0 suggests a propensity to throw good money after bad.
In life it is sometimes said that “nothing breeds success like success.” In the NEM, it seems, nothing breeds failure like failure.
A witty colleague quipped that choosing one 750MW cable rather than two meant that ministers had got half the way to making the right decision. Yes, one rotten apple is better than two. None would be even better.
Professor Bruce Mountain is the director of the Victoria Energy Policy Centre.
