Tasmania needs the $5 billion Marinus Link interconnector to protect against droughts, says the CEO of the state-owned hydro operator, as climate records hint at a long-term drying trend.
The 750 megawatt (MW) interconnector will be “critical” during extended dry periods, Hydro Tasmania CEO Rachel Watson says.
“Forget making money off it. It’ll be there to provide energy security,” Watson told Renew Economy on the sidelines of the All Energy conference last week.
Running out of electricity in the so-called “battery of the nation” – the term Hydro Tasmania coined in 2017 to build support for a massive hydro expansion and ultimately the Marinus Link to export the resulting power – wasn’t what Watson expected when she started as CEO in December last year.
“One of the things I hadn’t expected, arriving in Tasmania, was that we would be talking about energy security so much,” she said.
“It was driven by the drought, really, that we were every week discussing energy security, and often in the context of Marinus, but also in the context of Baslink and running our gas turbines.”
A series of record-breaking dry summers since 2023 broke this year when spring rains in September brought dams back from a nadir of 33.1 per cent capacity in July, according to the Tasmanian Energy Security Monthly Dashboard.
What Watson needed to avoid was a repeat of the 2015-16 drought when the Baslink interconnector also dropped out, islanding the state and forcing Hydro Tasmania to buy in diesel generators to cover the power supply gap.
New requirements around dam levels to protect supplies mean the hydro company is even more restricted with how much it can draw on its deep storage, at a time when the southern stretches of Australia are expected to become drier.
Rainfall trends are extremely challenging to predict, but the Bureau of Meteorology’s (BOM) State of the Climate 2024 report suggests a drying trend for southern Australia, especially between April and October.
The federal Climate Change in Australia website also predicts more periods of intense rain in between those dry periods.
All of which is a real challenge for a company that deals with water-based electricity.
“My understanding is… the wets will be wetter and the dries will be drier, so we’re going to get more extremes. But we’re expecting, on average, rainfall won’t shift by more than a couple of percent,” Watson says.
“What’s happened in the last two years is the worst multi-year drought Tasmania has had on record. So that has been really challenging for us.”
So challenging, that in Hydro Tasmania’s 2024-25 accounts it reported a collapse in profit before fair value adjustments and tax from $193.7 million to just $7.5 million.
The 96 per cent decline may hint at what is to come: a future where hydro-power cannot deliver the legally mandated lowest-possible electricity prices to Tasmania and a commercial return to the state government.
From battery of nation to drought security
Energy security was not front of mind for Hydro Tasmania when it began building a business case for the “battery of the nation” in 2017 and what would ultimately become the controversial Marinus Link.
In 2017, with $2.5 million in funding from the Australian Renewable Energy Agency (ARENA), the state-owned company began looking at how to add 2500 megawatts (MW) of new and converted pumped hydro power to its 2,281 MW hydro portfolio.
The idea was to grow Tasmania’s participation in the National Energy Market, predicated on the construction of a new interconnector.Â
Eight years later, the hydro portfolio stands at 2,295 MW across 30 power stations, plans are afoot to build the first of those pumped hydro projects, a 750 MW system on the deep storage dam Lake Cethana, and that capacity is now being used for firming variable renewable energy as opposed to supplying baseload power to the mainland.
“The whole idea is that we can more effectively use arbitrage because we have controllable renewable energy. So when the power is low or negative in Victoria, it’s actually to hydro Tasmania’s benefit to be able to hold back water in our dams… and instead, Tasmania becomes supplied with lower cost energy from Victoria,” Watson says.
“Any opportunity we have to get energy into the state at a low [price], or even to be paid to take that energy, is going to be advantageous for Tasmanian consumers.”
Watson says the assumption is there will always be some intraday pricing variability from Victoria’s solar and wind resources and this will benefit Tasmania and Hydro Tasmania.
But just how much of a benefit remains to be seen.
Marinus Link was first proposed as two cables with a combined capacity of 1500 megawatts (MW) and costing $3 billion total, but was cut in half in late 2023, in a deal between federal Labor and the Victoria and Tasmania state governments, in response to ballooning costs.
The one cable is now budgeted at $5 billion.
Critics say it is an expensive risk that has not been given the scrutiny it needs, will have outsized and unacceptable impacts on the environment, and question whether the annual extra network charges of $70 for households and $140 for small businesses are real given 55 per cent of the project’s costs are yet to be validated.
Those figures were provided in the business case released in August, which included assumptions that competition and cheap midday renewable exports into Tasmania will balance the extra network charges.
Watson would not be drawn on whether she believes those assumptions will ultimately come true.
