Tasmania’s crazy lurch back into the (expensive) fossil fuel era

Only just recently, Tasmania – courtesy of its rich hydro resources, excellent wind conditions, and even a little bit of sunshine – could boast of being 100 per cent renewable, with all the economic possibilities that could afford in a world rapidly transitioning to a low-carbon economy.

The state had closed down its last fossil fuel generator, and the combination of a large hydro fleet (2,200MW), a growing portfolio of wind farms (310MW) and a small amount of rooftop solar (80MW) accounted for its electricity needs.

It supplemented and profited from these resources through the BassLink cable to the mainland, more for exporting clean power rather than importing from the heavily coal-reliant Victoria.

Analysts suggested Tasmania, with its giant hydro battery, was perfectly positioned to become a fully green state, becoming the first to use renewables to supply all electricity, road transport and many industrial processes. A green Apple Island, if you like.

All it would require was a bit of vision and forward planning – encourage rooftop solar, build more wind farms, use the green electricity as a prompt to accelerate the uptake of electric vehicles; maybe even build a new link to the mainland to become an export of green electricity.

Not any more. Due to a combination of bad luck and rotten planning, old school thinking and – guess what – climate change, Tasmania has found itself with little water in its dams to generate hydro electricity, no power link to the mainland, bushfires shutting down generators, and not enough renewables to fill the gap.

The Tasmanian government finds itself in the midst of an energy crisis – facing soaring costs and electricity rationing because it resisted a push to build new wind farms, and sought to put a lid on rooftop solar. It blithely believed that its dams would never fall to such critically low levels.

Last year, though, after Tasmania had pumped more hydro than it ever had to profit from the short-lived carbon price, Tasmania found itself short of water as the spring rains failed to appear, registering its driest period on record.

The state began to import more electricity from Victoria, and then the link to the mainland was suddenly cut in late December. No one knows when it will be repaired.

So what does it do in a crisis? Tasmania has no choice but to lurch back to the fossil fuel era. It switched back on its gas-fired power station early this year and has now begun to switch on containerised diesel gen-sets. Some of the first of which were switched on last Friday, to much fanfare.

Tasmania usually enjoys some of the lowest wholesale electricity prices in the nation, averaging around $40/MWh. The cost of imports from Victoria doubled that to around $80/MWh, and the re-commissioning of the gas-fired generator doubled that price again to around $160/MWh.

Since last week, when the first of the diesel generators was switched on, the wholesale electricity price has nearly doubled, yet again, to around $300/MWh.

The use of diesel generators, which sets the marginal cost of power (which is then paid to all other operating generators under the rules of the National Electricity Market) means that Tasmanians are paying the same price for generation than a remote mine in the Australian outback.

Note this graph below. For the last seven years, Tasmania has had the lowest prices of any state. But in the past week, the average price has remained at more than $250/MWh, barely any different from the peak. With the addition of network and retail costs, the cost of electricity is about $500/MWh. Rooftop solar probably costs around $150/MWh in Tasmania.

The crisis has sparked some interesting initiatives. Apart from having to fly in replacement parts for the gas-fired generators and diesel gen-sets from Abu Dhabi, the government is also accelerating its “cloud-seeding” program to try to bring forward some autumn rains.

It has struck agreements with three major industrial facilities and employers to shave more than 110MW of capacity from demand.

Curiously, notes Pitt & Sherry’s Hugh Saddler, unlike other responses in other countries faced with similar emergencies, no effort has been made to encourage household and smaller business consumers to increase the efficiency with which they use electricity.

Once another open cycle gas turbine is being returned to service in April, taking the total capacity of the Tamar Valley gas power station to 386MW – with a further 200MW of diesel generation, meaning well more than half of the state’s electricity supply will come from fossil fuel generation.

The first 100MW of diesel gen-sets alone will cost $20 million to install, $24 million for the hire of equipment, and around $11 million a month to operate. Only one-third of those costs will be recouped through energy sales. The actual cost will depend on how much diesel generation is actually used.

Industry analysts lament that this could have been avoided, with a bit of forward planning.  Plans to build a 600MW wind farm in King Island were derailed by fierce opposition from anti-wind activists, mostly from the mainland.

But the amount of wind and solar energy could have been accelerated, particularly with the backing of hydro, which acts as a perfectly clean and cheap “battery” to balance out the fluctuations of wind and solar energy.

But while Tasmania is now prepared to pay nearly $300/MWh for diesel power, it has not been prepared to pay $80/-$90/MWh for new wind energy – despite its recent assertions that it is a supporter of wind power.

And the output of rooftop solar is still being valued at just $60/MWh, one-fifth of the price of diesel. The state’s pricing regulator recently said it could see no benefits from rooftop solar, and delayed an assessment on battery storage because it was “too hard”. Perhaps in its next review it might change its tune.

p.s. Tasmania, however, is not the only state suffering from the soaring cost of fossil fuel generation. Queensland’s wholesale prices are shooting up because there is little large-scale renewable energy generation and the state is forced to rely on gas-fired generators to supply the major new source of demand – providing power so much gas can be extracted and processed for export.