Public Works Committee - Installation of Hybrid Turbines

Authorised by ...

Published Thursday, October 19, 2017 | Share:

Mr BELL (Mount Gambier) (11:35): I rise to make some comments on the installation of hybrid turbines as long-term backup power, and the interesting part of that is the long-term aspect. This contract is a lease for 13 months, so if that lease arrangement constitutes a long term, then I guess it fulfils the definition in the title.

Some of the issues around this include spending $110 million for backup generation, which can only come in to operation via the rules once there is a blackout. So we are spending literally a palletful of cash. I tried to do an analysis of how much $110 million actually is if you stack it up in $50 bills and put it on a pallet. At the end of the 13 months, those generators, which we are only leasing, technically can go back to the supplier. We are paying $110 million for that privilege, knowing that there is a strong likelihood they will never be used. It is a lot of money for a backup plan, and I would have liked to have seen a much longer term outlook.

There was a dissenting report, and I thought I would read through that. After hearing evidence on the above project, I want to congratulate Sam Crafter and other government presenters in the Public Works Committee. I thought they gave a thorough presentation on the constraints that were presented to them and the solution, but there are still concerns that we have. We have seen no evidence that all potential options to increase the capacity and reliability of power supply in South Australia, at the least possible cost to taxpayers, have been adequately assessed by the government. We do not believe that the government has been transparent with the public about the full potential costs of this plan.

For example, the Minister for Mineral Resources and Energy told Estimates Committee A on 26 July (less than three weeks from this report) that once the procurement of additional generation capacity had been completed the government would provide further information on this component of the plan's cost. However, the Public Works Committee, which I was a member of, was subsequently told that the cost of the temporary generation and conversion to permanent generation facilities remain confidential, hence leaving us in the dark to a degree, although to be fair they did say that it will be within the $550 million envelope. For these reasons, two members of the committee were unable to endorse the committee's report.

On top of the $110 million, there will be maintenance costs. Every day, a couple of people will be rocking up to these generators that will not be turned on, unless there is a blackout, and basically turn them over, so there is an ongoing cost to the people of South Australia above that initial price. What I would like to see is some work done at the COAG level on the rules around the national energy market.

There were some suggestions. A Senate report showed there would be a reduction in the cost of electricity if Victoria, Tasmania and South Australia joined forces and counted themselves as one region, so actually working together. It is currently prohibited through the rules, but that could be changed very easily. In terms of the bid-in rules, if you understand the energy market, how these companies bid in to the system allows market manipulation. Particularly when they see that demand is going to be close to capacity, they put in at the highest level. It is not what they generate it at; it is what their profit margin dictates.

On days of high usage, they know that they can bid in pretty close to the legislated limit and that power will be dispatched at that time. Likewise, there are multiple bid offerings, where a bid can be put in, so that it looks to be dispatched, and then withdrawn at the very last minute and then put in at a higher price. There are rules around bidding in that could easily be changed at COAG to make it that the bid-in price is the price that is paid. Of course, the other issue is lowering the ceiling on the maximum amount to be charged.

There is no doubt we need more generating capacity in South Australia. I think the Treasurer hits that on the head very well, obviously being advised by some very knowledgeable people. This project does not add to generation capacity; therefore, it will not lead to lower electricity prices. It is a backup option only, and in my mind it is a very expensive option at $110 million for 13 months. It is something that I think the Liberal team needs to be aware of, and that is why we need transparency in this. There are some transition efficiencies in going from a backup lease arrangement into a more permanent generation capacity.

I do hope the Treasurer is forthcoming with that information because that may decide certain options going forward. There is no doubt we need greater generation capacity to drive down power prices. There are things that could be done at COAG. This is a backup option only, a bit like the desal plant, which again has ongoing costs because of maintenance and percentages that have to go through it for insurance reasons. This will be exactly the same: there are ongoing costs above the price indicated. With those words, I will conclude my debate.