US Defence Secretary Donald Rumsfeld famously distinguished what is known from
are some things that straddle both categories — things the government knows but
we don’t, but should.
circumstances surrounding the second Bass Strait interconnector Marinus is a
case in point.
Council independent Ruth Forrest finally managed to get an answer to a Question
on Notice as to why Hydro Tasmania’s balance sheet lost $200 million — or about
10 per cent of its value — in the 2019 year. Such a large amount begs an
Energy Minister Guy Barnett said it was a commercial in confidence matter, but
a second question elicited an expansive answer from Premier and Treasurer Peter
Government usually removes most of Hydro Tasmania’s underlying profit each
year, so it always struggles to build up its balance sheet. Sometimes, there
are movements in assets or liabilities that impact on the balance sheet, but
not the underlying profit used to calculate how much the government extracts.
2019 year saw such an event when Hydro recorded an increased liability due to
onerous contracts. An onerous contract is where Hydro may, for example, agree
to an offtake agreement with a wind farm generator to buy electricity or
renewable energy certificates at a set price for a set period. Hydro thereby
assumes the market risk.
prices fall, Hydro ends up paying more than the current market price. The
contract becomes onerous. Each year when market prices are less than the price
in the offtake arrangement, Hydro subsidises the generator. Future expected
subsidies are recorded as a liability.
the 2018-2019 year the liability for onerous contracts increased by $196
million to a total of $323 million at June 30, 2019.
to offtake arrangements to “assist renewable energy projects to be built,
financed or partially sold”, according to the answer the government gave Ms
Forrest. Various contracts have been entered into from 2009 to 2017.
2017 arrangement was with Westcoast Wind to enable construction of the
Granville Harbour wind farm.
was done, at the behest of government, by ministerial direction. The reference
to an offtake arrangement to enable partial sale of a project probably relates
to the Woolnorth/Musselroe wind farms. Hydro sold a 75 per cent interest to
Shenhua Clean Energy, but Hydro agreed to assume most of the market risk.
Marinus appears to be a project in search of a large government subsidy to
transmit government subsidised power northwards.
wonder privateers are keen to build — the government bears all the risks. Why
not grow bananas in large fully subsidised greenhouses and underwrite transport
costs to mainland markets?
date, Project Marinus has been promoted by TasNetworks, which has evolved more
than 20 years ago from Transend, a transmission company with no debt, into a
company owning all the distribution poles and wires and $2 billion in debt,
milked by governments as a ready source of working capital, but now up against
the wall needing new sources of revenue in an ever changing world.
Marinus discussion sidesteps the matter of Hydro.
from onerous offtake arrangements, Hydro locked in interest rates used to
calculate the Basslink fee for the full 25-year term, meaning expected future
losses from a higher rate adds an extra liability of $371 million to Hydro’s
will end up paying more in penalty interest than the original Basslink cost of
third scary liability results from other onerous contracts. Hydro contracts
with third parties to fix electricity prices for various amounts of electricity
over various terms. If there are adverse market price movements, expected
future losses are recorded as a liability. At June 30, 2019, the net liability
for electricity price derivatives was a whopping $742 million, a rise of $270
million for the year alone.
will be offset against future income.
prices and interest rates move in a more favourable direction, then the
liabilities will fall. If rates and prices were to move in the other direction
after a contract was arranged, then we would see financial assets. This rarely
the three abovementioned liabilities together, and the total is $1436 million —
almost as much as Hydro’s net worth.
people are unaware of Hydro’s various wheeling and dealings. These need to be
put on the table as part of any discussion about Tasmania’s energy future.
(Published in The Mercury 2nd July 2020)