Who's picking up the tab for Marinus?

 

FEW would have been surprised, least of all blind Freddy, to hear that the Marinus Link will put downward pressure on wholesale electricity prices.

If there’s more produce for sale in a particular market, there’s usually downward pressure on prices. It doesn’t require extensive modelling by well remunerated consultants to make that call.

But that was the headline take from the recently released TasNetworks report as Minister Barnett’s media release trumpeted: Marinus Link confirmed to drive down power prices. All part of the blatant campaign to gain a social licence for Marinus.

The release went on to qualify the statement by referring to wholesale prices.

The key word here is “wholesale”. Wholesale prices comprise less than half of what consumers pay. The other half is mainly transmission and distribution costs. TasNetworks is the monopoly provider of those services in Tasmania.

Wholesale prices are normally of little concern for TasNetworks. Hydro as our publicly owned generator selling electricity into the national market is the entity with a deep abiding interest in wholesale prices. But won’t lower wholesale prices lower Hydro’s profits? They certainly will. We don’t need a consultant to tell us that.

Hydro has indicated the main benefit from Stage One of Marinus is to optimise its existing system. That was the rationale for Basslink which we were sweet-talked into almost 20 years ago. We are yet to hear why it’s failing. What are the returns to Hydro from Stage One? What about Stage Two which will enable Hydro to develop deep storage pumped hydro schemes like Lake Cethana? Will the extra returns make up for the lower wholesale prices that Marinus will bring? Will we as Hydro shareholders be better off?

The only certainties at this stage are there’ll be a few construction jobs and wholesale prices will probably fall because there’s more electricity for sale. Not exactly a robust business plan.

If Marinus does eventuate, what will happen to Basslink? Hydro’s contract for use of the cable still has another 10 years to run. For all the talk about Marinus there is little chatter about Basslink. Why will Hydro exercise its option for a further 15 years if it can get a better deal with Marinus?

Who’s going to pay for Marinus? At this stage everyone is hoping Father Christmas will. If so, how will Basslink compete? It may become a stranded asset. If not, one with most of its value missing.

TasNetworks is the government anointed Marinus spruiker. Whether it will own the link or operate it pursuant to a trust arrangement bestowed by Father Christmas is not clear.

More crucially who will build the link and bear all the building risks. The horrendous experience of Basslink tells us the complexity of such a build with inevitable cost blowouts, foreign exchange and interest rates movements, will attract the sharp suits from the finance sector for another slice of the pie. Come 2031 Macquarie Bank will have reaped more than $1bn in fees from Basslink for helping persuade Hydro’s board to sign on the dotted line in 2002. Quite apart from the facility fee paid to Basslink, the estimated fee paid to Macquarie just for 2020/21 was $43m. Fasten your seatbelts. Prepare for another wallet-draining nightmare.

The latest Marinus report tried to establish a basis for spreading the costs of Marinus to all consumers in the national electricity market. Lower wholesale prices, it is argued will flow throughout the network, so everyone should pay.

Without agreement by all states to help shift the burden from Tasmanian consumers, Marinus is dead in the water.

Why would other states approve of higher prices for its residents to subsidise an undersea cable costing eight times more per km than a less risky overland one which would allow the use of their own wind and solar resources and increasingly cheaper batteries closer to where power is needed? The federal government’s energy policy vacuum in recent years caused all states to implement their own energy policies. They’re hardly likely to change now to help Marinus. Even if states agree to share the burden of Marinus, we have no idea how TasNetworks’ bottom line will be affected and we as shareholders will benefit.

If the aim is only to reduce electricity wholesale prices the government can do that with a stroke of the pen. It doesn’t need Marinus. Large industrials get concessions. Likewise, TasNetworks can charge less than regulated price for its services. It has done so in the past.

Highlighting how Marinus will lead to falls in wholesale prices is disingenuous. Retail prices won’t necessarily fall. Consultants’ reports about the complex national electricity market, which reveal how easy it is to reach any desired conclusion simply by tweaking assumptions, are not business plans. We have yet to see any indication how returns to Hydro and TasNetworks and hence to us as shareholders will improve.

(published in The Mercury 5th July 2021)