The Economics of Tasmanian Wind

 

Why new projects face a wall

Tasmania’s energy debate still assumes that wind farms are profitable and Marinus will unlock a wave of new renewable investment. But the only audited window we have into the real economics of Tasmanian wind — the accounts of Woolnorth Wind Farms (WWF) — tells a very different story.

WWF supplies around 10% of Tasmania’s electricity, with 308 MW of generation across Bluff Point, Studland Bay and Musselroe Bay. It is also the only operator that files full financials with ASIC. Those accounts reveal the structural truth that now defines the future of Tasmanian renewables: Tasmania’s oldest wind farms are only profitable because Hydro Tasmania subsidises them — especially via Large Scale Generation Certificate (LGC) guarantees. Strip out those supports and WWF is loss‑making every year, even with its current low level of debt.

This is the starting point for understanding why new wind projects — the very projects Marinus depends on — face a wall.

Hydro & Aurora Energy: Onerous contracts

 

Power Purchase Agreements have been used to assist developers of renewable energy projects. These notes explain how Hydro Tasmania and Aurora Energy account for these agreements and how accounting standards allow much of the relevant detail to escape the reporting net.

Included also is a closer look at how Hydro’s sale of a majority share in its windfarms was only possible due to a generous Power Purchase Agreement by Hydro effectively guaranteeing to pay the purchaser’s debt over the term of the agreement.

Finally there’s a note outlining how the assumption of sunk costs are used by renewable energy promoters to give a rosy view of individual projects. For instance, a windfarm developer needn’t consider the costs of Marinus because it’s a sunk cost however large.  A recent article is cited describing how sunk cost trickery understates the costs of renewable energy projects.

Basslink for Sale Chapter Four

 

The APA Group have long been interested in acquiring the Basslink interconnector.

With the release of APA’s financials for the 21/22 year on Wednesday 24^th August, we now have a rough idea of what APA thinks the cable is worth.

Basslink for Sale Chapter Three

 

The Basslink sale process has picked up speed.

We’re likely to see a new owner for Basslink in the next three months.

How the dust settles will affect Tasmania’s plans for the future shape of Tasmania’s electricity industry.

Marinus and the case for more Tasmanian wind farms

 

Project Marinus will unlock the value of Tasmania as a renewable energy powerhouse we are told. The basis for this claim is difficult to find. It is yet to be publicly revealed how consumers and government owned electricity companies, Hydro Tasmania and Tas Networks will benefit.

More wind farms will be needed and it is for that reason this blog takes a close look at Woolnorth Wind Farm Holding P/L (WWF) which has just released its  financials for the calendar year 2021.

WWF produces about 10 per cent of Tasmania’s electricity needs. In 2021 it received an estimated $95 for each MWh of electricity produced, a slight rise from $94 in the 2020 year.

WWF sells its output to Hydro Tasmania pursuant to a power purchase agreement (PPA). Without the PPA, had WWF sold its output into the spot market it would have only earned an estimated $60 per MWh (2020: $74 per MWh).

Hydro therefore subsidised WWF to the tune of $36 per MWh for 2021, an estimated $34 million in total.

The Shenhua Group a Chinese state-owned company owns 75 per cent of WWF acquired from Hydro which still owns the remaining 25 per cent. Shenhua bought its share subject to Hydro agreeing to the PPA.

Over the remaining term of the PPA Hydro is likely to pay subsidies to WWF which will be more than enough to repay WWF’s borrowings which at Dec 2021 stood at $239 million.

Had Hydro not sold its 75 per cent share it would have been able to repay the borrowings used to construct WWF. Instead, it pays subsidies to WWF to do the same thing.

It follows the pattern established by the Basslink deal, rather than the government owned Hydro building and owning the cable, it was decided to pay someone else to do it. The payments that have subsequently been made would have paid for the cable twice over. Apart from the two carbon tax years there’s not a lot to show from the now abandoned Basslink deal except Hydro with more debt and a community that has suffered as a result.

The pattern of privatising benefits and socialising losses is evident from WWF’s latest financials. In the absence of any clear evidence of how benefits and costs of the Marinus Project are to be shared one is left with the forlorn conclusion that past practices are likely to be repeated.

Basslink: Turning a blind eye to its lessons

 

A compulsive obsessive desire to ignore the lessons of history is slowly choking us.

If Tasmania is to become a renewable energy powerhouse, shouldn’t we have some understanding how existing wind farms and the Basslink interconnector work, who profits and who pays?

What’s the difference between regulated and unregulated interconnectors and what are the ramifications of the termination of the Basslink Services Agreement announced on 10^th February, an agreement covering an interconnector that was supposed to have a life of 60+ years but is falling apart after only 15 years.

Without stopping to analyse what went wrong with Basslink we seem to be careering ahead to build an even more expensive one, whilst the State refuses to face up the underlying fiscal sustainability of a government  which is gradually falling behind in attending to its core functions.

At the centre of energy policy is a Minister who is the shareholder minister in charge of Hydro, TasNetworks and the retailer Aurora Energy, and who pretends he is able to seamlessly resolve any conflict between competing parties whilst also looking after the interest of renewable energy proponents, consumers and Tasmanian taxpayers.

If it sounds too good to be true that's because it is.

Basslink for Sale Chapter Two

 

The Basslink sale saga continues.

Since the Basslink for Sale post back in September the mooted sale to APA has been abandoned, and Basslink P/L (BL) is now under the control of Receivers and Managers (KPMG) appointed by BL’s banks.

Back in late October BL still hadn’t managed to refinance its existing bank loans as required. The sale to APA had fallen through. The final straw was when Hydro Tasmania (HT) and the State government finally ran out of patience with BL for non-payment of amounts awarded against them following legal action in the wake of 2016 interconnector outage and announced they were going to start legal action to recover amounts owed.

It was a Mexican standoff. The banks wanted their money. Creditors were getting impatient. BL’s owners didn’t want to contribute any more. BL was insolvent.

Basslink for sale?

 

By any measure 2020 was annus horribilis for Basslink P/L, the owner of the existing Bass Strait interconnector, currently operated by Hydro Tasmania.

Basslink’s recently released annual financial report for the calendar year 2020 revealed its battle-scarred balance sheet after unsuccessful legal battles arising from the 2015/16 cable outage.

In December 2020 Basslink was forced to write off $30.8m which it claimed Hydro owed. The debt write-off related to whether the cable outage was a force majeure event. After taking six months to repair the cable, Hydro maintained because it was unavailable for half the year, the agreed monthly fee upon resumption should be reduced by the availability adjustment factor. Basslink argued the cable fault was an Act of God, a force majeure event, and hence the adjustment factor didn’t apply, and the full fee was payable. The arbitrator didn’t accept God was involved and found in Hydro’s favour. 

The arbitrator was also needed to resolve other disputes between Basslink and Hydro and between Basslink and the State government in respect of the cable failure. In the latter case the arbitrator awarded the State government $46.7 m including costs and interest. In the former case Hydro was awarded $26m, with costs yet to be decided. Basslink has raised a provision account which suggest another $30.9m may become payable. That’s a total of $103.6m Basslink will have to pay Hydro and the government.

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's shrinking balance sheet

 HYDRO Tasmania’s recently released 2019-2020 annual report revealed a significant write-down of generation assets due to reductions in future expected revenue.

The business case for Marinus, the second Bass Strait interconnector, which is based on estimates of future electricity prices, will need to be revised.

Energy policy and Project Marinus

 

The absence of a coordinated transparent energy policy at the Federal level means trying to find a place for Project Marinus in Tasmania’s future is like a search without a map. That unfortunately has been the adhoc pattern of energy policy in Tasmania over recent years.

The unbundling of Hydro into generation, transmission and retail businesses in the late 1990s was driven by the ethos at the time; that corporatised businesses run like those in the private sector, doing deals with the private sector, was the way to unlock value, encourage efficiencies and deliver a better deal for all of us.The report card to date indicates this hasn’t occurred..

Over the last 20 years or so our State’s energy businesses have largely remained in public hands. Tasmanians have a special attachment to Hydro. We refrained from selling grandma as many others did, but with three government electricity businesses pursuing their own ends with no overall plan , and with private companies searching out and finding niche areas to get access to regulated and at times guaranteed revenue streams, has meant that Tasmanian taxpayers have been paying a huge price.

 

Hydro's wheeling and dealings

FORMER US Defence Secretary Donald Rumsfeld famously distinguished what is known from what isn’t.

There are some things that straddle both categories — things the government knows but we don’t, but should.

The circumstances surrounding the second Bass Strait interconnector Marinus is a case in point.

Legislative 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 explanation.

 

Tell us about Basslink before approving Marinus

THERE’S an eerie feeling of deja vu about Project Marinus, the second electricity interconnector proposed for Bass Strait.

Both major political parties at the federal level announced support for the project before the May election. The recently released business case contains media releases from Prime Minister Morrison and then opposition leader Shorten. One can’t help but feel the business case is really a search for reasons for doing something that has already been decided.

It was the same story 20 years ago. Both the Bacon government and the previous Rundle government supported Basslink. In early 2000, Hydro Tasmania signed a preliminary agreement for the construction of Basslink which was built by Basslink Pty Ltd (BPL). At this early stage it was not an irrevocable commitment, but Hydro proceeded as if it was.

The case for Basslink?

(Published in The Mercury on 20th April 2018. This blog includes additional endnotes.)

With all the talk about a second Basslink one would have expected to have a clear picture of the costs and benefits of the first interconnector. Surely if you’re buying another of the same, one of the determining factors would be how the first has performed? Has it worked as planned?

The short answer is no. It’s been a costly voyage into the unknown.

Hydro vs Basslink episode 23

Little is publicly disclosed about the latest dispute between Hydro Tasmania (HT) and Basslink Pty Ltd (BL) following the six month cable outage from December 2015 to June 2016. BL has just revealed a little more with the lodgement of its 2016 Financial Statements and Report with Australian Securities and Investment Commission (ASIC).

We knew HT has not been paying the monthly facility fee to BL  since September 2016 but that it has been making good faith payments. However these are considerably less than the facility fees otherwise payable. The amount in dispute between the parties could get out of hand?

Hydro Tasmania's Basslink stoush

If force majeure is the reason for the Basslink outage then maybe Hydro Tasmania owes Basslink for the six months when the interconnector was being repaired?

Hydro ups ante in Basslink dispute

Hydro Tasmania has upped the ante in its dispute with Basslink Pty Ltd.

A month ago it unilaterally stopped paying the monthly facility fee for use of the interconnector linking Tasmania with the national electricity market. It is using the cable, but refusing to pay.

Basslink P/L is part of Keppel Infrastructure Trust, part-owned by the Singapore Government and listed on the Singapore Stock exchange.

On Monday last week, Keppel lodged financial statements for the period ending September 30.

It revealed the woes of its wholly owned subsidiary Basslink P/L. Basslink is a reasonably simple operation. It owns an interconnector cable. Hydro has an agreement for exclusive use of the cable for another 15 years. The facility fee varies from month to month, depending on whether it is available for use, the electricity price differences between Tasmania and the mainland, and prevailing interest rates.

During the outage from December 2015 to June 2016 the facility fee was zero. It resumed again after the repair, roughly at the rate of $75 million per annum, until a month ago when Hydro stopped paying.

Basslink owes $700 million to its banks. The estimated amount Hydro owes Basslink is $500 million. That is the estimated facility fee over the next 15 years in today’s dollars.

If Hydro doesn’t pay Basslink, then Basslink has trouble paying its banks. With no income from Hydro during the outage it managed to keep paying the banks, but found itself in breach of loan covenants. It found itself unable to meet the minimum debt service coverage ratio and therefore was required to agree on a new long-term financing plan. Basslink’s $700 million of borrowings are listed as current liabilities, meaning they are repayable in this current year. A new long-term financing arrangement is the only other option.

Just as Basslink’s $700 million loan is being renegotiated with its banks, Hydro played its card. It stopped paying the monthly fee. Hydro was not insured against the Basslink outage. Hydro may have to prove Basslink was at fault to recoup damages from Basslink. But Basslink’s insurers accepted the outage was a force majeure event, an act of God, and have paid out compensation of $40 million. Hydro does not accept it was a force majeure.

The immediate problem for Basslink is that while $11 million went to partially pay for the cost of interconnector repairs, the balance was snookered by the banks. It is yet to be released. The banks are hanging on to it, pending finalisation of the new long-term financing plan.

Hydro just made Basslink’s cash situation even worse.

Everyone has a different agenda. The banks would like to see their exposure lowered, I guess. Hydro would like some compensation, no doubt. I’m sure it would accept a lower fee. It is a classic standoff. Either Basslink’s parent has to put in more, or Hydro has to resume paying, or both, else Basslink is insolvent. Basslink is an Australian registered company, so Australian insolvency laws apply.

The worst-case scenario for an insolvent company is liquidation. This is possible, but unlikely. Basslink’s banks will not want to take control of the interconnector in an attempt to recover its loans.

Yet Keppel, Basslink’s parent, will not want to tip in too much unless it can be assured the interconnector asset is worth it. What the interconnector asset is worth, however, depends almost entirely on the revenue it receives from Hydro. It is difficult to envisage a situation where someone other than Hydro operates the cable.

Has Hydro made a strategic play? A risky one perhaps?

Whether Hydro manages to negotiate a lower fee with Basslink might not have any effect on the $350 million it owes Macquarie Bank in respect of a poorly judged side deal to protect itself from interest rate rises impacting on the facility fee. Macquarie agreed to pay Hydro any extra fee that resulted from a rise in interest rates. In return Hydro agreed to pay Macquarie the fee saving resulting from a fall in interest rates. Interest rates started falling the minute Hydro agreed to the side deal. It pays Macquarie Bank about $30 million a year. Hydro will not reveal the actual figure. It is commercial in confidence.

Basslink was insured against physical loss and also business interruption. Unlike Hydro. At the parliamentary inquiry on August 4, seven weeks after the interconnector resumed, Hydro chief executive Steve Davy, in response to a question as to whether Hydro will insure against future outages, said: “We have not, as a corporation, considered or entered into discussions with other parties about covering that possibility.”

There you have it.

Imagine almost writing off the family car and then saying, “gosh I didn’t expect repairs to take so long and be so costly and I didn’t anticipate paying for hire cars for six months. How was I to know it was going to cost $180 million? It was a one-in-2600-years event, but will I insure the car now that it’s back on the road? I haven’t considered that.”

Imagine saying that?

The Basslink deal is an example of a public private infrastructure arrangement. Essentially the interconnector forms part of Hydro’s generating assets. The traditional way was to fund these was with debt. The annual finance charges of $100 million paid by Hydro to Basslink and Macquarie Bank  are de facto finance charges and were these added to interest  payable on Hydro’s other borrowings of $900 million , the total would place Hydro close to a breach of its own loan covenants.

One thing for sure is there’s plenty of water yet to flow under the bridge.

Basslink woes continue

Plan A from the rulebook for side stepping questions at parliamentary hearings is to cite confidentially. The reason why it’s confidential is also confidential. This is a corollary to Plan A.

Plan B is to use the sub judice rule where a matter might be the subject of legal action. Plan B also has corollaries. Canvassing legal options, even a litigant’s thought bubble are covered by Plan B.

Plan A has been used at current parliamentary public accounts committee hearing into the State’s electricity companies following the Basslink outage.

The government has now invoked Plan B and asked the committee to call a halt to proceedings “to enable arrangements to be put in place to protect the state's interests in the context of contractual matters related to the BassLink failure.”

What are these contractual matters?

Basslink’s parent company, Keppel is listed on the Singapore Stock Exchange. Its latest half yearly report dated 18^th July has more to say about the Basslink failure than Hydro and the government  are prepared to tell.

The report says:

“Based on current circumstances and subject to further professional advice and investigation, Basslink believes that the outage is a force majeure event. The cable has since returned to service on 13 June 2016 and Basslink has been in discussions with Hydro Tasmania and the lenders on matters arising from the outage. The insurer has confirmed that the physical loss and damage to the cable as well as time element loss (such as business interruption loss) arising from the incident are insurable (subject to the relevant terms of the insurance policy) and Basslink is working with the insurer on Basslink’s claims under the insurance policy.”

Basslink believes the outage is a force majeure event. In other words, an act of God. It has insurance cover for such an eventuality.

Hydro on the other hand does not. The estimated cost to Hydro is between $140 and $180 million.

Hydro’s risk assessment analysis apparently showed outages longer than 60 days were highly unlikely. This period was nominated in the original specifications and confirmed in the Basslink Operations Agreement signed by the Tasmanian government. The 2012 Expert Panel report into Tasmania’s electricity industry disclosed however there were no financial penalties relating to non performance.

If an outage wasn’t expected to last 60 days, the cost to cover longer outages would arguably have been minimal.

Even now Hydro is unable to tell the parliamentary hearing the cost of such insurance or whether it plans to take cover in the future.

If a force majeure event occurs the contractual obligations of the parties are temporarily suspended whilst things are fixed. Penalties may not apply unless the relevant legal contracts specifically address the matter.

Given Basslink had insurance in place to cover a force majeure event they would be keen to ensure this was the case. Finding the source of the fault proved difficult and more cable was removed than the replacement length originally earmarked. An extra length necessitated three joins. This left a length of discarded cable which Hydro would like to have tested but Basslink won’t bring to the surface. Exhibit A which may prove cable failure was other than an act of God is still on the seabed about 100 kms north of Georgetown.

Legal action between Hydro and Basslink is not new. An earlier dispute about the cable required former Chief Justice Murray Gleeson’s mediation skills. Hydro made a couple of references to the dispute buried deep in annual returns but when asked about the amount finally awarded to Hydro, CEO Steve Davy resorted to Plan A by telling the June hearings it was commercial in confidence.

Not so in Singapore. Keppel revealed publicly the amount was $6 million.

There was a time when Hydro’s annual costs of Basslink were provided in annual returns. No longer. It is now commercial in confidence. The annual financial statements record an estimate of the overall Basslink liability and the amount expected to be paid in the ensuing 12 months. But the amount actually paid is commercial in confidence.

Not so for Keppel. It discloses what it receives from Hydro but the amount is in Singapore dollars and the financial year end dates are different so it’s a little hard to line up with Hydro’s accounts.

The Basslink fee contains an interest rate component. If rates go up then so does the fee, and vice versa.  Hydro decided to swap this component with Macquarie Bank and not risk the fee rising with rising interest rates. Macquarie Bank agreed to pay Hydro the amount of the fee resulting from higher interest rates while Hydro agreed to pay Macquarie the amount of the fee saved should the fee fall with falling rates. To date this misadventure has cost Hydro about $200 million. The exact figure is commercial in confidence, as is whether or not the swap arrangement with Macquarie still applies when the fee is waived.  According to Hydro’s last financials, based on current low interest rates, the swap arrangement is expected to cost another $340 million.

Hydro’s insurance against rising interest rates have therefore cost $540 million and its failure to insure against an extended Basslink outage another $140 to $180 million.

The very person at the table when these fateful matters were first considered is now advising the government on energy security. Geoff Willis it yet to follow Justice Brian Martin recent example in the case of the NT royal commission into juvenile detention and exclude himself on real or even perceived conflict of interest grounds.

The inquiry which promised so much is in danger of degenerating into a pathetic embarrassment. Mr Bacon is solely interested in finding a paper trail to the Minister’s office. The two Liberals members are acting like Praetorian guards protecting their masters and blaming their predecessors rather than bothering to address their minds as to how it all works, what went wrong and where do we go from here.

Combined with a ready willingness to withhold information where possible, the only result will be a more disillusioned public once again let down by the political process.

Hydro CEO's reassurances

It was good to see Hydro’s CEO Steve Davy belatedly addressing a few of the concerns that have been raised about his company’s financial position in today’s opinion piece in The Mercury titled It's a huge hit but it won't sink us. He emphasised a keenness to ensure commentary is accurate and based on facts.

Factual accuracy doesn’t necessarily preclude attempting to lead a reader to erroneous conclusions.

Take this statement:

“Hydro Tasmania’s financial position is sound. Its net debt balance of $826 million, as at March 31, was less than the balance at the end of each of the previous five financial years. We are projected to have enough liquidity and debt facilities in place to fund the implementation of the Energy Supply Plan without extending existing borrowing arrangements with the state’s borrowing arm Tascorp.”

Factually correct no doubt.  Hydro will cope without extending existing borrowing arrangements. Most readers will think this means debt won’t increase. But what’s actually said is that existing arrangements are adequate. If that’s the case why not say what those arrangements are?  

Hydro’s current arrangement with Tascorp is a borrowing limit of $1.055 billion meaning a further $229 million can be borrowed. Why not say the costs of the outage are not expected to exceed the $229 million extra borrowing facility already in place?  Maybe even say what increase in borrowings is likely

Then we have this statement:

“Over the past five years, Hydro Tasmania has achieved an average underlying result before tax of $149 million. For the same period, average cash flows from operations have been $160 million, well in excess of the average core capital expenditure of $108 million during the same period. “

To dredge up five year averages covering the carbon tax years is bordering on wilful deception. The only historical figure of any current relevance is the post carbon tax operating cash flow figure of $26 million in 2015. Whilst the latter includes returns to government, it is considerably boosted by income from renewable energy certificates which won’t occur at that level for a while. Why not explain this to the punters instead of attempting a Pollyanna imitation?

The five year averages were used to suggest Hydro was not insolvent. It probably isn’t but past averages are irrelevant to proving the case. Future ability to pay debt is the key as Mr Davy knows, but he’s not about to take punters into his confidence. Yet anyway.

Then we get this:

“Hydro Tasmania’s gearing ratio, which provides an indication of the amount of debt held by the company, was lower in June 2015 than in 2011, and lower than its peers in the National Electricity Market such as AGL, Snowy Hydro and Origin Energy. As at June 30, 2015, our total equity was $2.06 billion, which represents a strong net asset position.”

The book value of assets at June 2015 is of little relevance, nor is the gearing ratio based on that book value. AGL and Origin aren’t hydro generators after a period of drought so why introduce them into the picture? The crucial question is the interest cover provided by operating cash and whether there’s any left over for annual capex. Why not explain this to the curious instead of a one line assertion about profits resuming in the 2018/19 year? Maybe  include the costs of fixing the interest rate portion of the Basslink facility fee, the Macquarie swap deal, to get a more accurate assessment of interest cover?

The factors that will impact on the revised book value of generation assets are given a good coverage:

“As in previous years, the valuation will take into account a range of factors, of which the need to rebuild storages is but one. Given the long life of the assets, the valuation will also be impacted by current and forecast energy and large-scale generation certificate prices, and estimates regarding the level of investment required to appropriately maintain the assets. While the reduction of generation to rebuild storages will, in isolation, have a downwards influence on the valuation of assets, the final valuation figure included in the annual accounts will be the product of a number of factors.”

Except there’s no mention of the fact that asset values will have to be written down further if the cause of  the outage remains unknown and the link is not fully restored and capable of fully delivering what was originally intended .

The following would have left a few readers puzzled:

“Another issue that has been used to question our financial strength was last year’s debt transfer to Hydro Tasmania of $205 million from TasNetworks. What is not said is that amount counterbalanced what had been transferred to Hydro Tasmania in 2012-2013 when we were given responsibility for the Tamar Valley Power Station.”

Talk about a debt transfer from TasNetworks and a counter balance to the transfer of the Tamar Valley Power Station (from Aurora Energy incidentally) might make sense to Mr Davy but is pretty confusing for most readers. Sure the amount of $205 million originally came from TasNetworks but from Hydro’s viewpoint it was a cash injection used to pay a $118.5 million dividend to the government with the rest used to fund capex which couldn’t be met from operating cash flow. The transaction didn’t highlight Hydro’s financial weakness, rather the shareholder’s greed. But I guess the CEO can’t say that.

The CEO’s contribution, the first real attempt in five months to accurately and factually describe the financial ramifications of the Basslink outage was more honoured in the breach than the observance.

It was anything but reassuring.

Basslink highlights State's budget woes

(Published in The Mercury 27th April 2016)

The big danger in the aftermath of the Basslink debacle is the search for someone to blame will divert attention from finding the best solution.

At last week’s Senate hearings in Hobart, Michael Negnevitsky, UTas engineering professor nailed it when he said “...the failure of the Basslink has to be viewed not just as a disaster......but.... as a wake-up call..... in 10 years time we may not recognise our power systems.... (which) in the last five years have changed much more than in the previous 50 years.”

It’s not just a wake-up call from an energy security viewpoint but also from the perspective of the government’s fragile budgetary position as it begins to grapple with the costs of the outage and the after-effects.

The roles of participants will give a glimpse of how the State sector works.

The cash costs of at least $200 million will be borne by Hydro Tasmania. It will have to find the money from somewhere. It won’t come from the Consolidated Fund which would directly impact the general government’s budget. But it will come via the back door, either from TasNetworks or from Tascorp.  The impact on the State’s overall position will be the same. This position will also be affected by the expected massive write-down in the value of Hydro’s generating assets, reflecting reduced future income as dam levels are restored. In 2005 Hydro wrote down the value of its generating assets by $1 billion. A similar write-down would not surprise