NSW electricity privatisation - the renewable assets

On 1 August 2013, Origin Energy finally acquired the Eraring and Shoalhaven generators over which it had previously entered into GenTrader agreements.

The renewable assets associated with Eraring Energy, however, were not sold to Origin Energy and were instead transferred to a newly incorporated State-owned corporation called Green State Power Pty Ltd (Green State Power) (see details below). While the sale of the Delta West assets – ie Mt Piper and Wallerang – to its GenTrader in Energy Australia will not be finalised until early September 2013,¹ it is highly likely that the hydro-powered assets associated with those generators will not be sold but also transferred to Green State Power.

This approach, however, may not be currently planned for MacGen. While not expressly stated in its Request for Expressions of Interest, it appears MacGen's renewables may be sold alongside its coal generators.

The sale of Green State Power will either follow the sale of MacGen or Eraring's Delta Coast generators.

WHAT ARE THE RENEWABLE ASSETS HELD BY...

1 ...GREEN STATE POWER

Green State Power Pty Ltd ACN 163 839 147 was established on 4 June 2013. Green State Power's sole shareholder is the Hon. Michael Baird, Treasurer, for an on behalf of the Crown in right of the State of NSW.

When Eraring Energy sold the Eraring Power Station and the Shoalhaven Scheme Power Stations to its GenTrader in Origin Energy, the remaining renewable assets held by Eraring Energy were transferred to Green State Power (as facilitated by the mechanisms in the Electricity Generator Assets (Authorised Transactions) Act 2012 (NSW)).²

Wind farms

Crookwell

Located west of Goulburn, there are eight turbines, each 45m high, with rotors over 44m in diameter. Each turbine has a 500kW capacity with a total generation of 4 MW. Each turbine can generate approximately 600 kilowatts (kW) of power, making a total power output from the 8 turbines of almost 5 megawatts (MW). This is enough to meet the average electricity demand of 3,500 homes.

• Auto start-up will occur when wind speed exceeds 15 km/hour.

Wind and Hydro Generation (MWH)³

• Auto cut-out mechanisms shut down the turbine in very high winds greater than 72 km/hour

The Crookwell 3 wind farm project proposes to construct 30 wind turbine generators each with a capacity of 3.4MW and with a total capacity of up to 102MW.⁴

Blayney

Located on Lake Carcoar, south of Orange, the wind farm consists of 15 turbines. Each of these is 45 meters high with a rotor diameter exceeding 45 meters. The capacity of each turbine is 600kW and the total generation of the farm is 9 MW. The controls start the turbines at a wind speed of about 4m/ sec (15 kmh). The turbines reach full output at 16m/sec (55 kmh) and the control shut the turbines down when wind speed reaches 25 m/sec (90 kmh).

Pacific Power International developed the wind farm, and Consolidated Power Projects Australia was the construction contractor.⁵ Project cost was A$18 million.⁶ The Minister for Energy opened the wind farm in October, 2000.⁷ The Blayney Wind Farm has a project life expectancy of 20 years.⁸ The power is being on-sold to Advance Energy, with a financial arrangement with the landholders over a 25-year period.⁹

Hydro Power Stations

• Brown Mountain Hydro Power Station is located on the Bemboka River on the eastern escarpment of the Great Dividing Range and consists of a high head two unit hydro power station – one 1MW hydro turbine and one 4.35MW hydro turbine with a total capacity of 4.95MW. It generates water from the water released from Rutherford Creek and Cochrane Dam and is connected to the 66kV Essential Energy transmission line between Cooma and Bega Substations.
• Burrinjuck Hydro Project is located at the base of Burrinjuck Dam near Yass in southern NSW and consists of one 16MW hydro turbine and two 6MW hydro turbines. The total capacity is 28MW and the net energy produced is 11,361MW, and has 132 kV connections to both Yass and Tumut Substations. The 16MW turbine has a maximum flow of 3,350 megalitres/day and each 6MW turbine has a maximum flow of 1,600 megalitres/day.
• Keepit Power Station is located at Keepit Dam on the Namoi River near Gunnedah consisting of one 7.2MW hydro turbine. The net energy produced is 1,603MW, which on average generates enough power annually to supply 3,000 people, and is connected to Gunnedah Substation by a 66kV transmission line.
• Hume Power Station is located at the Hume Weir on the Murray River upstream near Albury and consists of 2 hydro turbines each with a capacity of 29MW with a total capacity of 58MW. The net energy produced is 52,742MW and this flow generates enough power to supply 30,000 homes a year. Water is available for power generation only when releases are made for water users, the environment and during floods.

2 ...DELTA ELECTRICITY¹⁰

Delta Electricity currently holds two mini-hydro units at Mt Piper and at the Chichester Dam.

They have also won the right to build hydro systems on dams managed by State Water at Glennies Creek, Lostock, Brogo and Windamere.

While the sale of the Delta West assets to Energy Australia will not be finalised until early September 2013, there are rumours that these assets will – like the Eraring Energy renewables – be transferred to Green State Power.

3 ...MACGEN

Unlike with the renewable assets for Eraring Energy and Delta Electricity, it appears that the current proposal for the sale of MacGen's assets is that its renewables may be sold with its coal generators. This approach is not entirely unexpected considering how closely integrated MacGen's renewable assets are to their merchant assets. MacGen's renewable assets are as follows:

• Closely integrated with its Liddell generator is a solar thermal plant – the project has been expanded in partnership with Novatec Solar (Novatec) to cover an area of 18,000 square metres, with over 500 mirror panels. MacGen received a $9.25 million grant from the NSW Government's Climate Change Fund Renewable Energy Development Program for the expansion.¹¹ As part of the expansion, Novatec arranged the manufacture, installation and commissioning of a solar boiler. When the expansion was completed renewable energy supply capacity doubled (18 MW); the project is now able to provide enough renewable energy for over 1000 homes each year.
• MacGen operates a 0.85 MW capacity hydroelectric generator driven by water fed into the Bayswater and Liddell generators. This is not referred to in the MacGen Requests for Expressions of Interest. As it is less integrated with the coal generators, it is of course possible for it to be sold separately as the sale process progresses.
• MacGen operates a biomass co-firing program alongside its Bayswater and Liddell generators, which is able to produce renewable electricity for over 5,000 homes each year.

OBSERVATIONS

The Business Council of Australia (BCA) recently recommended lowering the renewable energy target (RET) arguing that cost pressures on electricity and gas were eroding Australia's low-cost energy base risking global market share in coal.¹² Grant King, the chief executive of Origin Energy, has also noted that the Federal Government's decision to bring forward the emissions trading scheme linked to the European market would make Australia less attractive an environment for investment in wind power.¹³ The RET requires Australian power retailers to buy certificates for up to 41,000 GWh per year by 2020 or risk facing fines.¹⁴ IPART estimates that in 2012/13 the cost of complying with the RET adds on average $102, or 4.8%, to an indicative regulated electricity customer's bill in NSW.¹⁵

Notwithstanding the debate on the RET, there remains a strong environment for investment in renewable energy, particularly in NSW. AGL Energy has committed to constructing a $450 million large-scale solar project which includes a 102 megawatt solar plant in Nyngan and a 53 megawatt solar plant at Broken Hill. AGL Energy was able to secure $166.7 million from the federally funded Australian Renewable Energy Agency and $64.9 million from the NSW Government for this project.¹⁶ If governments continue to financially support such projects, the appetite for renewable energy and investment in such technology will remain healthy.

Footnotes

¹The Delta Coast assets - Vales Point and Colongra – is expected to be sold after MacGen.
²http://www.eraring-energy.com.au/Default.aspx?aCateId=843.
³Eraring Energy, '2012 Annual Report' < http://www.eraringenergy.com.ay/uploads/documents/ee_2012_20121127103251.pdf > pages 2 and 18.
⁴'Crookwell 3 Wind Farm Update', Crookwell Gazette (online), 22 January 2013 < http://www.crookweligazette.com.au/story/1250343/crookwell-3-wind-farm-pdate/ >
⁵Pacific Power, "Blayney Wind Farm", EcoGeneration Magazine December 2000, p14 Project Profiles.
⁶Ibid.
⁷NSW Parliament, Hansard, Legislative Assembly, 2 November 2000 < http://www.parliament.nsw.gov.au/prod/parlment/hansart.nsf/v3key/la20001102034 >
⁸Green State Power, "Blayney" < http://www.greenstatepower.com.au/defailt.aspx?acateid=925 > Above n 12.
⁹Above n 12.
¹⁰Delta Electricity 2011/12 Annual and Sustainability Report, page 3 < http://www.de.com.au/articledocuments/135/2012%20delta%20annual%20and%20 sustainability%20report%20final.pdf.aspx >
¹¹Novatec Solar, 'Novatec Solar's Australian Fuel-Saver Commences Operation' (Media Release, 24 October 2012) < http://www.transfield.com.au/news/ mediareleases/20121024_novatec%20solar%20australian%20fuel%20saver%20commences%20operation.pdf >
¹²Priest, M. 'BCA calls for lower renewable target to reflect energy demand', The Australian Financial Review, 31 July 2013.
¹³Winestock, G. 'Clean power form Infigen hits out at coal', The Australian Financial Review, 26 July 2013.
¹⁴Ibid; Department of Industry, Innovation, Climate Change, Science, research and Tertiary Education, 'Enhanced Renewable Energy Target – Fact Sheet' < http:// www.climatechange.gov.au/reducing-carbon/renewable-energy/renewable-energy-target/enhanced-renewable-energy-target >.
¹⁵IPART, 'Submission – Climate Change Authority – Renewable Energy Target Review', September 2012 < http://www.ipart.nsw.gov.au/files/2ee94a2c-08f7-4862- be7e-a0cc00f05e3d/IPART_Submission_-_Climate_Change_Authority_-_Renewable_Energy_Target_Review_-_September_2012.pdf >, page 1.
¹⁶AGL Energy, 'AGL to proceed with Australia's largest solar projects' (Media Release, 31 July 2013) < http://www.agl.com.au/about-agl/media-centre/articlelist/2013/jul/agl-to-proceed-with-australias-largest-solar-projects >; Macdonald-Smith, A. 'AGL commits to $450 million NSW solar project', The Australian Financial Review, 1 August 2013.

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