Electricity Supply

Extract from Hansard

Legislative Council
7th December 2000

Sandra Kanck
Deputy Leader Australian Democrats
Member of the Legislative Council

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The Hon. SANDRA KANCK: I seek leave to make an explanation before asking the Treasurer a question about the possibility of power blackouts in South Australia this summer.

The Hon. SANDRA KANCK: When the Treasurer first announced that National Power was to construct Pelican Point, he claimed in his press release:

the threat of possible power shortages in South Australia in the summer of 2000-01.

What he failed to say was that the extra capacity to be brought on line would not be enough for this summer and that, furthermore, South Australia will continue to face very tight demand and supply conditions and high pool prices next summer. The lack of reserve plant margin in South Australia and Victoria lies at the heart of the problem.

Reserve plant margin is the margin of installed plant above the expected peak load of the season, expressed as a percentage of that peak load. Effectively, it is the amount of spare generating capacity available when something goes wrong. In the recent northern hemisphere summer, reserve plant margin in California dropped to 17 per cent. The result was repeated blackouts and brownouts and a quadrupling of the pool price compared to that of the previous summer. I note that the Californian electricity market is very similar to our national electricity market.

Ireland has more than 30 per cent reserve plant margin and even China has 20 per cent, but in Australia NEMMCO and NECA have postulated an acceptable reserve plant margin of just 6 to 9 per cent for the national electricity market. Further, they have no power to enforce even this woefully inadequate reserve of generating capacity. The provision of reserve plant margin in the national electricity market is left to the market. My questions are:

1. When the Treasurer made his statement about the additional capacity from Pelican Point, was he anticipating the continued provision of 500 megawatts of electricity from Victoria via the interconnector?

2. What is the reserve plant margin for South Australia for the summers of 2000-01 and 2001-02, both with and without access to 500 megawatts of electricity from Victoria?

3. What is the reserve plant margin for Victoria for the summers of 2000-01 and 2001-02, both with and without the provision of 500 megawatts of power to South Australia?

4. Does the Treasurer concur in the estimates by NEMMCO and NECA that 6 to 9 per cent reserve plant margin is sufficient to guarantee system reliability?

The Hon. R.I. LUCAS (Treasurer): When asked on a number of occasions whether I could guarantee that there would be no power blackouts in the future, I have been criticised by the opposition and others for saying honestly and frankly that I cannot make that guarantee. Indeed, no-one can guarantee that there will not be power blackouts in the future. If irresponsible Victorian trade unionists pull the plug on South Australia at 20 minutes' notice, no-one can guarantee that there will not be blackouts in Victoria and South Australia.

The Hon. R.I. LUCAS: I do not think that was the problem in Victoria. Even the state secretary of the union dissociated himself from his local wildcat unionists who pulled the plug. Those members who have been state secretaries or have known state secretaries will know that. I have indicated openly and frankly that I cannot guarantee-no-one can-that there will not be any blackouts. For anyone to suggest that I have not done that is delusional.

From the government's viewpoint, which I will repeat without going through all the detail again, if we had not fought the good fight against the opponents to Pelican Point, we would be in a much worse position this summer and next summer. We have also supported, and again I will not repeat the detail, further generation and further interconnection options for South Australia. I agree with the honourable member that power supply and demand is still tight for this summer and the coming summer and, whilst I cannot recall the timing of the exact statement to which the honourable member referred, it is certainly correct to say that it has only been in recent months, certainly this year, that the notion that we could no longer rely on the 500 megawatt interconnector from Victoria has become a much more significant part of the power supply calculations that NEMMCO and others make.

In all the early calculations that were done by everybody looking at the market, the 500 megawatts from Victoria was always an important part of the calculation of the supply in South Australia. Those like the Hon. Sandra Kanck and others in this chamber who support the notions of interconnection have placed significant reliance on existing and future interconnection.

In relation to the detailed questions about the reserve supply margins, I will need to take advice and bring back a reply. The only point I will make is that I am advised that some of the overseas reserve margin calculations that some commentators have used to compare with Australian circumstances have not resulted in apples for apples comparisons. The calculation of reserve margins in some countries overseas is done on a different basis from the calculation done by NEMMCO in Australia. As a result, the percentage figures that some people use to compare Australia's reserve margin with that of other countries is not an apple for apple comparison.

I am happy to get advice from the people who know the detail of those calculations to highlight to the honourable member that one needs to be cautious about accepting some of the reserve margin calculations that are quoted for some overseas countries and compared directly with Australia's reserve margin. As to whether the current reserve margin calculations are appropriate, that is an issue about which there is some discussion with NEMMCO in terms of the operation of the national market. I know that a committee, together with NEMMCO, is looking at the appropriateness or otherwise of the reserve margin. We will certainly work with NEMMCO if there is to be any change in relation to the reserve margin. The final point that I would make is to consider what are the alternatives. We can either encourage the private sector to build further generation-

The Hon. R.I. LUCAS: Or conservation, and I raised the issue of demand management in response to the Hon. Mr Holloway. The third option is that taxpayers have to spend some money to build further power generation, and that is not a proposition that the South Australian government supports.

1. Towards late 1998 the Government commenced the process for seeking the construction of a new power station at Pelican Point. The NEMMCO Summer Outlook for the Interconnected Power System of Victoria, South Australia and New South Wales (the forerunner to NEMMCO's annual Statement of Opportunities) as at June 1998, indicated 500MW interconnector capacity from Victoria to South Australia. As you will be aware the more recent NEMMCO statement of Opportunities (2000 and 2001) have indicated that at coincident extreme peak demand periods in South Australia and Victoria, SA will not be able to expect to receive 500MW across the interconnection.

The Heywood interconnector between Victoria and South Australia has a capacity of 500MW. The actual flow over the interconnector would be determined by generator offers into the market and demand in Victoria and South Australia. Of course, the actual flows over the interconnector would be quite different to the estimated flows for planning purposes.

2. The methodology adopted by NEMMCO in estimating reserve margins is quite sophisticated and relies on a number of planning assumptions.

In its annual Statement of Opportunities (SOO), NEMMCO compares forecasts of the next 10 years of supply and demand in each region and then compares the available reserves with the reserve limits established by the Reliability Panel under the National Electricity Code. The supply forecasts are based on known existing and committed generation and interconnectors. Demand forecasts assume a medium economic growth scenario and a 10 per cent probability of exceedence peak demand forecast. Whilst other economic growth scenarios are modelled for sensitivity purposes, the medium economic growth scenario has generally been adopted for planning purposes in the NEM.

Further, NEMMCO assesses the South Australian and Victorian regions as a combined region, given the sharing of reserves between the regions. It is therefore no longer assumed by NEMMCO that South Australia has access to the full 500MW from the Heywood interconnect for planning purposes. For planning purposes, transfer levels across the interconnect are assumed at a level that maximises the period that both Victoria and South Australia remain at or above their minimum reserve levels. In other words, the notional availability of the interconnect is apportioned according to the forecast reserve level of each region.

It should be remembered that the reserve forecasts, while based on a sophisticated methodology, are, of course, dependent on the assumptions used in the modelling.

Also, given the sharing of reserves between South Australia and Victoria, the usefulness for practical purposes of identifying reserve margins in South Australia, in isolation from Victoria, seems questionable.

It would be more useful to note the combined region reserve margins. The annual SOO of 30 March 2001 indicated a 2001-02 summer combined South Australia and Victoria region reserve deficit of 81MW. In other words, actual reserves were projected to fall 81MW below the joint reserve "trigger" level of 760MW adopted for planning purposes.

However, since publication of the SOO on 30 March 2001, a number of private-sector parties have indicated their intention to establish new electricity generation capacity in South Australia and Victoria prior to summer 2001-02. Some of these projects have been taken into account in a brief Addendum to the SOO issued by NEMMCO on 28 June 2001.

Two South Australian new generation projects are included in the June Addendum to the SOO. Both of these projects are stated to provide new generation capacity during this forthcoming summer, viz ;

· Australian National Power peaking plant at various existing generation locations in South Australia-up to 65MW: and

Additionally, AGL is expected to commission up to 100MW of new peaking generation plant at Hallett in South Australia during this forthcoming summer although this was not included in the June Addendum to the SOO.

Other announcements have been made to establish new generation capacity in Victoria and have been included in the SOO Addendum, viz;

· AES Golden Plains 370MW-500MW, of which 129MW may be commissioned by February 2002.

Accordingly, there has also been an upward revision in the allowance across the interconnect from 177MW ( annual SOO March 2001) to 346MW (Electricity Supply Industry Planning Council based on the June Addendum to the SOO) with these new projects on days of coincident extreme peak demand.

The Electricity Supply Industry Planning Council (ESIPC) estimates as at 2 July 2001 (which are consistent with June Addendum to the SOO) show a combined South Australia-Victoria reserve surplus for this forthcoming summer, with new projects, of 497MW. This is a positive turnaround from the March 2001 estimate of a small combined region reserve deficit.

While all the announced new projects might not eventuate in time for this summer, the planning estimates suggest that the pricing signals from the actual tight demand-supply situation are working by attracting new electricity investment and supply to South Australia and Victoria.

To answer the specific question, the ESIPC estimates of summer reserve surplus for South Australia for 2001-02, assuming coincident peak periods in South Australia and Victoria, and new projects, are;

· 155MW summer reserve surplus, including 346MW notionally available across the interconnect;

· 191MW summer reserve deficit without the interconnect, ie, assumed at zero flow. It should be noted that in these circumstances, supply would be greater than demand by 69MW.

The reserve estimates for South Australia for the past 2000-01 summer are now redundant but are provided for completeness of response. Based on the NEMMCO SOO of 31 March 2000, the summer reserve margins for South Australia for 2000-01, assuming coincident peak periods in South Australia and Victoria, for planning purposes were;

· 420MW capacity, including 325MW notionally available across the interconnect;

The SOO of 31 March 2000 indicated a 2000-01 summer combined South Australia and Victoria region reserve surplus of 160MW.

3. As indicated in my answer to Question 2, it is more useful to note the planning analysis in the SOO of a combined South Australia and Victoria region. The estimates are also subject to the limitations of the modelling and the assumptions made and the status of known capacity developments prior to publication, as noted previously. In the response above, the latest estimates by ESIPC indicate a combined South Australia-Victoria reserve surplus of 497MW for this forthcoming summer.

Nevertheless to answer the specific question, based upon the NEMMCO estimates in the SOO of 30 March 2001, the summer reserve margins for Victoria for 2001-02 for planning purposes are;

· 447MW capacity plus 177MW notionally available for export to SA across the interconnect;

The reserve estimates for Victoria for the past 2000-01 summer are now redundant but are also provided for completeness of response. Based on the NEMMCO SOO of 31 March 2000, the summer reserve margins for Victoria for 2000-01 for planning purposes were;

· 500MW capacity plus 325MW notionally available for export to SA across the interconnect;

4. The NEMMCO and ESIPC assumptions and estimates are based on the best information that is available to them. While actual outcomes can be substantially different to planning estimates, their work on matters ranging from potential demand, supply to appropriate reserve margins nevertheless provides a guide to electricity industry participants and to the government.

However, no guarantees can ever be made that there will be no occasions of failure of the electricity system. The causes of system failure can range from generation outages, to interconnection failures caused by unpredictable events such as lightening strikes or strike action by Victorian trade unionists. This is the case whether electricity assets are in government or private-sector ownership and whether or not there is a National Electricity Market.