THE lack of a cohesive, strategic approach to meeting the Pilbara’s increasing energy requirements, and mining giants’ domination of the region’s power generation and supply, are among the major problems facing the state’s energy sector.
These issues were highlighted at a recent WA Business News boardroom forum and are in line with initiatives by Western Australia’s regional and remote power provider, Horizon Power, to create an integrated network in the region.
Horizon is advocating for the coordinated development of a multi-user, open-access transmission network and says the least favourable option is to continue along the current path of the development of power stations by mining companies on an ad-hoc basis, which it says results in uncordinated delivery.
EMC Solar director Alannah MacTiernan told the recent WA Business News boardroom forum the insular approach of the iron ore ‘war lords’ to developing islanded power stations and infrastructure were having perverse consequences for the local communities.
“In the Pilbara there is a real problem … the war lords up there would rather do something that is more expensive for themselves if it was going to make it even more expensive for their competitors,” Ms MacTiernan said, pointing to the lack of coordination around infrastructure development.
“It is really appalling what is happening up there and it has some perverse consequences for things like trying to get land development through in Tom Price. How actively is government going out and encouraging private investment? I would think there needs to be more systematic thinking about the nature of the contracts.”
It has historically been a requirement of mining and resources companies to develop means to their own power provisions in the Pilbara with FMG, CITIC Pacific and Rio Tinto Iron Ore among them.
Rio Tinto Iron Ore recently announced plans to spend $833 million on major power and fuel supply projects as part of its growth outlook to increase iron ore production from the current 230 million tonnes per annum to 333mtpa by 2015.
Rio added four open cycle gas turbines with 120-megawatt capacity to its infrastructure portfolio last year at its Yurralyi Maya power station near Dampier, and recently announced it will add one more 40MW turbine, taking the station’s capacity to 160MW.
Woodside generates 400MW at Burrup Peninsula while Alinta Energy generates BHP Billiton’s power requirements in Newman (140MW) and Port Hedland (162.5MW). Karratha Power Station – built, owned and operated by Canadian company ATCO – generates 86MW from a gas-fired power station contracted by Horizon Power as part of the North West Interconnected System, which links Dampier, Port Hedland, Paraburdoo and Tom Price to form what many in industry consider an inadequate network.
Ms MacTiernan suggested the government lift its game in developing the NWIS and grid to encourage private investment in generation, a point supported by Sustainable Energy Association chief executive Ray Wills, who said efficiency should be the goal.
“If every individual company builds its own power station on gas fire, it is not likely to be combined-cycle efficient; the government’s role in that space is in fact as a facilitator to ensure developers come on stream,” Mr Wills told the forum.
Mid West Energy’s managing director Richard Harris took a similar approach.
“It is very hard to see how you can get any private generation in the Pilbara without fundamentally having a grid. There is no grid, there is just power owned by two big iron ore companies,” Mr Harris said.
“Until the government gets its head around that, then you are not going to get any private investment, even in the Pilbara.”
In its 2011 State Growth Outlook the Chamber of Minerals and Energy found that, by 2015, energy demand in the Pilbara from the mining and resources sector would increase by 12,000 gigawatt hours on 2009 levels, placing significant pressure on the system.
Mr Harris said the dominance of mining companies in the Pilbara was likely to remain because an independent grid would create a competitive market.
Investec head of project and infrastructure investment, Mark Schneider, said part of the reason mining companies continued to develop their own independent power stations was the lack of coordination in timing of projects. He suggested the government could underwrite the cost of infrastructure needs to create a more strategic approach.
“The government doesn’t have the requirement for the power in the short or long term, but what it can do is say, ‘we reckon there is going to be 500 megawatts of base-load demand in this region, and we will speak up for that now and on-sell when the other projects are ready,” Mr Scheider said.
He said this was most prominent in wind farm projects in the eastern states and was a strategy commonly referred to as ‘scale-efficient networks’.
“You have a situation where there might be agreed enhancement for three wind farms, and each one can build a moderate-sized line, but in fact the best solution is for all three to share in the building of a high capacity line, there is efficiency in that for everybody,” Mr Scheider said.
“The [Pilbara] projects will happen, they are just not bankable today and that is where governments can use their power in a sense to remove a risk and that opens up tremendous opportunities.”
Collgar Wind Farm chief executive Alistair Craib said another option would be for governments to operate power infrastructure in the same way toll roads operated – a concessional long-term-leasing arrangement where the government ultimately owned the asset but it was operated by a private company.