07/09/2011 - 10:29

Moving from isolation to integration

07/09/2011 - 10:29

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The rapid growth of industry in the Pilbara presents challenges for the provision of energy infrastructure.

THERE are about $72 billion in major projects under construction in the Pilbara, with a further $17 billion committed and $22 billion under consideration. These projects will double the Pilbara’s electricity demand over the next few years, overshadowing growth in electricity demand elsewhere in the state. 

The continued growth in the Pilbara presents a unique opportunity to sustainably grow Western Australia and significantly contribute to Australia’s GDP.

The Strategic Energy Initiative Directions Paper, Energy 2031, published by the Office of Energy notes: “The state faces a challenge in the planning and development of infrastructure in remote areas of Western Australia (North West Interconnected System and Mid West), to support the mining industry and to connect new renewable energy generators.” 

Horizon Power’s studies matched to the recent forecasts from the Chamber of Minerals and Energy suggest that $4 billion must be spent over the next few years on the Pilbara’s energy infrastructure to support the region’s primary industries.

The current course of ad hoc development is not sustainable if we are to maximise benefit from our resources wealth.  

Given the imminent decisions being made by mining companies, there is an urgent need for coordinated planning and integrated infrastructure development to deliver the Pilbara’s power needs. 

Several of the regions (including the Pilbara, East Kimberley, West Kimberley and Mid West) supplied by Horizon Power are subject to major resource development critical to WA’s identity, growth and prosperity. All of these emerging regional development hubs would substantially benefit from an integrated approach to long-term infrastructure planning and development. 

Horizon Power believes that, in the case of the Pilbara, the coordinated development of multi-user, open-access transmission networks, interconnecting gas hubs and load centres should play an integral part in any master plan for energy infrastructure development. 

Such an approach aggregates loads and achieves greater energy conversion efficiencies and economies of scale, supporting growth through a series of generation precincts, eventually resulting in an integrated regional Pilbara network.

With the construction of a fully integrated energy grid, commercial and industrial customers would have access to large-scale, efficient generation that supports mining, processing, transport and port loads.

The proposed ‘East Pilbara Link’ transmission line connecting the towns of Port Hedland and Newman would complete the Pilbara high-voltage ring main and be the next logical step in any such development of the Pilbara energy grid. 

The benefits of an integrated power network are clear. It will give small- to mid-tier companies access to critical infrastructure at a price that does not constitute a barrier to entry. 

Further, the integrated network will promote market development and enable competition in the wholesale and retail segments of the Pilbara energy market. The East Pilbara Link will also substantially enhance energy supply security and stability, along with fuel diversity – benefits that cannot be offered by onsite diesel or islanded power solutions based on gas pipelines.

From an environmental perspective, even under medium-load scenarios, an integrated power network in the Pilbara would consume fuel in more efficient combined-cycle plant, reducing greenhouse gas emissions by 10 to 15 per cent. Over a 20-year period, this equates to the gas that would otherwise be burned from a medium-sized domestic gas field such as Reindeer. The critical mass afforded by the East Pilbara Link also opens up new inland opportunities for large-scale renewables in the most prospective solar region on the planet.

Other options on the table include a gas hub approach or maintaining the status quo.

The ‘gas hub-power spoke’ approach entails coordinated development of multi-user gas pipeline infrastructure, aggregating and linking load centres to merchant gas-fired power stations. Through such an approach, isolated generators could meet their fuelling needs more efficiently, and gas supplies would become larger, potentially more diversified, and more flexible, increasing certainty of supply when compared with stand-alone generation. 

The least favourable option is to continue along the path of ad hoc, uncoordinated delivery that has characterised this region in the past. When developers and project proponents construct energy infrastructure dedicated to meeting their own needs, to their own specifications, they isolate those power plants and any opportunity to either export or import surplus energy to others is lost. 

Each stand-alone generator must provide for its own spinning and standby generation capacity.  Critically, a self-build, own, operate (BOO) strategy may not always be the most efficient, as isolated projects cannot access economies of scale and back-up energy supplies required when plants fail, nor can they tap into an electricity network.  

So what does each option cost?

A comparison of the net present cost of the three approaches shows an integrated power network is considerably cheaper, including the impact of carbon pricing. 

Over 20 years, the integrated power network would save $1 billion on a net present cost basis compared to either of the other two development scenarios. When compared to ad hoc development, an integrated power network would save 14 million tonnes of carbon per annum, which is equivalent to annual emissions from a two-gigawatt coal-fired station.  

Meeting the Pilbara’s infrastructure needs is no mean feat. While the benefits are clear, the outlays are substantial. 

Clearly, no single resource company or investor will deliver this infrastructure, and neither can government. 

We believe a rare window of opportunity exists right now to commercially underwrite the East Pilbara Link with the mining developments under consideration in the area and without recourse to the public purse. Cooperation to that end is not, however, guaranteed given the differences in project timings. A common good approach would address timing differences without compromise and realise value for each founding customer while facilitating regional development.  

All funding sources should be evaluated to deliver against our infrastructure needs. Public-private partnerships and foreign direct investment from trading partners that have demonstrated an appetite for upstream project development and are facilitating large infrastructure projects around the world deserve a closer look. 

There is significant opportunity for private sector participation in the project.  Horizon Power is working with industry to identify optimum forms of asset delivery and explore partnering opportunities.

Government plays a pivotal role in setting the vision for a long-term integrated infrastructure blueprint and attracting industry to such projects. Commercially driven opportunities coupled with public-private partnerships and foreign direct investment can provide wins for both government and industry without recourse to the public purse. 

Infrastructure challenges are big, but the benefits of coordination will accrue to government, the private sector, the community and the environment. To quote from the Strategic Energy Initiative Directions Paper, we should: “Plan for the long-term expansion of the NWIS as a combination of gas and electricity transmission, linking towns and major mine sites, subject to demonstrated economic efficiency and resolution of a funding and governance model”. 

Horizon Power concurs with this view. 

• Frank Tudor is the managing director elect of Horizon Power, the state government-owned power provider to regional WA.


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