25/03/2010 - 00:00

Overcoming energy woes vital for sustained growth

25/03/2010 - 00:00


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ASK almost anyone in industry or government about the key bottlenecks hampering Western Australia’s ability to make the most of the growth opportunities presented by the resurgent resources sector and the answer invariably includes energy.

Overcoming energy woes vital for sustained growth

ASK almost anyone in industry or government about the key bottlenecks hampering Western Australia’s ability to make the most of the growth opportunities presented by the resurgent resources sector and the answer invariably includes energy.

Speaking at the annual meeting of Asia Pacific Power Exchanges last week, Energy Minister Peter Collier said the state’s sustained economic growth was exacerbating what were already significant issues relating to the provision of energy for local industry and communities.

“As a result of significant changes in development, particularly in the resources sector in recent years, our economy has been transformed and that puts enormous pressure on the energy sector that will certainly continue in the foreseeable future,” Mr Collier told the meeting.

The government’s response has been to start work on a state energy initiative aimed at providing a policy framework covering all aspects of the state’s long-term energy needs due for completion by the end of this year.

The energy related issues facing the state range from the long-term availability and delivery of gas, to the completion of new base load electricity generation capacity, and access to reliable transmission and distribution capacity.

On the gas front, big industrial users are at loggerheads with gas producers over the pace at which they are prepared to develop additional gas supplies for the domestic market, and the price at which they are prepared to make that gas available.

WA accounts for about 80 per cent of the nation’s conventional gas reserves, most of that lying off the Pilbara and Kimberley coastlines. Yet according to buyer lobby, the DomGas Alliance, the state faces a supply shortfall of 1,000 terajoules a day – equivalent to total current consumption – as early as 2015.

The alliance accuses major gas companies of warehousing reserves that could be viably developed for the domestic market in order to reserve them for the more lucrative international liquefied natural gas market.

The alliance also argues that the majors’ reluctance to make additional domestic supplies available has pushed local gas prices to unacceptably high levels, making local industry uncompetitive with rivals overseas or even in other states. As evidence, it points to a reputed trebling of gas prices under a recent price settlement between the North West Shelf and Alinta.

Conversely, the Australian Petroleum Production and Exploration Association argues WA is undergoing its most significant phase of domestic gas investment since the completion of the North West Shelf in the 1980s.

Apache Energy’s $1 billion Devil Creek domestic gas project is due to start production next year, and should be followed by BHP Billiton’s $1 billion Macedon domestic gas project off Exmouth as early as 2012. Those two projects will increase domestic supplies by over 400tj/day.

On top of that, Woodside’s $13 billion Pluto LNG project is required to supply a further 150tj/day to the local market around 2016, while Chevron’s Gorgon and Wheatstone LNG projects will each supply a similar amount in the second half of the decade.

Gas producers also argue there has been little real interest from prospective users willing to pay cost-reflective prices to bring on additional supplies.

Meanwhile, meeting the state’s future need for sufficient and reliable supplies of electricity remains a perennial headache.

In July, WA’s Independent Market Operator identified a potential generation shortfall of up 1,000 megawatts by late 2014, largely due to increased mining demand in the Mid West.

Yet there remains no clear indication of where that capacity will come from, with the government now reviewing the activities of state generator Verve Energy and retailer Synergy, potentially including a partial reversal of the 2006 break-up of Western Power.

A key objective of the Western Power break-up was to foster greater private sector investment in generation, largely by capping Verve’s capacity at 3,000MW and requiring Synergy to incrementally displace supplies from Verve with third-party supplies.

While that delivered more than $2 billion in private generation investment, Verve also racked up almost $500 million in operating losses due to the limitations placed on it under disaggregation.

Consequently, the government has put all new procurement on hold while it rewrites the rules governing Verve and Synergy’s operations, making it extremely tough to finance private generation proposals.

Ironically, Verve is itself proceeding with a substantial investment program of its own, most notably with a $263 million installation of two high-efficiency gas turbines at Kwinana that will supply more than 200MW of low-emissions electricity from next year.

It has also won government approval for a controversial $100 million refurbishment of its ancient Muja A/B coal-fired power station at Collie.

The state’s oldest power station was retired in 2007, but will have new emissions control equipment fitted to enable it to provide up to 240MW of peaking power from 2012.

However, the refurbishment will be funded by Victorian firm Kempe Group, which will take a 50 per cent stake in the station through subsidiary Inalco Energy.

But the state government’s biggest energy investment program by far will be undertaken by transmission and distribution utility Western Power.

Western Power has budgeted $3 billion for asset investment over the next three years, including $1.1 billion on its transmission network and $1.6 billion on its distribution business.

Proposed works include $585 million to improve transmission system capacity, such as new substations and power lines, $350 million for expansion of its distribution system, and $242 million to replace ageing power poles, transformers and other assets.

But uncertainty continues to hang over its arguably most important project – a $580 million upgrade of transmission capacity in the Mid West.

Widely accepted as crucial to the growing Mid West mining industry, the plan involves the construction of a 330-kilovolt transmission line from Perth to Eneabba and then on to Geraldton.

Though the state government has publicly said it will proceed with the $300 million first stage to Eneabba by 2012, it has not yet formally allocated any funding. To complete the second $280 million extension to Geraldton, it has applied for Infrastructure Australia funding.

With its tight financial position forcing it to look at widespread budget cuts, the government is under heavy political attack for leaving the Mid West’s future hanging unless it can guarantee funding in the coming state budget.



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