Power plans spark $1b investment

Western Australia is on the brink of a $1 billion investment boom in new power stations, with up to six projects likely to be under construction or formally committed by the end of this year.

New entrants to the market will include Western Energy, which is currently finalising a major restructuring under advice from investment bank Babcock & Brown.

Western Energy plans to build a 120 megawatt gas-fired power station at Kwinana and is assessing the feasibility of a second power station.

Another new entrant to the electricity market will be Ric Stowe’s Griffin Group, which is planning at least one coal-fired power station at Collie.

Alinta is currently building its first 140MW cogeneration plant at Alcoa’s Pinjarra alumina refinery and last week awarded a contract to Downer Engineering and Mitusbishi to build a second cogeneration unit.

Work on the $100 million project is due to commence immediately, dovetailing with the commissioning of the first cogeneration unit in the next three to four months.

In addition to these private sector initiatives, Western Power will select a private sector tenderer to build a 300MW base-load power station.

The State Government has also given the go-ahead for a 120MW peaking plant, although Western Power has been conspicuously silent on implementing this proposal.

The flurry of new projects reflects the increased opportunities available to the private sector following partial deregulation of the energy market.

Companies such as Alinta and Western Energy have already signed up customers in direct competition with Western Power, and further government initiatives will create extra opportunities.

In particular, the State Government, which spends about $50 million a year buying 120MW of electricity, has put its own energy requirements out to tender.

More fundamentally, the Government is working towards the first-ever capacity ‘auction’ later this year.

The Independent Market Operator, a newly established government agency, is determining the size of the auction, but the Government has previously estimated it will seek bids to supply up to 420MW in 2007.

Fourteen companies have expressed interest in providing the extra power.

After the initial auction, the IMO will periodically hold further capacity auctions as needed.

This process gives comfort to private sector generators, who will in future find it easier to secure a market for their electricity.

Yet another factor contributing to the planned increase in generation capacity is the expected capacity expansion in the Dampier-to-Bunbury natural gas pipeline.

Alinta, as co-owner and operator of the pipeline, has already started work on the capacity expansion, which will proceed in stages as gas demand rises.

Alinta’s cogeneration projects, being developed jointly with Alcoa, are contributing to the increased demand.

Customers for its first 140MW cogeneration plant include Hungry Jack’s, the Subiaco Hotel and the University of WA, and Alinta has started signing up customers for its second cogeneration plant.

Western Energy chairman Ky Cao said Water Corporation, Bunnings, a number of local councils “and many smaller customers” had been signed up for the planned 120MW gas-fired power station, expected to cost between $100 million and $120 million.

“We are in the process of reaching financial close on that plant this year, in the next few months actually,” he said.

Mr Cao recently bought-out his joint venture partner, Kerry Stokes’ Australian Capital Equity, but expects ACE will join Babcock & Brown and other investors in funding Western Energy.

He has substantial experience through the operations of his existing business, Perth Energy, which generates nearly 20MW of renewable electricity each year from landfill sites.

The Griffin Group, which is one of WA’s two big coal mining companies, is pursuing several options in the electricity market.

Executive general manager power generation Wayne Trumble said Griffin was expected to make a final investment decision on its 200MW Bluewaters power station as early as June.

He said the three-year time frame for building the plant, costing up to $300 million, meant Griffin would probably proceed with construction before locking in customers.

Grifffin is also bidding to build the next base-load power station for Western Power.

It has put forward two options – a second 200MW unit at Bluewaters, or a separate 300MW power station next to the existing Collie power station.

Mr Trumble said it would be feasible for Griffin to proceed simultaneously with both Bluewaters 1 (costing up to $300 million) and Collie B (costing up to $400 million), as well as an 80MW wind farm the group is planning at Emu Downs near Geraldton.

Its competition for the base-load tender comes from Wesfarmers Energy, which also proposes a coal-fired power station, and Wambo Power Ventures, which plans a gas-fired plant at Kwinana.

Wambo, jointly owned by investment bank Babcock & Brown and Queensland company ERM Power, is pursuing environmental approval for both air-cooled and water-cooled options.

Power Push ’05

• Alinta: Cogeneration plant #2 (140MW).
• Griffin Group: Bluewaters #1 (200MW).
• Western Energy: Kwinana plant (120MW).
• Western Power: peak load plant (120MW).
• Western Power: base-load plant (300MW).
• Griffin Group: Emu Downs wind farm (80MW).