Ensuring the security of long-term energy supply should be top priority for the state government.
LAST month, State Scene highlighted the additional cost burden Western Australia’s main base-load electricity provider, Verve Energy, will have to carry due to the Gillard government’s coming CO2 tax.
To briefly recap: Verve CEO Shirley In’t Veld told a Senate committee this tax meant state government-owned Verve, and thus WA electricity consumers, will be slugged $200 million annually.
But there’s more.
There will also be as-yet unknown additional creeping costs, because Verve has to constantly speed-up and slow-down its generators to accommodate electricity fluctuations since it must make way for costly – highly subsidised – wind and solar panel rooftop-generated power.
Such around-the-clock adjustments mean ever-rising maintenance costs due to compounded wear and tear of generators.
Only time will tell how destructive this Canberra-imposed trashing will be to Verve’s generators, and WA’s entire electricity network.
Increased dismantling of generators to replace worn-out components, and the need to buy new plant ahead of normal lifetime usage will also significantly boost costs.
Ms In’t Veld told the committee other home truths. Consider these.
“WA is dependent on a 1,600-kilometre gas pipeline to bring the gas from the North West Shelf down to the South West,” she said.
“That is a fairly precarious situation. It is an ageing pipeline.
“The Karratha domestic production plant is also ageing. It is in excess of 20 years old. So there is vulnerability there.
“We have had at least three incidents that have highlighted our vulnerability to gas, the biggest being of course the Apache explosion on Varanus Island.
“We also in the summer of 2008 had a two-day gas outage when the North West Shelf went down.
“We were at that time within half an hour of load shedding.”
Put otherwise, WA is relying on 1980s infrastructure and equipment in the 21st century’s second decade.
How much longer can this be allowed to go on before government finally gets off its hands to initiate the required upgrades?
Why no word on the laying of a second Pilbara-to-Perth gas pipeline so the state has assured energy security into mid-century and beyond?
Instead of wasting money on unneeded ostentatious ventures, whose completion date can’t even be given, like the $500-plus million Perth Waterfront Project that so enthrals Premier Colin Barnett, why not use that cash to prepare for the laying of another pipeline to help ensure future gas supply?
Furthermore, WA simply cannot exist without coal-fired electricity generation that’s now to be so heavily taxed by Ms Gillard’s coming CO2 impost.
It’s sobering to ponder here the impact of total or even partial blackouts, something that would be catastrophic, to say the least.
No refrigeration, no traffic lights, no metropolitan train services, and, if occurring during summer months, no air-conditioning.
Mr Barnett is instead committing more than $500 million towards an unnecessary waterfront project because he’s convinced it will make Perth a “globally competitive city”.
Nice words, if you can afford them.
But public funds should be directed towards far more essential and critically important priorities.
There was a time when Western Australians could feel at ease, knowing that, no matter what, they’d always be able to rely upon the Collie coalfields.
Unfortunately, those days now look to be rapidly slipping away.
Collie’s two major, and private, coal suppliers look set to become the property of foreign interests.
Already the deposits of the Griffin Group, which went into administration, have been bought for $830 million by Indian energy conglomerate, Lanco Infratech.
Little wonder Wesfarmers has put its coal-mining arm, Premier Coal, up for sale.
If, as some expect, Premier Coal also falls into foreign hands, Collie’s coal will be subject to quite different marketing considerations.
Not surprisingly, Lanco Infratech quickly made it clear it’s determined to first and foremost consider the interest of its new owners.
What are some of the consequences?
The Griffin Group’s two coal-fired Collie-based power stations, Bluewater I and II, have for some time been in the process of being acquired by Japanese energy giants, Kansai Electric Power Company and Sumitomo Corp (which already has a large stake in the Kwinana power station).
But according to a recent report in The Australian newspaper, both the Japanese players unexpectedly received unwelcomed news about emerging coal access conditions.
“Bluewaters, which generate about 10 per cent of WA’s electricity supply, sells power to Newmont Mining’s huge Boddington goldmine and to the state-owned Verve,” the report said.
“Sources said Lanco had indicated the price at which it was supplying coal to Bluewaters would need to double for the Griffin mines to be viable.
“There are also suggestions that the Indian company may be aiming to export more of the Griffin thermal coal to its own power stations in India rather than supplying the market in WA.”
You can just imagine the impact of those few lines upon Ms In’t Veld and her board members coming amid the CO2 tax impost.
Shouldn’t Mr Barnett have already met Premier Coal’s management to organise a financial entity, with a public stake as silent partner, to acquire its operation, rather than fiddling around with an unneeded river foreshore property development that’s set to cost taxpayers over $500 million?
All he’s done instead, according to that report, is contacted Lanco “and made it very clear we expected the contracts to be honoured, and we made it clear we expect them to behave as a good corporate citizen, and I’m sure they will do that.”
Time will tell just how “good” and what price Verve finds itself paying for nearby coal, if it can get it, over coming years.
Moreover, Verve’s $200 million annual cost boost highlighted above, at 2011-12 price levels, is set to balloon by unknown annual amounts due to higher ongoing maintenance and other costs arising for the shortened life spans of Verve’s generating equipment.
And the first signs of foreign acquisition suggest Verve can expect to pay “double” for coal.
But to put some distasteful icing on the state’s electricity generating cake, don’t forget that WA’s distant offshore-produced gas is on a long-run rising cost curve.
All is now priced according to the world oil price levels that none of that industry’s boffins is saying will return to the historically lower levels of bygone years.
What’s really needed for Perth to become a truly “globally competitive city” and WA to remain a “globally competitive” part of Australia is a network of coal-to-liquid fuels complexes to be developed across the state, and moves to ensure Verve can provide nuclear-generated electricity.
WA has ample coal deposits beyond those set to be fully foreign-owned at Collie, which are so close to WA’s populated South West.
Unfortunately these others are further away than Collie’s.
What must therefore be ensured is that those distant others are turned towards coal-to-liquid fuel production for heavy haulage, mining and agricultural usage.
Unnecessarily excavating Perth’s foreshore can wait another century, or two.
Ensuring energy security cannot.