MORE than $1 billion of planned private sector investment in new Mid West power supplies is hanging by a thread, after state energy retailer Synergy awarded generation sibling Verve Energy future power supply contracts.
MORE than $1 billion of planned private sector investment in new Mid West power supplies is hanging by a thread, after state energy retailer Synergy awarded generation sibling Verve Energy future power supply contracts.
Verve last week won contracts to supply at least 638 megawatts of power to Synergy from 2012 under the retailer’s annual power procurement process.
The deal extends contracts already held by Verve but which Synergy was required to put out to tender as a condition of the break-up of the old Western Power.
However, the deal has also dealt a near fatal blow to Aviva Corporation’s proposed $1 billion Coolimba coal-fired plant at Eneabba, which had been considered a strong contender to help fill a major shortfall in generation capacity forecast from 2014.
In July, the Independent Market Operator identified a potential shortfall of up to 1000MW from late 2014 largely due to new mining demand in the Mid West.
Aviva was one of eight groups, including Verve and fellow coal proponent Griffin Energy, shortlisted by Synergy to bid for its future supply requirements.
Aviva chief Lindsay Reed said Synergy was the only customer realistically able to contract the volume of supply needed for the 450MW Coolimba plant to proceed.
But an off-take contract was needed shortly for Aviva to fund the project and complete construction in time to alleviate the projected capacity shortfall.
Hence, Coolimba was virtually doomed unless a comparable off-take deal could be struck by the end of the year.
“Quite frankly, we are on a short fuse,” Mr Reed said. “Coolimba goes away ... if we don’t have a pretty fixed outcome on what’s happening this year.”
Given the time needed to deliver new coal-fired capacity and the uncertainty of future gas availability, Mr Reed questioned how Synergy would now procure sufficient new capacity when it was needed most from 2014.
“So I guess the thing that we find is just unbelievable ... is where is the fuel coming from? What Coolimba offered was 30 years of committed reserves,” he said.
Synergy chief Jim Mitchell denied the Verve contract had lessened opportunities for investment in new capacity and said Synergy would continue to consider private proponents with regard to meeting its future requirements.
Verve managing director Shirley In’t Veld said the generator had always been the logical winner of the Synergy contracts because it was already supplying that energy from existing facilities.
“If we hadn’t got it all, you’d have to have said that we were incompetent,” she said.
Ms In’t Veld also disputed the need for new base load capacity by 2014, saying most of the forecast generation shortfall would be in peaking and other non-base load capacity.
“That requirement is not for base load ... so we don’t believe there will be a shortfall,” Ms In’t Veld said, noting Verve’s investment in 400MW of additional peaking capacity for the next two years. That includes the refurbishment of the retired Muja A/B plants, WA’s oldest and least efficient coal-fired generators, which will come back online in 2012.
Ms In’t Veld said Verve also had the flexibility to provide all the base load supply needed by 2015 without exceeding its government-imposed 3,000MW cap. That could potentially include deferring the retirement of other older plant, such as its Kwinana C plant, if required.
Griffin Energy chief Wayne Trumble said Synergy’s decision had not affected plans for Griffin’s 400MW Bluewaters 3/4 expansion of its existing coal-fired plant at Collie. The development, due for completion after 2013, is currently awaiting formal environmental approval, and will take around three years to construct.
Mr Trumble said Griffin’s confidence in Bluewaters 3/4 reflected both the IMO’s forecasts for rising demand, especially in the Mid West, and Synergy’s clear view that more base load capacity would be required in the medium term.
But that confidence also depended on the government not allowing Verve to sidestep its capacity cap or continually defer the retirement of older less efficient plant, such as Muja A/B.
“Recent experience would suggest that may not be the case,” Mr Trumble said.
“(But if) the government is prepared to sacrifice the environment and life-extend plant, then it probably would make it difficult for us to get new, more efficient plant up.”
The most pressing concern for Griffin was a lack of transmission capacity in the system – largely because Verve was not required to relinquish any access rights when it retired old plant.
“There is no transmission capacity available for any new player,” Mr Trumble said, adding that transmission access had kept Griffin’s plans for a second wind farm at Cervantes on hold for almost two years.
Meanwhile, Eneabba Gas believes it is now in the box seat to supply emerging mining demand in the Mid West from its planned 168MW Centauri 1 gas-fired plant at Dongara.
Chief executive Mark Babidge said because the proposal was fully permitted, it was the only project that could be completed within 14 months of finalising off-take and finance arrangements.
