Key QLD, NSW, SA, Vic electricity contracts support base load gas generation in Eastern Australia; new CCGT contracts logic explained

A report prepared for the Owen Inquiry showed that some of the key contracts supporting base load gas generation projects in Eastern Australia in recent years included:

Why Brisbane gas prices are low: Wood Mackenzie explains

A report prepared for the Owen Inquiry by Wood Mackenzie Wood explained why gas prices in NSW and South Australia were higher than the gas prices in Melbourne and Brisbane. Mackenzie’s gas price outlook was based on an assumption that rational economic investment decisions would be made based on cost and price.

Babcock & Brown AlintaAGL stake exercise price of the option at $1.06 billion

AGL Energy said it would be interested in some or all of Queensland-based Enertrade’s business, as well as energy assets in NSW, should they be priva­tised by the NSW Government. But first it had to decide on its option over AlintaAGL. According to Nigel Wilson, in The Australian, (25/9/2007), p. 22, Babcock & Brown Power, which had acquired the majority AlintaAGL stake as a result of the B&B/Singapore Power Inter­national takeover of Alinta, said it had set the exercise price of the option at $1.06 billion. This provides a total enterprise including $506 million in debt) value of $2.09 billion, valuing AGL Energy’s AlintaAGL stake at $522 million (plus $167 mil­lion) in debt.

TRUenergy lists four policy ideas for NSW: access to retail load, its number-one policy-wish

Sam Bristow, Director, Business Development, TRUenergy said as a current investor in NSW generation through the TRUenergy 400MW low emissions Tallawarra project, TRUenergy was acutely aware of the difficulties and risks associated with private sector generation investments.

Stocktake tender with February 2008 deadline suggests NSW Treasury plans sale of Macquarie Generation Bayswater and Liddell Power Stations

It appeared Macquarie Generation was preparing for a sale, in a Request for proposals 85/2007 for a fixed asset and inventory stocktake. Macquarie Generation, the state owned corporation, is New South Wales’ largest electricity generator and the owner of Bayswater and Liddell Power Stations, located in the Hunter Valley.

Stocktake tender with February 2008 deadline suggests NSW Treasury plans sale of Macquarie Generation Bayswater and Liddell Power Stations

It appeared Macquarie Generation was preparing for a sale, in a Request for proposals 85/2007 for a fixed asset and inventory stocktake. Macquarie Generation, the state owned corporation, is New South Wales’ largest electricity generator and the owner of Bayswater and Liddell Power Stations, located in the Hunter Valley.

Morgan Stanley list of parties consulted for Owen Review

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Morgan Stanley, Report to the Owen Inquiry: Securing Private Investment in New Generation in New South Wales, 31 August 2007

TRUenergy says it won’t build more NSW baseload unless it can buy NSW retailers

Sam Bristow, Director, Business Development, TRUenergy Australia Pty said in order fund significant base load investment, the private sector needs access to the reliable revenue streams associated with mass market retail load. Currently the government owns the retail businesses; this means that ultimately they will need to select which power plant developers they will support.

We want to start now says Macquarie Generation CEO of new NSW baseload coal generator, and new mine, new transmission for 2012-2014 start

Macquarie Generation believes that given the significant lead times, existing and new entrant generators should be encouraged to immediately commence the development consent process as “Uncertainty regarding the possible mix of Government and private sector investment in generation could cause delays in the planning of new projects.” Macquarie Generation told the Review, a major new baseload generator would require a lead time in the order of six to eight years to complete” . The CEO told the Owen Review “A major baseload generation project will also need significant associated infrastructure to support the development;

Carbon and water accounts for Macquarie Generation’s new supercritical 900MW NSW Bayswater 2 coal project show 2000ha solar field

Grant Every-Burns, CEO of Macquarie Generation, in a submission to Owen Inquiry into Electricity Supply in NSW, said the proposed new coal plant – the Bayswater 2 project plan – used “the latest available and proven ultra supercritical plant design and would be the first of its kind in Australia. He said “The 900 MW unit size can be designed with dry cooling and delivers significant scale economies over 660 MW or 750 MW designs. The plant would operate at steam temperatures in the order of 600-620 degrees Celsius with steam pressures of approximately 280 Bar. This technology would reduce greenhouse emission by about 15pc below current best practice in New South Wales as low as 0.8 to 0.83 tonnes/MWh of electricity sent out.

Desal emissions; 0.08kg to 5.2kg of CO2/m3: low, if the process was 100 percent driven by waste heat; if NSW coal, then 5.2kg of CO2 per m3

The analysis of emissions’ intensity of various desalination technologies showed that MSF distillation emissions could be as low as 1.98kg of CO2/m3 if the process was 100 percent driven by waste heat, according to the WWF’s Phil Dickie.

NSW faces $26 billion increase in net debt by 2020 if it retains ownership of generation and retailing

According to Ashley Midalia in The Australian Financial Review (20/9/2007, p.12), Standard & Poor’s credit analyst Danielle Westwater said she expected NSW’s balance sheet to remain strong despite the increase in debt to fund the state’s capital works, although the cost of meeting electricity generation needs without private sector help would be a concern.

Impossible to sell NSW electricity assets without full details of national emissions trading policy

The author of the Owen Report said the NSW power industry needed to have new baseload capacity on line by 2013-2014, according to Matthew Stevens, in The Australian (15/9/2007, p. 34). “It will be impossible to make a fully informed valuation of any of the six arms of the NSW power business until the emission trad­ing regime is finalised….According to management at one of the three NSW genera­tors, the Feds will need to deliver an indicative decision on the structure of the emissions trading regime by mid-2008 if the power industry is to meet Owen’s timetable”.

15,000GWh of new gen could be supported by 2016/17, giving potential gas-fired output of 35,000GWh, says NEMMCO report

ACIL Tasman considered it reasonable to assume that some 15,000GWh of new generation could be supported by 2016/17 giving a potential gas-fired output for that year of around 35,000GWh, according to ‘Fuel resource, new entry and generation costs in the NEM’, a report to NEMMCO by ACIL Tasman (27/3/2007).

While AGL boss Paul Anthony was busy in New York; head of Origin Energy in town to front up to a private briefing on the Owen Review

The contrast could not have been sharper. The AGL boss, Paul Anthony, was busy in New York this week, schmoozing with US investors, while the head of Origin Energy, Grant King, made sure he was in town first thing Tuesday morning to front up to a private briefing on Professor Tony Owen’s report on the electricity needs of NSW, reported The Sydney Morning Herald, (15/9/2007, p.43).

NSW the missing link for Origin: NSW was the missing link for Origin, and King was determined to win a sizeable cut of any privatisation action. He paid $1.2 billion for the Queensland energy re-tailer Sun Retail late last year, which was seen as a steep price at the time, but AGL also paid $1.2 billion for the smaller Powerdirect, the other main Queensland retailer.

Spin-meisters to whip up a froth: Earlier this year Origin hired Amanda Lampe, the feisty press secretary of the former NSW premier Bob Carr. More recently she had been working for the troubled Cross City Tunnel, after Carr quit as premier to work part-time for Macquarie Bank. If anyone knows her way around the Premier’s Department and Treasury, she does – which may be handy in the months ahead.

The Sydney Morning Herald, 15/9/2007, p. 43

NSW sale process advances: Morgan Stanley adviser to the Owen committee

The NSW sale process was already well advanced, with Morgan Stanley acting as an adviser to the Owen committee and an interdepartmental team on the job. lemma would be expected to run a formal tender to select his financial adviser for the process, which will be hotly contested because at least the Government will pay the bill, reported The Australian, (11/9/2007, p. 28) Whereas, a bank that backs a losing bidder gets only paltry returns. lemma, at least, has shown the courage to sell some assets when, somewhat bizarrely, privatisation is seen by some as nothing but bad news.

Macquarie Generation the big one: Then there is the sheer size of the biggest NSW generator, Macquarie Generation, which arguably has too much power, or at least enough to dictate prices in a way that fills the coffers of the NSW Government through its profits. The combination of the biggest generator in the land and state control of the network assets works to maximise profits but arguably competition is the best way to ensure cheaper power to NSW customers.

Bids hinge on sale structure and ACCC: This issue may also dictate just who gets to own the retail assets that will be sold because AGL, by way of example, owns Victoria’s biggest generator and is the dominant incumbent gas supplier to NSW. The question then is whether the ACCC would be keen to see AGL get its hands on one of the three retail assets to be sold. lemma too may wonder whether to split the retail assets and float one of them to get a bit of pricing tension in an auction. Energy Australia’s George Malabarow, for one, would love to run a listed company and a float could be sold as keeping the state’s biggest energy retailer taxpayers’ hands, just in a different form.

The Australian, 11/9/2007, p. 28

Macquarie Generation threatens to cut dividends unless it is given “options to grow”

According to Brian Robins, in The Sydney Morning Herald, 11/9/2007, p. 2, the Owen report comes as the largest of the state’s power utilities, Macquarie Generation, has warned it will cut dividends paid to the Government signifi­cantly over the next few years unless it is given options to grow. Profits to fall, warns MacGen: Macquarie paid a $130 million dividend in the year to June 2006. It forecasts this will fall to $84 million in the year to June 2009, with pretax profit declining from $267 million to $121 million in the same time frame.

The MacGen case for policy aid: “This situation can be avoided by … higher prices or by im­proved revenue by participation in value-improving business opportunities,” Macquarie said. It warned that “participation in new core business opportunities will be required to maintain busi­ness value”. Macquarie has been waiting for several years for the go-ahead to build gas-fired power gener­ation, but the Government has consistently stalled.

The Sydney Morning Herald, 11/9/2007, p. 2

NSW backbench rebellion-campaign: ‘make sure every minister knows how pissed off the workers will be’ if electricity generators, retailers sold

According to Andrew West, Industrial Relations reporter, the secretary of Unions NSW, John Robertson, said Professor Tony Owen’s report, published 11 September, could lead to job losses and high prices for consumers. “I don’t think the private sector is in a position to deliver electricity in NSW without having an impact on workers or price for the consumers,” Robertson said. “It looks like some of the assumptions… made haven’t been made with any real detailed analysis, ” reported The Sydney Morning Herald, 12/9/2007, p. 4

Fears price – rise of 600 per cent: Robertson said unions would negotiate in good faith with Premier Morris Iemma over the Owen recommendations but warned that in other countries privatising electricity had sent prices for consumers soaring. “One state in the US saw an increase in electricity prices of 600 per cent after three years,” he said. Mr Robertson argued that the publicly owned electricity supplier had delivered reliable services, unlike privatised suppliers in cities such as Auckland. “We don’t have blackouts. It’s not like Auckland, where the electricity in the CBD went out for nine weeks.”

Bring back the APEC fence: The assistant NSW secretary of the Electrical Trades Union, Paul Sinclair, told the Herald the unions would step up their lobbing of ALP backbenchers, but his colleague, Nick Lewocki, the NSW secretary of the Rail Tram and Bus Union, was more direct. “We are going to stir up a bit of a backbench rebellion,” he said, “But before that, we are going to…make sure that every minister who is responsible for our industries knows how pissed off the workers and the mums and dads of this state will be if they start privatising. Mr Iemma doesn’t seem to have the strength or experience to understand that he won the last state election not only because of the Federal Government’s industrial relations policies but because he was up against a Liberal leader who wanted to privatise assets.”

The Sydney Morning Herald, 12/9/2007, p. 4

Macquarie Generation reveals giant solar plans, State CO2 dump policy, and plans for man-made mountains of solidified CO2

A submission to Owen Inquiry into Electricity Supply in NSW, by Grant Every-Burns, Chief Executive and Managing Director of Macquarie Generation shows Macquarie plans for credit-earning solar power, and for credit-earning CO2 dump projects and also new plans for man-made mountains of solidified CO2.

The Solar plan: “If financially viable, the provision of 200 hectares of solar collectors would reduce coal consumption by around 100,000 tonnes. This would reduce greenhouse gas emissions by around 180,000 tonnes or more than 3 per cent of what they would otherwise be from each 900 MW generating unit. In turn, the greenhouse gas emissions per unit of electricity sent out from Bayswater 2 would fall from around 0.8 tonnes to 0.775 tonnes/MWh.

All three State generators plan CO2 dumps: The three New South Wales State owned generators are currently working on a joint project to determine the availability of suitable geosequestration sites inside New South Wales. This work included;

• preliminary investigations into the availability of coal seam storage;

• and deep saline aquifer storage potential inside New South Wales.

Plans for NSW CO2 sump site: According to the submission “To date the areas which are showing some potential include deep coal seams in the Gunnedah Basin and large saline aquifers in the Darling Basin west of Cobar.

State-funded CO2 dump plans: “This work, commissioned by the three New South Wales State owned generators with the assistance of the Department of Primary Industries has indicated that there may be a need to reassess previous views and opinions which inferred that New South Wales was without any significant potential for major geosequestration.

CO2 dump working party:The New South Wales State owned generation businesses, coal industry participants, the Department of Primary Industries, and the Department of Water and Energy have established a working party to commission significant further research and potential trial drilling and injection over the next few years.

Man-made mountain plan by Macgen: Macquarie Generation is also considering potential trials by the CSIRO into a locally conceived process, an integrated one that would, if proven, see carbon dioxide permanently sequestered using minerals that are abundant in New South Wales, and be free of the concerns associated with securing the permanent storage of carbon dioxide as pressurised gas. The process if proven promises even lower sent out electricity prices and deployment perhaps by 2025.

Reference: Submission to Owen Inquiry into Electricity Supply in NSW, Macquarie Generation. G V Every-Burns, Chief Executive and Managing Dierector, 29 June 2007. PHone: +61 2 4968 7499 Fax +61 2 4968 7433 Website: www.macgen.com.au

Erisk Net, 29/6/2007

NSW fire sale: Investment bankers line up from here to Timbuktu after Morgan Stanley proposes public IPO of retailer -generator

According to Annabel Hepworth, writing in The Australian Financial Review, (12/9/2007), p. 15 major energy retailers, private sector generators and investment banks would be the big winners if the Iemma government adopts the Owen report’s recommendations. “Sales of this kind will have investment bankers lining up for mandates from here to Timbuktu,” is how one industry player puts it. ABN Amro utility analyst Jason Mabee said he would expect “there would be quite aggressive bids coming out” for the various state-owned assets on the blocks.

Who might bid for what: Hepworth, argued “The most likely bidders for the retail arms of EnergyAustralia, Integral Energy and Country Energy would be AGL, Origin and TRUenergy. The government would reap $3.3 billion to $4 billion based on a figure of $1200 a customer – comparable figure to the roughly $1300 Origin and ALG paid Queensland for Sun Retail and Powerdirect Australia during the recent Queensland privatisation. However, the margins in NSW are not as high as in booming south-east Queensland, which could lower the valuations.”

Big-bang IPO” Hepworth said “A Morgan Stanley report released with the Owen document says the government could also consider an initial public offering of a combined retailer and generator. It said: “An IPO of one retail business combined with selected generation interests could create a viable competitor to the incumbent private sector players and should be considered alongside other divestment options.”

ACCC approach the key: Hepworth argued “The ACCC’s view could be key to the shape of any sale process. The regulator has been emboldened by a recent landmark High Court decision, which has exposed a wider range of links between governments and the private sector to scrutiny.

Precedents empower ACCC: “The ACCC believes it might now have some jurisdiction to raise concerns about any potential restructuring of the NSW energy assets to make them more attractive for a sale, as well as raise concerns about potential buyers of the assets. It might also give it a say in long-term leasing deals. A wider range of buyers, such as International Power and Singapore Power, would likely have an interest in the generation assets, Macquarie Generation, Delta Electricity and Eraring Energy, which are worth around $15 billion”.

The Australian Financial Review, 12/9/2007, p. 15

NSW Greens explain how NSW could sidestep construction of 327MW peaker by banning installation of electric off-peak hot water systems in houses

NSW Greens MP John Kaye said NSW could sidestep the con­struction of a coal-fired power station, saving money and millions of tonnes of greenhouse gas emissions, by banning the installation of electric off-peak hot water systems in houses. His analysis of the state’s electricity needs was that replacing energy-intensive off-peak electric hot water sys­tems with gas and solar hot water over three years could cut demand enough to retire some existing coal-fired power plants, according to the work done by the NSW Greens, reported The Sydney Morning Herald, (10/9/2007), p. 9.

NSW Greens submission to Owen Review: The analysis was supported by a submission to the Owen Inquiry into the state’s electricity by the National Electricity Market Man­agement Co, which said; a fore­cast 327 megawatts of extra generation capacity needed by the summer of 2010-11 could be supplied by reducing demand. Phasing out electric off-peak water heating was a cost-effective alternative to coal-fired power stations, said the NSW Greens MP John Kaye.

Interest-free loans to consumers planned: “Providing interest-free loans to consumers to cover the increased purchase and installation costs would make the transition painless for most households,” Dr Kaye said.

The data – 2880MW overnight gen: The Greens’ analysis says off-peak electric hot water units need about 2880 megawatts of overnight generation capacity, about the same amount of elec­tricity the Bayswater power station in the Hunter Valley uses.

• Replacing electric off-peak water heaters that have reached the end of their lives with combin­ations of gas-boosted and electric-boosted solar hot water would;

• save between 1267 and 2189 megawatts of generation capacity, above the extra generation the state would need by 2011; and

• by year three, the elimination of off-peak electric hot water would reduce carbon dioxide emissions by about 537,000 tonnes a year.

The Sydney Morning Herald, 10/9/2007, p. 9

Not so easy being green: light bulb-trader trader seeks NSW state rescue after NSW carbon-price-crash

According to Wendy Frew and Marian Wilkinson, a plunge in NSW carbon price – caused by an oversupplied market colliding with investor uncertainty – had critics say the State Government has made it too easy for polluters to partici-pate in the market and that the Federal Government has created ,long-term uncertainty about cli-mate change policy.

Whinge of the week: Paul Gilding, the head of the high-profile energy saving com­pany Easy Being Green, told the Herald the scheme was in crisis and that the survival of his company was on the line. Easy Being Green is abso­lutely at risk of ceasing to exist in NSW if the price stays where it is,” he said. “It means the end of operations in this state and the end of 140 permanent jobs and 100 full-time contractors.”

NGACs feature in Owen Review: “The revelation of the crisis is an embarrassment for the NSW Government, which will release the Owen report this morning, recommending the sale of the state’s electricity retailers and generators. Under the scheme – the first of its kind in Australia – power plants, forestry groups and energy efficiency companies that act to cut greenhouse gas emissions are awarded certifi­cates, each one representing the equivalent of one tonne of carbon dioxide avoided. They sell these certificates to energy retailers, which have to meet mandatory emissions tar­gets set by the State Govern­ment. The costs are passed on to electricity consumers. The certificates generated since 2003 are estimated to be worth about $450 million. But over the past few months a series of federal and state policy an­nouncements has sent the market into a spin”.

The Sydney Morning Herald, 11/9/2007, p. 1