A new normal, as Basslink finally resumes

Without much fanfare, Basslink resumed operation this week for the first time in almost 6 months. Basslink is Tasmania’s proverbial umbilical cord - a 500 megawatt submarine HVDC cable that connects to the mainland providing both electrical power and data exchange. Its failure back in December last year resulted in an unprecedented energy crisis in the Apple Isle.

To help avert the crisis 200 diesel gensets were installed at a cost of around $44 million. The moth-balled, gas-fired Tamar Valley Power Station was bought back online, and deals were brokered with large industrials to cut back on their energy consumption. Some analysts have estimated the total cost of the crisis at around $400-500 million (see also).

So with Basslink’s resumption the process of repairing the damage begins.

Notwithstanding the immense flood damage, drenching rains in May followed by torrential rains in early June have helped stymie the energy crisis. With HydroTasmania’s smaller catchments now overflowing, many of its run-of-river power stations are operating at more-or-less full capacity. In a matter of a few short weeks Tasmania has gone from acute energy shortage to excess.

Meanwhile, the larger hydro catchments such as Gordon have received much needed replenishment. Total storage has doubled over the last six weeks to 27%, increasing at a near record rate of about 2% per week. Storages are now back to levels comparable to mid June in 2014 and 2015.

Because of the recent rains and the excess power production, Basslink has this week been flowing northwards into Victoria at an average of about 140 megawatts and, at times, as much as 350 megawatts. That represents about 10% of total Tasmanian dispatch, none of which is being contributed by the emergency 200 diesel generators that were bought in to deal with the crisis, and only a tiny bit from Tamar Valley and Bell Bay gas units.

With mainland wholesale prices now averaging around $90 per megawatt hour, HydroTasmania will be relishing Basslink’s resumption. Now that the rains have come, their prayers will be for those prices to remain high. Such is the crazy brave new world of energy supply, HydroTasmania’s exports are now worth around $2 million a week.

However, with mainland prices currently way above what they were even in the Carbon-tax years, questions will be asked. Why they have risen so much? If we factor out the contribution of the carbon tax, prices in New South Wales and Victoria are almost three times what they were in the comparable period two years ago.

Some pundits will no doubt point to recent changes in the South Australian market, following the closure of the Northern Power Station in Port Augusta. However the national electricity flows mostly converge on New South Wales. So the drivers for price setting in there would appear much more important. NSW volume weighted wholesale prices for the 6-week period early May to mid June, 2008 on, shown in red circles. Half hourly prices are shown in small background including the subset for the 6 week period shown in red. Black squares show the carbon tax years adjusted downwards by removing the carbon price (assumed at $20 per megawatt hour). Data from AEMO half hour price and dispatch tables.

And as indicated in the two maps shown above, there have been no obvious changes to the demand and dispatch settings in New South Wales over the last 2 years. So with no obvious reason for such a price spike, it wouldn’t surprise if the regulators were taking a keen interest, not to mention large energy consumers with market exposure.

I doubt HydroTasmania’s latest prayers will be answered in the short-term. At least not until we see some major structural transformation in mainland generation, such as the closure of one or more of the Latrobe Valley brown coal generators. With the Victorian Government this week setting ambitious targets to generate 25% of its electricity from renewable energy by 2020, and 40% by 2025, that may not be very far away. When that happens, HydroTasmania will be hoping its dams are full and Basslink is operational. And by then I hope the Apple Isle has invested more in its exceptional wind resource.