Although Australia is still a strong supporter of coal-fired power generation, the future for hydro looks promising. Inter-state hydro developments are helping to diversify the Australian generation mix. Neil Ford reports

William_dam

William Hovell dam

Despite Australia’s dependence on coal-­fired power generation, the hydro sector has long made a sizeable contribution to national power requirements. Yet, so long as Tasmania remained outside the National Electricity Market (NEM), it was the Snowy Mountains scheme that represented the sector’s only substantial contribution to the national power pool. With the completion of the Basslink interconnector, in 2006, hydro-rich Tasmania was finally tied into the national grid, injecting more diversity into the Australian generation mix while providing greater energy security for the island state itself.

Despite Australia’s relatively small population, the vast size of the country encouraged the creation of separate power pools within each state. To make the most of surplus generating capacity, the NEM was formed at the end of 1998, using inter-state interconnectors to enable trade in electricity. Its original members were Queensland, Victoria, New South Wales (incorporating Australian Capital Territory), South Australia and the Snowy Mountains scheme. Western Australia and Northern Territory remain outside the structure. It is felt that the cost of constructing new interconnectors to these two areas would be too great, while transmission losses over the vast distances involved could make trade financially unattractive.

The National Electricity Market Management Company (NEMMCO), which is owned by the federal and state governments involved, manages the day to day running of the NEM. In addition, the Australian Competition and Consumer Commission (ACCC) watches over the implementation of the integrated market and the Australian Energy Market Commission reliability panel ensures that supplies are not interrupted. Regional reference prices (RRPs) are set for each member state, based on the spot price at each state’s main load centre. NEMMCO compares the RRPs, allowing electricity from a lower cost state to be exported to one with a higher spot price.

More than 70 generating companies operate within the NEM, many of which are either fully or partly owned by state governments. The automation of the NEM allows distribution companies to make real-time decisions on power purchases. Although the sector is becoming more competitive, state-owned power companies continue to dominate in some areas and there is some room for the NEM to become more efficient. There are also still some restrictions on trade because of limited transmission capacity on some interconnectors, but NEMMCO argues that average tariffs have fallen substantially since the creation of the NEM. Residential tariffs in Japan, for example, are about three times higher than in Australia.

Tasmania officially joined the NEM in May 2005 but did not become a full player in the system until the Basslink interconnector was completed in April 2006. Rather than merely increasing the number of members, the state’s membership has also altered the NEM’s generation mix. Hydro makes a far bigger contribution to Tasmania’s electricity requirements than to those of other states, so the island state has now joined Snowy Hydro as a water power member of the national power pool.

Basslink is a HVDC connection from the George Town substation in northern Tasmania across the Bass Strait to the Loy Yang power plant in Victoria. The link is currently owned by National Grid Australia, an offshoot of the UK’s National Grid. The 290km subsea interconnector operates at a nominal voltage of 400kV and is rated as a 500MW link, although it can function as a 630MW interconnector for short periods.

Two-way trade

The completion of the Basslink interconnector could not have been better timed in hindsight as Tasmania has suffered unusually low rainfall since its completion.

Vince Hawksworth, chief executive of Hydro Tasmania, which is the main power generator on the island, said: “Because of the drought and resulting pressure on Hydro Tasmania’s water storages, importing energy over Basslink has helped us continue to meet Tasmania’s electricity demand. Basslink has also enabled us to export at times of high demand and high prices interstate.”

The recent southern hemisphere summer is believed to have been the driest in Tasmania on record. Hydro Tasmania reported that its reservoirs were less than one-third full for much of the past year and even fell to 18% of capacity in April. Generating capacity at almost all of the company’s schemes has therefore been much reduced and the island has been forced to import electricity from the NEM. Hydro Tasmania has spent at least US$66M (A$75M) on imported electricity and additional gas over the past year.

According to the company, it has been able to use imported electricity to spare water supplies, thereby maintaining reservoir volumes at levels needed for reasonable performance. It insists that power rationing would have been implemented if the interconnector had not been completed, while gas imports would have been even more expensive and the total volume of water stored in its reservoirs would be 6% lower.

The manager of energy and market analysis at Hydro Tasmania, Michael Connarty, said: “The winter rains have not arrived. It has been a very dry winter in most parts of the state. If it wasn’t for Basslink, our storages would be in a lot worse shape than they are now.”

Since it commenced commercial operation, he said, the connector has been doing the job it was designed for – assisting in drought-proofing Hydro Tasmania’s lakes and reflecting the true value of the NEM. He added: “Basslink has also increased the efficiency of our hydro system by reducing spill from our smaller lakes at times of heavy rainfall and therefore increasing our energy production.”

The company has dismissed stories in the Australian media that Tasmania could still face blackouts.

Despite the impact of the drought, Hydro Tasmania was able to report a post-tax profit of US$70M (A$79M) for financial year 2006-07 following the national introduction of new accounting standards, though the firm said its underlying profit was US$17M (A$19.5M). The company’s chairman, David Crean, commented: “For Hydro Tasmania, rain equates to revenue and last year was one of the worst on record for our storages. This put considerable pressure on our cash position yet at the same time our profit increased because of the requirements of new accounting standards.”

National Grid has put Basslink up for sale and, in July, CitySpring Infrastructure Management was unveiled as the preferred bidder. The Tasmanian government and Hydro Tasmania must sanction any change of ownership but Hydro Tasmania has already welcomed the choice.

Hawksworth said: “We look forward to working with CitySpring and developing a good business relationship with this new entrant to the Australian energy market. Basslink is an integral element in Tasmania’s electricity supply capability and is also fundamental to the state’s participation in the NEM.”

He added: “Once National Grid’s sale process is complete, we expect the new owners to demonstrate the same high level of capability in operating Basslink that National Grid has displayed. The next step in the process is to work with National Grid and CitySpring to assess the technical, financial and managerial capacity of the new owner to operate this vital infrastructure.”

During its first year of operation, 1920GWh of electricity was imported via Basslink and just 450GWh exported. In the longer term, however, it is hoped that Tasmania can export hydroelectricity to the mainland during the peak period in the summer. Although rainfall over the past decade has generally been lower than previously, further hydro schemes could be developed specifically with the export market in mind.

Hydro Tasmania already plans to refurbish the Catagunya dam on the Derwent river. Up to US$26M (A$30M) will be invested over the next 18 months, although the scheme’s new generating capacity has not yet been revealed. Redeveloping existing hydro projects could become increasingly common, as the scope for greenfield developments recedes. Environmental pressures make the construction of large new dams much less likely than in the past.

Further increases in Australia’s hydro generating capacity are likely to come from small hydro and in the Snowy Mountains.

At present, Snowy Hydro Ltd, which was set up by the state governments of New South Wales and Victoria, plus the federal authorities, operates seven hydro plants on the Murrumbidgee and Murray rivers in Kosciuszko National Park, with combined generating capacity of 3756MW. This accounts for more than half of national hydro capacity of 7600MW, and three-quarters of all renewable energy supplied to the NEM, given that all hydro counts as renewable. The privatisation of Snowy Hydro Ltd, which also operates two gas-fired plants in Victoria with combined capacity of 620MW, now seems to have been cancelled.

Modernisation at Snowy Mountain facilities

Snowy Hydro Ltd is currently in the middle of a major modernisation programme at its Snowy Mountain facilities. US$220M (A$250M) is being invested over seven years to upgrade various generation units and introduce new production systems technology. A spokesperson for the firm said: “Major maintenance of the scheme’s extensive trans-mountain tunnel systems, which deliver water from lakes to the power stations, is in progress to ensure the ongoing safe and reliable management of water utilised by the Snowy Mountains Scheme.”

A combination of high evaporation rates, low rainfall and the absence of mountain ranges, makes most of Australia unsuitable for hydro development. Beyond Tasmania and the Snowy Mountains the opportunities are limited and there are relatively few potential large hydro sites on the mainland. AGL Energy plans to build a 130MW scheme at Bogong in Victoria to complement the existing Kiewa project (see p20-24). Another venture, the Banimboola project, will be commissioned nearby by the same firm. Both projects will benefit from the Victorian state government’s new Renewable Energy Target Certificate (VRET) scheme to be launched in 2008.

The other planned large hydro projects are both located in Queensland. The Burdekin scheme will have generating capacity of 50MW-80MW, but the Traveston dam has the potential of making an even larger contribution to satisfying national power consumption. The venture is to be developed in three phases: scheduled for completion in 2011, 2025 and 2035. Traveston is likely to become the biggest hydro scheme developed in Australia since Snowy Mountains.

Small hydro

Largely because of the dominance of cheap coal-fired generating capacity, small hydro made little headway in mainland Australia until the 1980s. Most of the few projects that were operational, including the 4.5MW Oaky river venture, were located in New South Wales. However, from about 1985 onwards, niche power companies developed a string of schemes, mainly in New South Wales, Victoria and Western Australia. The first of the new wave of small hydro projects was Melbourne Water’s 7.3MW Thomson dam enterprise, which was constructed during the late 1980s and additional similarly sized schemes have been completed on a regular basis ever since.

Although Australian governmental organisations regard 100MW as the upper limit for small hydro, as the table, right, demonstrates, most have a generating capacity of less than 10MW. In addition, most of the economically feasible sites that have not yet been developed also have a generating capacity of less than 10MW. The Sustainable Energy Development Agency (SEDA) has drawn up a list of economically feasible projects.

The hydro sector, large and small, does not look likely to benefit from increased government enthusiasm in the near future. The federal government’s opposition to seriously tackling global warming has been largely driven by its desire to sustain its coal industry and has resulted in its lukewarm encouragement of renewable energy schemes. Several state governments are more anxious than Canberra to tackle their carbon emissions. The refusal of former Prime Minister, John Howard – who was voted out in the elections last month – to sign the Kyoto Protocol was unpopular.

Howard’s Liberal Party, which had ruled the country since 1996, was not keen to introduce the kind of emissions targets that have been implemented in Europe. But dealing with greenhouse gas emissions and engaging with the Kyoto Protocol was a key aspect of the election platform on which the Prime Minister-elect, Kevin Rudd, has taken his Labor party to power.

Small hydro schemes were introduced before the relatively low Mandatory Renewable Energy Target (MRET) was introduced, and are likely to continue being brought onstream with or without any form of government support. But greater financial support would undoubtedly speed up the pace of new capacity development and make many more schemes economically viable. According to the Australian Greenhouse Office, at the 20 most attractive small hydro sites that have not yet been developed, the cost of generation would average A$40 (US$35) per MWh. Even at this level, they are only just economically viable.

Some power producers are already marketing the environmental benefits of small hydro. For instance, Advance Energy allows customers to buy 10%-100% of their electricity requirements from the 19MW Burrendong scheme on the Macquarie river in New South Wales, as a contribution towards cutting their own carbon emissions. In addition, SEDA is particularly keen to encourage the development of mini hydro facilities at existing structures.

By using existing dam outlets, the base of weirs that are already in place and the outlets of water treatment plants and sewage treatment works, investment would be limited. Little land clearance and no inundation or flow regulation would be required. Snowy Hydro Ltd has already announced that it will construct a 14MW hydro plant on the existing river diversion conduit at Jounama dam. The electricity produced will be supplied to the local 66kV grid.

Australia will never be able to generate the bulk of its electricity requirements from conventional hydro schemes. Even if the government were to lose its enthusiasm for coal-fired capacity, there simply is not a large pool of technically feasible schemes waiting to be developed.

Yet, as the Traveston dam has demonstrated, some large hydro ventures are waiting to be tapped and dozens of small hydro projects could be brought on stream. With the attractions of a more diverse generation base, it is clear that the Australian hydro sector could benefit from new investment for many years to come.


Tables

Sites >1MW identified for small hydro projects
Small hydro in New South Wales, Victoria and Western Australia