It’s a little state with a big dream. The Tasmanian government has multibillion-dollar plans to build up to 5 gigawatts of new pumped hydro storage by retrofitting its existing network of dams and lakes.
This could end up bigger and more expensive than the Snowy 2.0 scheme under development in NSW. Fully kitted out, the entire “battery of the nation” package wouldn’t hand back much change from $10 billion.
It’s like an episode of Grand Designs where the ambition exceeds the budget. Yet the renewables-based grid we are defaulting towards will need all this storage and more if we want to keep the lights on for the rest of the 21st century.
What is less clear is whether mega projects like these are the best way to get there. High costs and thin commercial returns mean either there are cheaper options, or that the existing 20th century market design is not reflecting their full value, and needs repair.
The existing Basslink cable was commissioned in 2006, dodging the concerns of Tasmanian consumers by setting up as a private company that effectively made money by trading the difference between Tasmanian and Victorian wholesale electricity prices.
Basslink has been a marginal business for its owners, but increasingly useful for electricity consumers on both sides of Bass Strait.
Victoria has become heavily reliant on Tasmanian electricity as a fast responding supply of peak electricity. Since the closure of the Hazelwood power station it’s been crucial during critical events such as heatwaves. In exchange, Hydro Tasmania imports electricity when prices are cheap to conserve its water stores.
The Basslink model is unlikely to be repeated, which means building Marinus Link as a regulated asset, which means the cost would be smeared across consumer bills on either side of Bass Strait for the next 50 years.
The prospect of this has Tasmanian industrial customers wincing in commercial agony. To minimise this the Tasmanian government wants Canberra to help defray the cost like they did with the Snowy 2.0 project.
They also argue that as most of the benefits of the link will be enjoyed by mainland customers, mainlanders should pay for most of it.
TasNetworks, the state government entity responsible for electricity transmission and distribution, wants the rules changed so that the cost of transmission assets like these are allocated relative to their benefit, rather than just splitting the bill 50-50 across Bass Strait.
The Victorian government has shown little interest in supporting the project, as its brand of climate parochialism is only satiated by renewable energy investment inside Victoria.
Hydro Tasmania’s pumped hydro plans face similar commercial challenges. Being able to pump water uphill during sunny and windy days and generate at power station scale during demand peaks will be essential to keeping the lights on when conditions are dark and still, as they have frequently been across south-eastern over the past couple of weeks. Problem is, it doesn’t make a lot of money.
The three existing pumped hydro generators were built by governments as peaking power stations before the creation of a national market. They never really caught on because their returns have been modest. They make more money from selling price and volume insurance than they do from arbitraging electricity prices.
Snowy 2.0 only proceeded with $1.4 billion from the federal government, which also owns Snowy Hydro and pushed the deal through for political reasons. It will undoubtedly be useful when its finished, but there remains disquiet about how much it will end up costing and how long it will take.
The saggy commercial performance of technologies such as pumped hydro might be because they’re not being paid enough for being increasingly useful.
Some generators now suggest we should be paying for operating reserves – capacity that can be called upon quickly to fill sudden gaps created by using lots of intermittent generation such as wind and solar.
This wasn’t valued in the 20th century because it was provided for free by conventional power stations. Paying for this missing service will cost more. It means renewables-based grids will be more expensive than some make out.