However, it is inconceivable that Tasmania will double its production capacity unless it can get the products to the mainland market. Therefore, in any realistic analysis, it is necessary to include the cost of these wind farms in the evaluation of the expenses incurred by Marinus Link. When this is done, the expected cost associated with the link is well below AEMO’s expectation of its benefits.
The federal government and the opposition both seem eager to spend taxpayer dollars on “nation-building” transmission projects.
AEMO’s analysis is also necessarily based on many assumptions about technologies, demand, costs, prices and the actual functioning of the power system and the market. These are uncertain, especially since the projections extend over several decades after the commissioning of Marinus Link in 10 years.
To give an idea of the uncertainty, consider the evidence that ten years ago AEMO predicted that grid-supplied electricity in 2021 would increase by 26% (62 terrawatt hours). In fact, it contracted 9 percent (18 TWh). Or consider that in 2011, AEMO predicted that only 1.5% of demand would be supplied by rooftop solar power in 2021. That’s 11.5%.
But we don’t need to look back a decade to demonstrate the fallibility of the forecasts. Indeed, just a week before the publication of the FAI, Victoria’s biggest electricity customer (Alcoa) and one of its biggest producers (Alinta) announced their intention to study an offshore wind farm to meet the Alcoa needs. ISP predicts that offshore wind would not be profitable for a decade or two and has not even identified the area as a possible location for offshore wind.
To emphasize this is not to denigrate AEMO – it is a very respected organization. Rather, the point is that the future is very uncertain, regardless of the skill of the forecaster, especially when predicting several decades to come.
In this context, consider the choices available to electricity consumers and Victorian-era policy makers. On the one hand, there is the certainty of massive increases in transmission network charges to pay for a cable to Tasmania. This can lead to a substantial development of wind power generation and storage in Tasmania. These producers can Be reliable. They can sell energy in Victoria for less than the mainland’s alternative generators and batteries. Provision can be reliable (in its modeling, AEMO assumes that the cable never fails).
But even if all of these “powers” hold, when all costs are factored in, the estimated benefits are far less than the total costs.
Victorians have more attractive alternatives
Now consider the other alternative available to consumers and Victorian makers. They know that at the slightest whiff of political support, private investors will be drawn to expanding renewable energy production and storage in Victoria. These investors will accept almost all technology, construction, performance and market risks. There is no big submarine cable to worry about, and massive increases in transmission costs will be avoided.
With such an enticing alternative, it’s no surprise that policymakers in Victoria have shown little interest in Marinus Link, despite pleas from the Tasmanian government and its energy companies.
Instead of trying to convince Victorian consumers to pay for the link, the Tasmanian government could pay someone to build it and then fund it with the revenue from the cable trade. This is what the Tasmanian government did in 2000 when it entrusted the UK National Grid with the construction and ownership of Basslink, a 500 MW submarine cable to Victoria.
This arrangement has not worked well for Tasmanian taxpayers or for the current owner of Basslink (a Singapore infrastructure fund). The exchanges were much less profitable than expected and the cable broke (for more than six months in one case). Basslink has been around for some time. Having failed to find a buyer and owing the Tasmanian government $ 100 million in damages for breakdowns, it is now under administration.
The Tasmanian government naturally wants to avoid repeating its Basslink debacle. But state producers are not interested in paying for cable to bring their energy to the continental market. And, since consumers and state governments (including those in Tasmania) won’t spit, where else can the money be found?
As always, the funder of last resort is the public treasury. The federal government has so far been receptive, having contributed to exploratory spending. Indeed, both the government and the opposition seem eager to spend taxpayer dollars on “nation-building” transportation projects. The next federal election will undoubtedly intensify the itching.
There are many transportation projects that deserve consumer or taxpayer funding, but Marinus Link is not one of them. The Tasmanian government is trying to impose costs on others to fund a project that it benefits politically (even if not economically), but destroys wealth throughout the economy.
Our political and administrative institutions must show that they are capable of withstanding this kind of pork barrel.