Australian reforms demand more efficiencies in new competitive market

Many of Australia`s electric power companies have now been privatized with the aim of giving the consumers more choices in the purchase of electricit

By H. Tod Kennedy

Contributing Editor

The Australian electric power supply and distribution industry is vigorously following the worldwide trend toward privatization. Fundamental changes to state utilities are now under way with the aim to stimulate competition and higher efficiencies in a new deregulated market. In parallel with these changes is the establishment of a national power grid in July of 1995. However, states are not without their growing pains.

Australian reforms include separation of electric generation and supply authorities from the traditional state government monopolies and the separation between the regulatory and commercial functions. The end result is that the competitive climate has stimulated electricity authorities to upgrade existing generating plants and develop higher fuel and thermal efficiencies. Some states are planning to construct new thermal power stations and to expand their distribution systems.

Several new corporations have been formed with the goal of ultimately giving more choices to the purchasers of electricity. Initially this will be offered to industrial and commercial clients. However, the domestic sector will eventually be able to choose their electric supplier.

Although some states already exchange power, some problems still have to be resolved. As a consequence, priority is being given to planning and implementing the new structures. The end result will be the establishment of a centralized trading system via the national grid.

Due to economies of scale, the transmission and distribution will not be subjected to competition, except in limited cases. However, competition in supply is considered to have big advantages.

In addition to the Snowy Mountains Hydroelectric Scheme in New South Wales (NSW), there are presently eight state/territory-based electricity systems, each with capacities greater than 500 MW. The systems are a mixture of publicly as well as privately owned and operated systems (Figure 1).

According to the National Grid Management Council (NGMC), started in 1991, the new system will demolish barriers to trade in electricity across the interconnected eastern states and is expected to be the foundation for a single electricity market in the region.

Because of the impact they can have on the overall system, all generators with a net output in excess of 30 MW are required to participate in the wholesale market. There are also a small number of IPPs mainly operating cogeneration facilities.

National power grid

The national grid will only embrace the Eastern and Southern states of NSW, Victoria, South Australia, Tasmania and Queensland, as well as the Australian Capital Territory (Canberra). Western Australia and Northern Territory are not involved in the market because of the long transmission distances involved.

At present the NSW power grid is linked to other grids in Victoria and South Australia, allowing for the buying and selling of electricity between these states, as well as sharing power from the Snowy Mountains Hydroelectric Scheme. Victoria is connected via 330-kV transmission lines from the Snowy Mountains and is connected to South Australia via 275-kV lines. Studies are under way to ascertain ways to eventually connect Queensland and Tasmania to the new supply network.

There are divergent views between some states about the management of their key electricity assets. For example, Victoria has independent corporations competing with each other for each power generating entity. However, these companies are in the process of being sold to private bidders. Some observers believe these small units will not attract capital and may lead to market instability. Others believe that there could be a breakdown of the electric industry by the year 2000 because of the decision to divide the electric industry into transmission and distribution companies.

In NSW, Pacific Power, the nation`s largest state producer, maintains singular control of all its generating plants, opting to develop competition under one umbrella. Critics say this lacks a competitive dynamic and encourages inefficiency. Meanwhile, the Queensland Electricity Commission has formed a generating corporation while maintaining central control and ownership of its grid. Moreover, the Queensland Electricity Commission appears to run its most efficient units at the expense of less efficient ones.

The national electricity market is being steered to drive prices down by providing separate generation, transmission and distribution schemes, but the NGMC is considering a uniform price for all transmission companies (Figure 2).

Initially the market choice options will be only available to a limited number of very large customers but will be progressively expanded to include smaller users with greater flexibility. According to the NGMC, suppliers of electricity will be able to negotiate with each other to sell and buy electricity on any terms. However, customers must decide whether they want to trade in the wholesale market or the retail market, and they must stay with their options.

Because of the unpredictable supply and demand, such as when generators must go off-line at short notice, forward trading similar to that used in the financial future markets will be available. Spot trading will operate from a centrally coordinated pool, at the margin in the new market, to ensure that supply and demand are balanced. This means that generators and customers will buy and sell electricity at the spot prices for amounts which are not covered by long- and short-term power contracts.

Australia`s largest electric utility

The largest state electric power producer in Australia is the Electricity Commission of NSW which trades under the name of Pacific Power. It has a capacity of 11,512 MW, and in the last financial year generated 52,252 GWh of energy. Up to 94.6 percent of electricity is generated from coal-fired steam-turbine plants, 2.9 percent gas-fired, and 2.5 percent from hydroelectric plants.

Using power from three generation supply systems, three major business units bid in an internal spot market. Subsidiaries include PowerCoal, which operates eight black coal mines throughout the state, and Pacific Power International which exports services to such places as China, Thailand and Chile.

A new government-owned Electricity Transmission Authority has been set up to separate Pacific Power`s generating business from the state`s high-voltage network. NSW has 13,000 km of power lines distributing through 25 county councils to 2.7-million customers.

A connection exists with the neighboring states of Victoria and South Australia for “opportunity interchange” and the sharing of power with the Commonwealth Government-owned Snowy Mountains Hydroelectric Authority.

Pacific Power and the Queensland Electricity Commission are planning a new transmission line named Eastlink. It is expected to stretch about 360 km, cost more than (US)$220 and will be constructed between Southern Queensland and the north of NSW.

In an effort to become more efficient and environmentally friendly, Pacific Power claims to have lowered its fuel conversion costs by 47 percent since 1988. As a consequence, it reports substantial CO2 emissions reductions from its already clean black coal.

At Munmora Power Station, north of Sydney, a commercial scale test is under way of plasma arc technology, a Pacific Power innovation, which is aimed to obviate the use of fuel oil to ignite the pulverized-coal-fired furnaces. New plasma arc igniters will replace the existing fuel oil igniters and provide considerable cost savings, it is reported.

Victoria gets competitive

The state of Victoria presently has an electric generation capacity of 6,654 MW producing 35,568 GWh (Figure 3). A brown coal-fired plant at Latrobe Valley supplies 86 percent, an offshore Bass Strait gas-fired turbine supplies 7 percent, while hydroelectric power supplies 7 percent.

There are presently about 2-million customers being supplied in the state. Victoria is also a net exporter of power, having trade links with the neighboring states of NSW and South Australia. They also have entitlements from the Snowy Mountains.

Like other Australian states, Victoria`s supply and distribution networks were owned by a monopoly, the State Electricity Commission of Victoria, but full privatization is expected later this year. Five generation corporations and five distribution businesses, formed early this year, are to be sold to private investors. Currently the Loy Yang B station, being constructed in the brown coal fields of the Latrobe Valley, is 51 percent owned by Mission Energy of the United States, with other partners having a 49-percent interest. Other plants in the state are currently up for sale.

Two other businesses, Victoria Power Exchange, which controls the wholesale electricity market, and Powernet Victoria, the transmission grid company, also became state-owned corporations recently. Generation Victoria, which generates electricity in the Latrobe Valley, is also being corporatized.

The Victorian government is to participate in the country`s largest research and development syndicate, (US)$138 million joint venture to make the state`s four base-load coal-fired power stations up to 30 percent more efficient. The project entails construction of a 10-MW generation facility to test the viability of a new coal-burning technology. When in operation, the project will be utilized to research and develop integrated drying, gasification and combined-cycle technology with the aim to convert low-grade coal into coal gas. The long-term goal is to cut electricity supply costs and reduce greenhouse gasses by 25 percent.

The Snowy Mountains Scheme (SMS), located in southern NSW, is Australia`s largest source of renewable energy. It has a generation capacity of 3,740 MW, produced totally from hydro power. Energy generation averages 5,130 GWh and supplies electricity to the Australian Capital Territory (13 percent). The remainder of the electric is supplied to NSW and Victoria under non-commercial trading arrangements. Although the is operated by the Commonwealth Government-owned Snowy Mountains HydroElectric Authority, negotiations with NSW and Victoria are under way for the privatization of SMS. This renewable energy source will play a key role as a clean power supplier in a strategic location.

The SMS is made up of seven hydroelectric power stations, two pumping stations, 16 major dams (total storage 7,000 gigalitres), and 225 km of interconnected tunnels and aqueducts, making it probably the largest project of its kind in the world. Complete refurbishment of Tumut 1 and 2 power stations was completed in July 1995.

Queensland corporatizes

Queensland`s power utility, with a capacity of 5,749 MW, generates 28,620 GWh from coal-fueled plants (86 percent) and gas fired-units (13.4 percent), for distribution to 1.35 million customers.

Until January 1995, the industry was run by the government monopoly, the Queensland Electricity Commission. However, it is restructuring and privatizing, and will be split into two commercial groups: The Queensland Generation Corp. (QGC) and the Queensland Transmission and Supply Corp. (QTSC). The latter has eight regional electricity corporations which will compete within the state for the supply of electricity.

QCG builds, owns and operates most of the state`s generating installations and at present supplies more than 82 percent of Queensland`s power needs. Currently, QCG has a total installed capacity of 4,604 MW: four coal-fired, three hydroelectric and five gas-turbine power stations. The four coal-fired stations are capable of generating 3,816 MW.

The three main stations–Tarong, Callide and Stanwell–generate more than 70 percent of the electricity used in Queensland. Tarong is the largest station in the group, designated a base-load station, with a capacity of 1,400 MW and located in the South Burnett area, near open-cut coal mines.

Queensland`s newest power station, Stanwell, is located near Rockhampton. It has four 350-MW coal-fired generating units which are being commissioned at yearly intervals. The third has just come on-line, and the fourth will enter service in 1996.

South Australia

The state of South Australia has a generating capacity of 2,361 MW. Energy generated via the Electricity Trust of South Australia (ETSA) averages 9,378 GWh. This is produced 86 percent from coal and 13.4 percent from gas and is distributed to about 700,000 customers.

The state`s supply is connected to neighboring Victoria and NSW. At present South Australia imports 100 to 1,400 GWh annually from Victoria. As part of its preparation to link with the national electricity market, ETSA has created a transmission division responsible for its 275,000-V assets, as well as generator load dispatch and system control functions for the total electricity network.

Tasmania

The island state of Tasmania, lying off the Victorian southern coast is renowned for its hydroelectric facilities, which are the source of 89.9 percent of that region`s electricity sold to its 200,000 customers. The generating capacity from the state-owned Hydro-Electric Commission (HEC) is 2,441 MW, and energy generated is 8,863 GWh. Only 9.8 percent of the electricity is generated by coal-fired power plants.

Tasmania`s supply is not yet connected to the interstate grid, but it is expected to be linked to the mainland network via the undersea “Basslink option” in the next decade.

The HEC has begun restructuring into a A$4 billion integrated hydroelectric business via the HEC Enterprises Corp., which is exporting engineering and other services.

While thermal generation has been pushed into the background, feasibility and environmental studies are under way for the establishment of wind power as a new contributor to the energy requirements of nearby King Island.

Power in other states

Western Australia, although not to be connected to the national grid because of to the long transmission distance across the continent, was restructured and privatized in January 1995, changing its name from the State Electricity Commission of Western Australia to Western Power.

Generation capacity is 2,813 MW and energy generated is 11,608 GWh from 71.6 percent coal, 20.9 percent gas and the remainder from wind power. This power is distributed to 700,000 customers through 60,478 km of high-voltage overhead mains. Generation availability is reported to be 85.3 percent.

Muja is Western Power`s principal base-load station and the largest of three thermal stations in the state`s southwest interconnected grid, supplying 65 percent of power, serving an area of about 200,000 square kilometers north of Perth and east to the gold mining areas around Kalgoorlie. It is located on the Collie coal fields south of Perth and has an installed capacity of 1,040 MW.

There are plans for two new hydroelectric-generating plants of 16 MW and 30 MW to be constructed in the northern part of Western Australia. Not only will these facilities help to develop the potential of the Ord River irrigation scheme, they will also supply electric power to the Argyle Diamond Mines. The latter would be privately owned by the Ord Hydro Consortium.

A cogeneration/combined-cycle, gas-turbine plant is being considered at Kwinana. In addition, a new 300-MW coal-fired Collie Power Station is to be built at Collie.

Northern Territory, in the far tropical north of Australia, has a generating capacity of 356 MW, providing 1,159 GWh for 5,000 customers. It is a government-owned monopoly, and because of its size, will not be connected to the national grid.

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Bayswater (4 x 660 MW) coal-fired power station, NSW, is one of the largest in Australia.