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Tassie magic needed to make Basslink pay its way
July 28 2003
A $280 million blow-out in the cost of Basslink will increase the risk of the project to its underwriter, Hydro Tasmania. Hydro Tasmania has signed a 25-year contract with Basslink under which it will pay an annual fee for use of the Victoria-Tasmania electricity cable to cover construction and operating costs.
A spokesman for Hydro Tasmania, Steve Halliday, said the company had reworked its figures following a blow-out in the cost of Basslink in the past six months, which has pushed the price of the cable up from $500 million to $780 million, according to figures recently released in the Tasmanian Parliament.
The blow-out was caused by the need to put in a second cable under Bass Strait, a change in the undersea route and increased undergrounding in Gippsland. However, Mr Halliday said: "We have reassessed our business case and it's still viable." But the economics of the project were "very tight".
Details of the contract between Hydro Tasmania and BassLink have not been made public, but Mr Halliday said the fee was not fixed and would vary with Victorian power prices. However, Hydro Tasmania carried most of the risk, he said.
Tasmanian Greens Senator Bob Brown has estimated that the fee is about $90 million a year. Hydro Tasmania has said the figure is far lower than this but will not say by how much.
Some market participants concur with the Greens that, because of the latest cost rises, BassLink would need at least $80 million a year in returns to justify an investment of $780 million. To make a profit on that level of payment Hydro Tasmania would need to receive a price loading of close to $30 a megawatt-hour for all the power it runs through Basslink.
It would need to get an average of $30 MW-hour more for power it sells into Victoria than it would by selling the same power into Tasmania.
Conversely it would need to buy in Victorian power for $30 MW-hour cheaper than prices prevailing in the Tasmanian market. This, say analysts, would be difficult to achieve - particularly in years like the current one when prices have been relatively low and price spikes rare.
This story was found at: http://www.theage.com.au/articles/2003/07/27/1059244484331.html
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