Mr BAYLEY – Minister, page 12 of the Whole-of-State Business Case acknowledges the increase in transmission prices. It says:
Marinus Link and the North West Transmission Developments stage increase transmission prices, by an estimated $70 for a residential customer on a typical bill. Transmission prices increase by $140 for a typical small business.
We’ve seen evidence from the Savage River mine, for example, Grange Resources; I think it was 29 per cent.
Mr DUIGAN – Yep.
Mr BAYLEY – You’ve argued that this will be offset by super profits, effectively, to be earnt and generated by Hydro, and that this will offset and be distributed to make up for those additional transmission prices. But in –
Mr DUIGAN – For those direct connected customers, yes.
Mr BAYLEY – That’s right. But last week in Renew Economy, the new CEO of Hydro Tasmania, Rachel Watson, made it very clear. She said, regarding Marinus:
Forget making money off it. It will be there to provide energy security.
The budget papers indicate a significant fall in revenue from Hydro because of the two dry years you talked about in your opening. How do you square this away, that Hydro profits are going down; it’s an era of climate change and uncertainty in terms of river flows and ability to make money. How do you square this circle that there’s going to be super profits but, at the same time, there’s going to be higher transmission costs?
Mr DUIGAN – The transmission cost is completely knowable. We know what that uptick will be. We’ve said we’ll mitigate in certain circumstances. In the case of small business and residentials, we would see the transmission costs offset by a reduction in the wholesale energy cost. That’s borne out in all the modelling that’s been done.
In terms of squaring away, it’s interesting. Hydro has had two very dry years. You’ll notice in the first year of those two very dry years, Hydro actually made good money. This year, Hydro made much less money. There are two aspects to that. It’s the hydrological inflow and its ability to generate, but it’s also its ability to trade.
You would know that Basslink has run as a merchant link over the course of this year. That has substantially curtailed Hydro’s ability to trade and curtailed flows across that link. The way that APA has put the link to market has meant that there has been a great deal less energy flowing across it. Basslink, come 30 June next year will be a regulated link, as it should be, and so will Marinus. That will allow Hydro to trade. Where you get average inflows and where you have the ability to trade, that’s where you see Hydro being able to substantially increase its operating profits.
The other thing that’s really important to understand is that it’s not necessarily the volume that Hydro will generate, but it’s Hydro generating into those high-price events on the mainland. That’s where the revenue uptick comes from. So, it’s not about higher volumes or needing more. In some ways, this is very much about protecting Hydro’s ability going forward in these more climactic, variable circumstances; it’s making the best strategic use of those storages.
Mr BAYLEY – I understand that in the context of selling into the market at peak periods, but, of course, the sheer volume of generation capacity is important. You mentioned the hydrological inflows. We’ve asked this a number of times, but can you confirm if Hydro have actually done the modelling around hydrological inflows over the long term under a climate change scenario? And whether they were used to underpin its profit projections that we used in the whole‑of-state business case?
Mr DUIGAN – Yes. Hydro is, as you would expect, very interested in long‑term trends and hydrological inflows. It underpins their business. But again, I would make the point that Hydro would see the ability to more strategically use its ‑
Mr BAYLEY – I understand that. You’ve just confirmed that there has been a hydrological inflow done by Hydro that’s informed their profit projections? Are you able to table that for the committee?
Mr DUIGAN – Hydro will be here at the table next week and I would encourage you to put that to them.
Mr BAYLEY – But, as minister, you’re confirming that they’ve done that work?
Mr DUIGAN – Certainly, they talk to me about long‑term projections.
Mr BAYLEY – To continue this thread, the Budget makes some assumptions. Hydro’s dividend to the government is $4.7 million this year, in forward Estimates it’s $115 million. The budget explicitly says, ‘Hydro Tasmania’s increase reflects an assumption of average rainfall and associated hydropower generation, following a period of dry conditions.’ I don’t accept that this is something for Hydro to table, you have based assumptions in the Budget here around a return to normal river inflows and normal rainfall conditions.
I will ask again, can you confirm that Hydro has done the river inflow modelling that underpins its projections, and will you table it because it is underpinning the assumptions in the Budget?
Mr DUIGAN – Again, given next week Hydro will be in the room, and you will be able to have the ability to unpack exactly what their work looks like. I don’t have it at that sort of granular level of detail about what –
Mr BAYLEY – Would you be willing to –
Mr DUIGAN – Well, they’re here next week and you can ask them –
Mr BAYLEY – I guess, would you be willing to table what you have now and what you have based your budget assumptions on, so we can look at that ahead of next week and ask those questions of Hydro and test them when they’re in the room. This is your budget, this is budget Estimates.
Mr DUIGAN – That’s probably in the realm of the Treasury. I would suggest, potentially, that if you want that outcome, get someone in the Treasury.
Mr BAYLEY – Would you be willing to take it on notice for this committee?
Mr DUIGAN – Not on behalf of the Treasury, no.
Mr BAYLEY – In relation to that modelling, can you confirm that it’s been done – can you confirm what period it has been done across, into the future?
Mr DUIGAN – Look, I would be relying on my memory, Mr Bayley, and I really don’t want to do that. It’s important and I get it. I understand why you’re asking the question and it’s worthy of having a good look at. I would rather not say what I think I know in my head. Again, happy for someone to put it to the Treasurer and the Treasury, and they might be able to provide it for you equally, as I have said previously, Hydro can speak to that.
Mr BAYLEY – What about when it comes to the whole-of-state business case and the central case one, which models an average annual increase in returns from Hydro to the government of $470 million, compared to a no‑Marinus situation. Are you willing, or will you table the financial analysis and the assumptions and the methodology that underpin those profitability calculations going forward, that we used in the whole-of-state business case?
Mr DUIGAN – Again, it’s a piece of work that is owned in the Treasury and I won’t make any commitments on behalf of Treasury. But, I know there was work done separately by Hydro, which essentially lines up with the work that Treasury did. I think, if you would like to see that, by all means ask for it in the correct forum.
