Ms O’CONNOR – We know that Marinus has been identified as a risk in the Budget – future funding for Marinus. Do you have the modelling that was undertaken for the whole-of-state business case? It shows that Hydro will return about $470 million to the state budget in future years, and the question was asked of the minister for energy in the other place, and we thought, Treasurer, you might be in a better position to answer it.
Mr SWAIN – The whole-of-state business case was Treasury advice. It obviously contains a range of very sensitive information including noting the fact that the Commonwealth also has ownership of Snowy Hydro, which is a direct potential competitor to Hydro. That number that you mentioned is a nominal on-average return, so it just needs to be understood on that basis.
Ms O’CONNOR – Based on what?
Mr SWAIN – A whole range of modelling that we did. We effectively started with the modelling that the businesses had done and then we got some independent modelling done around that and looked at a number of different scenarios.
Ms O’CONNOR – Is the committee able to see any of that modelling?
Mr ABETZ – I doubt it.
Mr SWAIN – It’s set out in the whole-of-state business case, which I believe is redacted.
Mr ABETZ – Nothing has been provided of that.
CHAIR – Lots of the modelling redacted?
Mr SWAIN – There are some commercial sensitivities in it because Hydro doesn’t want to signal to its competitors what its future trading strategy will be to maximise its profit in the national market.
Ms O’CONNOR – Was the modelling inclusive, for example, of any climate projections, any of the information that’s provided in the state climate risk assessment or the National Climate Risk Assessment which shows that there’ll be – over the next century – significant impacts on hydro storages.
Mr SWAIN – Treasurer, I’d have to take that on notice. I believe hydrology was considered in the hydro modelling which we then reviewed, but I would have to confirm that.
Ms O’CONNOR – Okay. I would have thought it was a given and understood that was factored into the model, if you want to have accurate modelling.
CHAIR – He said he would take it on notice.
Ms O’CONNOR – No, but it sounds like there’s an uncertainty about whether climate was factored in, which would surprise me. Particularly, for Hydro.
Mr SWAIN – Well, I mean, just remember –
Mr ABETZ – Just take it on notice.
Mr SWAIN – Obviously within limits, if there’s extremely dry years for year after year that would be problematic, but that modelling is about maximising financial outcomes. One of the reasons that – I mean it’s quite intuitive – one of the reasons that whole-of-state business case says that Marinus is likely on average to produce returns is that you have installed capacity already that you don’t have to spend capital on –
Ms O’CONNOR – In the dam?
Mr SWAIN – No, in the generation plant with Hydro and you have a fuel cost which has an opportunity cost but has a financial cost of $0. You’re paying $0.00 for the capital and $0 for the fuel and you’re releasing the installed capacity that’s in the Hydro system already. A lot of that is about being able to trade the energy into the market at the right point of the day, week, month and year. It’s not just supply. Physical supply is clearly important, but it’s not the only determinant of value.
Ms O’CONNOR – Has Treasury tested Hydro’s projections and assumptions?
Mr SWAIN – Yes.
Ms O’CONNOR – OK, and so you’re comfortable with that number $470 million returned from Hydro in the out years.
Mr SWAIN – That number came from the whole-of-state business case, so yes. It’s a nominal average return. The key point is it will vary year-to-year and there are some important assumptions. One of them is that the national market’s design is not fundamentally changed. There are some important assumptions in it.
I can’t stress enough that it is an average return. The importance of that is – Treasury’s advice will be that the return shouldn’t be spent in advance. They need to be – I suppose from Treasury’s perspective – they need to occur and then be managed through the budget process when they’ve actually occurred, not pre-committed, because in a given year they may not emerge.
