Draft Tasmanian Energy Strategy
A submission from G. N. Kerrison BEE.
1. General
For more than three quarters of a century the Hydro Electric Commission and its predecessor, the Hydro Electric
Department, with careful professional planning, economical design and efficient operation, provided Tasmania
with a high-quality, secure and reliable electricity supply at the lowest electricity tariffs in Australia that also
rivalled the lowest in the world.
The availability of low-cost energy went a long way toward offsetting the disadvantages of extra transport and
other costs associated with our island status and geographical location. The economically attractive supply
together with, in some cases, abundant natural resources, attracted energy-intensive and other industrial users
to the State that, with energy consumed at a continuous high load-factor under the terms of secure long-term
contracts, were ideal system loads that underwrote and secured low tariffs for the smaller low-load-factor
domestic, commercial and light industrial consumers, that, on their own, would have been much more expensive
to supply. Such industry and commerce were major contributors to the Tasmanian economy.
In less than two decades, measures, largely based on political considerations, such as conservation, disaggregation, corporatisation, ‘privatisation’, renewable energy policies and associated subsidies, external
regulators, BassLink and participation in the National Energy Market, have all added cost that has whittled away
this competitive advantage such that our electricity tariffs are now among the highest in Australia.
Electrical energy has, in fact, little or no inherent value. It is a very convenient and economic form in which to
transport energy over long distances and can be easily adapted to a voltage level appropriate to a particular
application. It must be transformed into another energy form (mechanical, heat, light etc.) to be useful to
industry, commerce or domestically. Once constructed, there is little added value in generation from renewable
resources, the value to the State’s economy deriving from the added value from the industrial and commercial
activities that it facilitates.
The electricity supply system should, therefore, be part of the State’s infrastructure, and while required to
operate efficiently and without incurring loss, should not be considered as a major source of revenue from
dividends. For this reason, it is also important to carefully assess the value of selling electricity interstate and
ensure that it is not to the disadvantage of our local economy.
2. The influence of the conservation movement on the further development of our hydro resources is, in many
respects an accomplished fact, and unlikely to be significantly modified or reversed in the immediate future.
However, a direct consequence of the abandonment of the Gordon River Power Development Stage 2 (the
‘Gordon-below-Franklin’ scheme) is that the energy value of water stored in Lakes Gordon and Pedder, which
would have been about doubled by that development, has not been realized and the system is now deficient in
long-term storage capacity.
Long-term storage and associated generating plant is required not only to accommodate long-period variations
in catchment yield, but also to complement ‘as and when’ sources, coping with their fluctuating output and to
enable the full value of their contribution to the system rated energy capacity. Deficiency in such storage
reduces the security of supply and operating efficiency.
3. The hydro system pre-Gordon-below-Franklin was carefully coordinated to achieve a balance between the ‘runof-river’ schemes with short-to-medium term storage and the long-term storages and associated
4. The uncoordinated addition of solar and wind-powered generation, not only adds directly to electricity tariff costs
through associated subsidies and levies but adds to the problem of maintaining a secure, stable supply and
efficiently dispatching generation. Maintaining excessive ‘spinning’ spare plant on the system to cope with
unanticipated variations in input, reduces operating efficiency and increases costs.
Solar and wind-powered input displaces other generation, the capital costs of which still have to be serviced and
recovered from the consumer.
The highly excessive ‘feed-in’ purchase rate that was initially paid for surplus energy fed back into the system
from solar installations was wrongly founded and resulted in such installations being heavily subsidized by other,
mostly residential, consumers. The cost of transmission, distribution and reticulation is a major component of
tariffs set for most consumers. Contributions from ‘renewable’ sources do not in any way reduce such costs; the
only credit to the supplier is a possible reduction in incremental generation costs.
5. The advantages to Tasmania of participation in the National Energy Market are arguable, as is the value of the
servicing costs of BassLink. Apart from the issue of exporting energy to the disadvantage of our economy, the
imperative to make as much profit as possible, implies that energy sales should be based on opportunity rates
rather than actual cost and this is reflected into the domestic tariffs.
6. Until the early nineties, design and operating standards and tariffs were, subject to oversight by the Minister and
Parliament, set by the Commission itself. With a responsible and professional attitude to discharging its charter
as a commission, this was achieved, I think, to the reasonable satisfaction of the community. The Commission
was solely responsible and accountable for all of its operations. With the implementation of external regulation
and price control, much of this responsibility and accountability has been transferred to another entity.
7. What may be seen as desirable service standards can, nevertheless, be unrealistic in some cases and inevitably
add to the overall cost of supply.
With the need to return a high dividend and the risk that the Regulator may not uphold a recommended tariff
increase to its fullest extent, it is likely that submissions will have an ambit component. With the Regulator
unlikely to have the resources or expertise to critically examine such submissions in their entirety, there is a risk
that tariffs may be set at a higher level than necessary, with neither party able to be held fully accountable.
8. Conclusion.
These brief comments may be seen as unsubstantiated assertions but the need for brevity and time constraints
have not favoured a full development of the arguments. Given the opportunity I would be pleased to do so.
However, they suggest that my recommendations would be that:
 the value of electrical energy to the State is as an in-feed to industry and commerce and it is the value
added in such usage that contributes to the State’s economy; not its sale as a commodity. It follows from
this that the electricity supply system be regarded as part of the infra-structure supporting the community;
 as a consequence, the State should take full advantage of low cost generation from our system to foster
further industrial and commercial development and not use it as a trading advantage on the National Energy
market (NEM);
 external regulation of the industry be minimized if not eliminated, and that the supply system be reintegrated and established with clear responsibility for delivering a reliable high quality supply at low cost and
fully accountable to the Government and Parliament for its performance in respect of that responsibility;
 sale of energy interstate be insulated from the local market to avoid opportunity pricing in such trading
being reflected into local tariffs. This may be contrary to conditions associated with the NEM, and in that case
some re-consideration of the agreement may be in order;
 without seeking to inhibit the development of solar and wind energy facilities where advantageous, a
method of coordinating the addition of such plant be devised so that System designers and operators have
an understanding of the amount and spatial distribution of such plant and are better able to utilize it to
advantage.