AGL managing director Greg Martin said there was no doubt that global warming was a reality and carbon constraints would increasingly affect electricity generation.
There were other good reasons to invest in hydro-electric power, he said. It was a fast-start form of renewable energy, capable of catching five-minute national electricity market (NEM) price spikes that other forms of generation could not achieve.
By contrast, steam turbines take significantly longer to start from a cold start and coal generators require a minimum loading level – at least 30% of full load for black coal and 60% for brown coal – to remain stable.
Hydro assets also have a longer life, lower depreciation and lower operating costs than coal, gas or wind generators, according to AGL.
Martin told a corporatefile.com.au Open Briefing that the Bogong expansion project would deliver a further 130MW of hydro generation capacity and would be the last major hydro expansion opportunity for the national electricity market for some time.
“In addition to the extra generation capacity, it would enhance the operations of the other plants in the Kiewa scheme and qualify for RECs (renewable energy contracts) for all generation output,” Martin said.
“Capital payments for the project over the period to 2009 are estimated to be around $50 million per year.”
Earlier this year, Southern Hydro, then owned by New Zealand’s Meridian Energy, announced it would proceed with plans to upgrade the Kiewa Valley hydro-electricity scheme with a new power station and there would be no need to build a new dam.
In April, the Victorian government said it would provide $40,000 of funding for studying investment opportunities created by the Bogong Power Development Project.
Meanwhile, heavy rainfall and rising dam levels indicate Southern Hydro’s hydropower assets will perform better this year, according to Martin.
He said that water levels at its Dartmouth catchment were at 63% capacity – the highest storage levels since November 2002. In addition, its Eildon catchment at 49% is at the highest capacity since February 2001.
“Higher dam levels at Dartmouth and Eildon are important and they’re currently well on their way to recovery from the lows experienced in the recent drought,” Martin said.
“Higher dam levels deliver two benefits – increasing available generation and increasing the efficiency of the generators by raising the head-height. The Kiewa scheme isn’t significantly impacted by rainfall variations from year to year as it relies primarily on snowmelt to fill its catchment and its water isn’t allocated for irrigation purposes.”
AGL paid Meridian $A1.425 billion in October for the acquisition of Southern Hydro, which operates 737MW of renewable energy plants across Victoria, New South Wales, and South Australia – including Australia's largest wind farm, the 91MW Wattle Point facility on the Yorke Peninsula of South Australia. Its 646MW of hydropower resources draw from nine separate catchment areas and provide peaking power to the Australian national grid.
Other assets include 62MW of hydro generation in NSW bought by Meridian for $A85 million in April 2001, the 540MW Southern Hydro assets purchased in May 2003, and several wind farm and hydro developments currently in advanced planning stages.
Through Southern Hydro, Martin also said that AGL was now able to meet 30% of its total renewable energy certificates (RECs), under the Federal Government’s mandatory renewable energy targets (MRET) scheme.
Martin said the acquisition would deliver profitable growth through future investment in the upstream sector of the energy supply chain to support AGL’s large retail market position.
“It will also provide greater control over the future pricing and competitiveness of our wholesale electricity requirements by reducing our reliance on third-party competitors for electricity purchases, particularly at times of peak electricity demand,” he said.
“The acquisition also enhances the balance of our generation portfolio by adding hydro and wind generation assets. We now have a greater balance of base, intermediate and peak capacity power generation as well as a better geographical spread across our core markets.”
Martin said AGL had the largest peak electricity demand in the national electricity market, due to its large customer base in Victoria and South Australia.
“It’s predominantly at times of peak demand that wholesale electricity prices are highest, so we’ll benefit considerably by owning the fast-start renewable generation assets of Southern Hydro,” he said.
“Approximately 50% of our load occurs during peak demand times and this accounts for approximately 45% of our total electricity cost of goods sold.”
Martin added that by increasing AGL’s ownership of peaking capacity, the company would avoid paying significant contract premiums to third parties and could capitalise on the benefits of having a more balanced retail/wholesale portfolio.
