12th Annual Queensland State Energy Outlook
                                 Conference




          Queensland Governmen...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE




Acknowledgements
The author, Bob Graham, would like to acknowle...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE



TABLE OF CONTENTS
   EXECUTIVE SUMMARY _________________________...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE



LIST OF TABLES
   Table 1-1        Government-owned generator pl...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE




   Figure 2-4       Long term dispatch trends of major Queensla...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE




EXECUTIVE SUMMARY

This report summarises key features of the Q...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE




Figure 1-1 Return on assets

                                  ...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE




Figure 1-3 Cost-based merit order curve

                      ...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE




Figure 1-5 Cost-based merit order curve @ $50/tonne CO2-e

    ...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE



The generation-weighted pool price1 of major stations vs capacit...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE




Figure 1-8 Location of major plant in transmission network




...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE



Trends in selected but indicative marginal loss factors are show...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE




Figure 1-11           Swanbank B MLF (South-east Queensland)


...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE



By purchasing its own fuel supply, Tarong Energy has reduced its...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE




1 INTRODUCTION

This paper summarises key features of the Queen...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE




2 CS ENERGY


2.1      Current Portfolio
CS Energy has a widely...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE




2.3       Historical financial performance
According to a study...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE




Figure 2-1 Cost-based merit order curve

                      ...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE




Figure 2-2 Typical weekly dispatch pattern of Callide B (from 2...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE




Figure 2-4 Long term dispatch trends of major Queensland power ...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE




Three general observations can be made. Average prices were sig...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE




Figure 2-6 CS Energy plant in transmission network




        ...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE




2.5.3     North Queensland
Figure 2-7 shows the historical tren...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE




Figure 2-8 Callide B MLF


                                    ...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE




2.5.5   South-east Queensland
Figure 2-10 and Figure 2-11 show ...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE




These are stable, favourable values representing their relative...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE




•     Any augmentation of the QNI capacity to increase power fl...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE




2.6.2    Gas
Swanbank E’s gas requirements of approximately 18 ...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE




2.8.2                       Emissions from NEM power stations
T...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE



As its costs rise less than other plant, Swanbank E’s position i...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE




3 STANWELL


3.1    Current Portfolio
Stanwell has the largest ...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE




3.3     Historical financial performance
According to the Produ...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE




Figure 3-2 Typical weekly dispatch pattern of Gladstone (from 2...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE




Figure 3-3 Stanwell plant in transmission network




   Barron...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE




Figure 3-4 Stanwell MLF

                                      ...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE




The north Queensland hydro stations have higher values but have...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE



As seen in Figure 2-13 and Figure 2-14, Stanwell’s major thermal...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE




4 TARONG ENERGY


4.1       Current Portfolio
Tarong has a conc...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE




Figure 4-1 Typical weekly dispatch pattern of Tarong (from 20 J...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE




generation early in the year and reduced generation due to wate...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE




transmission upgrades as well as the presence in the portfolio ...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE




Figure 4-5 Tarong MLF


                                       ...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE




4.6      Fuel
Tarong, and latterly Tarong North, have historica...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE




4.8   Greenhouse Intensity
The greenhouse intensity of Tarong E...
12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE




5 CONCLUSIONS

CS Energy has a diversified and lower risk portf...
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Bob Graham-Queensland Government Owned Generators Comparative Study

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A comparative study of the three power generation companies owned by the Queensland government

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Transcript of "Bob Graham-Queensland Government Owned Generators Comparative Study"

  1. 1. 12th Annual Queensland State Energy Outlook Conference Queensland Government-owned Generators – A comparative study 18 September 2008
  2. 2. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE Acknowledgements The author, Bob Graham, would like to acknowledge the assistance of Grethe Casson of MMA, and several reviewers within MMA and in other corporations for their comments. Melbourne Office Brisbane Office Canberra Office 242 Ferrars Street GPO Box 2421 Tel: +61 2 6257 5423 South Melbourne Vic 3205 Brisbane Qld 4001 Tel: +61 3 9699 3977 Tel: +61 7 3100 8064 Fax: +61 3 9690 9881 Fax: +61 7 3100 8067 Email: mma@mmassociates.com.au ACN: 004 765 235 Website: www.mmassociates.com.au ABN: 33 579 847 254 , 18 September 2008 McLennan Magasanik Associates
  3. 3. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE TABLE OF CONTENTS EXECUTIVE SUMMARY _________________________________________________________I 1 INTRODUCTION _________________________________________________________ 1 2 CS ENERGY ______________________________________________________________ 2 2.1 Current Portfolio _____________________________________________________ 2 2.2 Future Projects _______________________________________________________ 2 2.3 Historical financial performance________________________________________ 3 2.4 Market position ______________________________________________________ 3 2.5 Market access ________________________________________________________ 7 2.6 Fuel _______________________________________________________________ 13 2.7 Water supply _______________________________________________________ 14 2.8 Greenhouse Intensity ________________________________________________ 14 3 STANWELL _____________________________________________________________ 17 3.1 Current Portfolio ____________________________________________________ 17 3.2 Future Projects ______________________________________________________ 17 3.3 Historical financial performance_______________________________________ 18 3.4 Market position _____________________________________________________ 18 3.5 Market access _______________________________________________________ 19 3.6 Fuel _______________________________________________________________ 22 3.7 Water supply _______________________________________________________ 22 3.8 Greenhouse Intensity ________________________________________________ 22 4 TARONG ENERGY ______________________________________________________ 24 4.1 Current Portfolio ____________________________________________________ 24 4.2 Future Projects ______________________________________________________ 24 4.3 Historical financial performance_______________________________________ 24 4.4 Market position _____________________________________________________ 24 4.5 Market access _______________________________________________________ 26 4.6 Fuel _______________________________________________________________ 29 4.7 Water supply _______________________________________________________ 29 4.8 Greenhouse Intensity ________________________________________________ 30 5 CONCLUSIONS _________________________________________________________ 31 18 September 2008 i McLennan Magasanik Associates
  4. 4. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE LIST OF TABLES Table 1-1 Government-owned generator plant ____________________________________ i Table 2-1 CS Energy plant_____________________________________________________ 2 Table 2-2 Historical financial performance_______________________________________ 3 Table 2-3 Selected CS Energy coal suppliers ____________________________________ 13 Table 2-4 Greenhouse gas emissions factors for combustion of fuels ________________ 14 Table 2-5 Emissions intensity of CS Energy NEM plant___________________________ 15 Table 3-1 Stanwell plant _____________________________________________________ 17 Table 3-2 Emissions intensity of Stanwell plant__________________________________ 22 Table 4-1 Tarong Energy plant________________________________________________ 24 Table 4-2 Tarong power stations’ fuel supply options ____________________________ 29 Table 4-3 Emissions intensity of Tarong Energy plant ____________________________ 30 LIST OF FIGURES Figure 1-1 Return on assets ____________________________________________________ ii Figure 1-2 Return on equity ____________________________________________________ ii Figure 1-3 Cost-based merit order curve _________________________________________iii Figure 1-4 Cost-based merit order curve @ $20/tonne CO2-e ________________________iii Figure 1-5 Cost-based merit order curve @ $50/tonne CO2-e ________________________ iv Figure 1-6 Long term dispatch trends of major Queensland power stations ___________ iv Figure 1-7 Generation-weighted pool price vs capacity factor _______________________ v Figure 1-8 Location of major plant in transmission network_________________________ vi Figure 1-9 Collinsville MLF (North Queensland) _________________________________ vii Figure 1-10 Stanwell MLF (Central Queensland) __________________________________ vii Figure 1-11 Swanbank B MLF (South-east Queensland) ____________________________viii Figure 1-12 Tarong MLF (South-west Queensland) ________________________________viii Figure 1-13 Greenhouse intensity 2007/08_________________________________________ ix Figure 2-1 Cost-based merit order curve _________________________________________ 4 Figure 2-2 Typical weekly dispatch pattern of Callide B (from 20 Jan 2008)____________ 5 Figure 2-3 Typical weekly dispatch pattern of Callide Power Plant (from 23 Mar 2008) _ 5 18 September 2008 ii McLennan Magasanik Associates
  5. 5. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE Figure 2-4 Long term dispatch trends of major Queensland power stations ___________ 6 Figure 2-5 Generation-weighted pool price vs capacity factor _______________________ 6 Figure 2-6 CS Energy plant in transmission network _______________________________ 8 Figure 2-7 Collinsville MLF ____________________________________________________ 9 Figure 2-8 Callide B MLF _____________________________________________________ 10 Figure 2-9 Callide Power Plant MLF____________________________________________ 10 Figure 2-10 Swanbank B MLF __________________________________________________ 11 Figure 2-11 Swanbank E MLF __________________________________________________ 11 Figure 2-12 Kogan Creek MLF__________________________________________________ 12 Figure 2-13 Cost-based merit order curve @ $20/tonne CO2-e _______________________ 15 Figure 2-14 Cost-based merit order curve @ $50/tonne CO2-e _______________________ 16 Figure 3-1 Typical weekly dispatch pattern of Stanwell (from 17 Feb 2008)___________ 18 Figure 3-2 Typical weekly dispatch pattern of Gladstone (from 20 Jan 2008)__________ 19 Figure 3-3 Stanwell plant in transmission network _______________________________ 20 Figure 3-4 Stanwell MLF______________________________________________________ 21 Figure 3-5 Gladstone MLF ____________________________________________________ 21 Figure 4-1 Typical weekly dispatch pattern of Tarong (from 20 Jan 2008) ____________ 25 Figure 4-2 Typical weekly dispatch pattern of Tarong North (from 20 Jan 2008) ______ 25 Figure 4-3 Tarong Energy plant in transmission network __________________________ 26 Figure 4-4 Wivenhoe MLF ____________________________________________________ 27 Figure 4-5 Tarong MLF _______________________________________________________ 28 Figure 4-6 Tarong North MLF _________________________________________________ 28 18 September 2008 iii McLennan Magasanik Associates
  6. 6. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE EXECUTIVE SUMMARY This report summarises key features of the Queensland Government-owned generators with an emphasis on commercial and market aspects, including the plant dispatched through Power Purchase Agreements. Details of the plant are shown in Table 1-1. Table 1-1 Government-owned generator plant Market Fuel CS Energy-controlled plant MW Share Region Fuel Ownership Fuel Supply Callide B 700 Central Qld Coal 3rd party Conveyor 2km 50% Callide Power Plant 450 Central Qld Coal 3rd party Conveyor 2km Kogan Creek 724 SW Qld Coal Own fuel Conveyor 4km Collinsville PPA 187 North Qld Coal 3rd party Conveyor 1km Swanbank B 480 SE Qld Coal 3rd party Truck/Rail 5-200km Swanbank E 350 SE Qld Gas 3rd party Pipeline 500km NEM Total 2,891 26% Mica Creek 325 NW Qld Gas 3rd party Pipeline 700km Total 3,216 Market Fuel Stanwell-controlled plant MW Share Region Fuel Ownership Fuel Supply Barron Gorge 60 North Qld Hydro 3rd party River Gladstone PPA 1,680 Central Qld Coal 3rd party Rail 500km Kareeya 88 North Qld Hydro River Koombooloomba 7 North Qld Hydro River Wivenhoe small hydro 5 SE Qld Hydro River Mackay GT 34 North Qld Liquid 3rd party Truck 400km Stanwell 1,440 Central Qld Coal 3rd party Rail 400km Total 3,314 30% Market Fuel Tarong Energy-controlled plant MW Share Region Fuel Ownership Fuel Supply Tarong 1,400 SW Qld Coal Own fuel 1-16 km Conveyor Tarong North 50% PPA 443 SW Qld Coal Own fuel 1-16 km Conveyor Wivenhoe 500 SE Qld PS Hydro Local Total 2,343 21% All are pursuing development projects, but CS Energy is considered most likely to lower their carbon intensity in the near term. Financial performance is summarised in Figure 1-1 and Figure 1-2 with the effects of the drought on Tarong clearly shown. , 18 September 2008 i McLennan Magasanik Associates
  7. 7. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE Figure 1-1 Return on assets Return on assets 25% 20% 15% 10% 5% 0% 2004/05 2005/06 2006/07 -5% CS Energy Stanwell Tarong Energy Figure 1-2 Return on equity Return on equity 25% 20% 15% 10% 5% 0% 2004/05 2005/06 2006/07 -5% CS Energy Stanwell Tarong Energy The market position based on publicly reported generating costs is shown in Figure 1-3, which shows Tarong and Kogan Creek in strong base-load positions, with Stanwell having significant pricing power. , 18 September 2008 ii McLennan Magasanik Associates
  8. 8. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE Figure 1-3 Cost-based merit order curve Queensland Thermal Merit Order including GEC, NGAC & MLF effects $80 $70 Privately-controlled $60 Ergon $50 $/MWh sent out $40 $30 Stanwell $20 Tarong CS Energy $10 Swanbank E $- - 2,000 4,000 6,000 8,000 10,000 12,000 Cumulative MW Using a very approximate analysis, this curve would change as per Figure 1-4 and Figure 1-5 under two carbon price scenarios. Figure 1-4 Cost-based merit order curve @ $20/tonne CO2-e Queensland Thermal Merit Order including GEC, NGAC* & MLF effects @$20/tonne CO2-e *NGAC to be discontinued $80 $70 $60 $50 LRMC NE CCGT SEQ $/MWh sent out CS Energy $40 Privately-controlled Stanwell $30 SRMC NE CCGT SEQ Tarong $20 Swanbank E $10 $- - 2,000 4,000 6,000 8,000 10,000 12,000 Cumulative MW , 18 September 2008 iii McLennan Magasanik Associates
  9. 9. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE Figure 1-5 Cost-based merit order curve @ $50/tonne CO2-e Queensland Thermal Merit Order including GEC, NGAC* & MLF effects @$50/tonne CO2-e *NGAC to be discontinued $80 $70 Tarong $60 LRMC NE CCGT SEQ Stanwell $50 $/MWh sent out Privately-controlled $40 CS Energy SRMC NE CCGT SEQ $30 Swanbank E $20 $10 $- - 2,000 4,000 6,000 8,000 10,000 12,000 Cumulative MW The long term capacity factors of Tarong and Gladstone have increased over time, while Callide B has fallen as shown in Figure 1-6. Figure 1-6 Long term dispatch trends of major Queensland power stations Dispatch of major Queensland power stations before and after the NEM 100% Merit Order Dispatch prior to 1998 NEM from 1999 onwards Tarong drought effect not included 90% Tarong 80% Callide B Stanwell being commissioned CF 70% Stanwell 60% Gladstone 50% 40% 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 Financial Years , 18 September 2008 iv McLennan Magasanik Associates
  10. 10. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE The generation-weighted pool price1 of major stations vs capacity factor for the last three years is shown in Figure 1-7. Figure 1-7 Generation-weighted pool price vs capacity factor 2005-06, 2006-07 and 2007-08 Financial Years $60 Ave rage Price s $55 $52.34 (2007-08) Generator Weighted Average Price $52.14 (2006-07) $50 $45 $40 $35 $30 $28.12 (2005-06) $25 30% 40% 50% 60% 70% 80% 90% 100% Capacity Factor Callide Pow er Plant Callide B Gladstone Stanw ell Tarong Tarong North A verage prices While lower capacity factors may ideally be offset by higher pool prices, this trend is really only seen in 2005/06. The drought and other forced outages have affected this outcome. As shown in Figure 1-8, from a network point of view, Barron Gorge, Kareeya and Collinsville are well located in North Queensland, and Swanbank and Wivenhoe in south- east Queensland. 1 This is similar to price received, except for the effects of parasitic load and MLF, which have not been applied. , 18 September 2008 v McLennan Magasanik Associates
  11. 11. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE Figure 1-8 Location of major plant in transmission network Barron Gorge Kareeya Collinsville Stanwell Callide B Callide Power Gladstone Tarong Tarong North Kogan Creek Swanbank B & E • Wivenhoe , 18 September 2008 vi McLennan Magasanik Associates
  12. 12. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE Trends in selected but indicative marginal loss factors are shown in Figure 1-9 to Figure 1-12. Higher marginal loss factors show more favourable locations. Figure 1-9 Collinsville MLF (North Queensland) Collinsville PS MLF 1.100 1.050 MLF 1.000 Linear Trend 0.950 0.900 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Financial Year Ending June Figure 1-10 Stanwell MLF (Central Queensland) Stanwell PS MLF 1.100 1.050 MLF 1.000 Linear Trend 0.950 0.900 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Financial Year Ending June , 18 September 2008 vii McLennan Magasanik Associates
  13. 13. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE Figure 1-11 Swanbank B MLF (South-east Queensland) Swanbank B PS MLF 1.100 1.050 MLF 1.000 Linear Trend 0.950 0.900 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Financial Year Ending June Figure 1-12 Tarong MLF (South-west Queensland) Tarong PS MLF 1.1 1.05 1 MLF Linear Trend 0.95 0.9 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Financial Year Ending June While south-west Queensland marginal loss factors are not too unfavourable, increasing generation capacity in this area is likely to make future marginal loss factors somewhat volatile. , 18 September 2008 viii McLennan Magasanik Associates
  14. 14. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE By purchasing its own fuel supply, Tarong Energy has reduced its fuel supply risk and dispatch risk to the lowest risk position compared to the other generators. Others have partially implemented this strategy. Stanwell is in the lowest risk position concerning water supply. CS Energy has achieved the lowest greenhouse intensity thanks to its gas-fired generation from Swanbank E, while Stanwell has had some benefit from its hydro plant. This does not include any carbon off-sets. Figure 1-13 Greenhouse intensity 2007/08 Portfolio Greenhouse Intensity 0.90 0.89 0.88 0.87 t CO2-e /MWh so 0.86 0.85 0.84 0.83 0.82 0.81 0.80 CS Energy Stanwell Tarong Energy To sum up the commercial and market strengths of the three portfolios, CS Energy would be the lowest risk, Stanwell the largest market position, and Tarong the lowest marginal cost. , 18 September 2008 ix McLennan Magasanik Associates
  15. 15. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE 1 INTRODUCTION This paper summarises key features of the Queensland Government-owned Corporations whose primary business is power generation (GOGs). These organisations control 77% of the generating capacity in the Queensland Region of the NEM. The focus is on commercial and market aspects of the organisations rather than on engineering assets or human resources. Plant which a GOG does not own, but has the right to dispatch through a Power Purchase Agreement (PPA), are therefore included in its portfolio and this analysis. Information has been sourced from their web-sites1 and annual reports, unless referenced otherwise. Any opinions and judgements are those of the author. The author has worked extensively for NRG Energy Inc., the part-owner and operator of Gladstone power station, as an employee and now as a consultant, and in the state-owned electricity industry before that. 1 http://csenergy.com.au/ , http://www.stanwell.com/ , http://www.tarongenergy.com.au/ , 18 September 2008 1 McLennan Magasanik Associates
  16. 16. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE 2 CS ENERGY 2.1 Current Portfolio CS Energy has a widely dispersed portfolio of 3,216 MW of plant across Northern, Central and Southern Queensland, providing a strong locational diversity for physical risks. It has fuel diversity across coal and gas. Characteristics of its plant are summarised in Table 2-1. Table 2-1 CS Energy plant Market Fuel CS Energy-controlled plant MW Share Region Fuel Ownership Fuel Supply Callide B 700 Central Qld Coal 3rd party Conveyor 2km 50% Callide Power Plant 450 Central Qld Coal 3rd party Conveyor 2km Kogan Creek 724 SW Qld Coal Own fuel Conveyor 4km Collinsville PPA 187 North Qld Coal 3rd party Conveyor 1km Swanbank B 480 SE Qld Coal 3rd party Truck/Rail 5-200km Swanbank E 350 SE Qld Gas 3rd party Pipeline 500km NEM Total 2,891 26% Mica Creek 325 NW Qld Gas 3rd party Pipeline 700km Total 3,216 CS Energy trades the output of Collinsville into the NEM under a PPA which lasts until 20162. 2.2 Future Projects In the past, CS Energy has successfully developed and constructed Kogan Creek power station, the Swanbank E Combined Cycle Gas Turbine (CCGT) power station and the Callide Power Project as part of a joint venture. Currently it “is completing technical and economic feasibility work for Swanbank F”, another CCGT unit. It has also executed a farm-in agreement with Metgasco3 for future gas supplies from New South Wales. In conjunction with AGL, CS Energy is reviewing expansion opportunities for Mica Creek. From 2009, CS Energy intends to trial an oxy-firing demonstration plant at its de- commissioned Callide A site. This is an option for increasing the concentration of CO2 in power station waste gases to make it more cost-effective to extract, by burning the coal in “a mixture of oxygen and recirculated flue gas” instead of air. There are many parties involved as partners, and the project is partially federally funded. It is not public what rights to any new intellectual property would accrue to CS Energy. Both the Swanbank and Kogan Creek sites are understood to have the potential for further greenfield expansion. 2 NRG Energy Inc. Annual Report 2000, www.NRGEnergy.com 3 http://www.csenergy.com.au/_cmsimages/csenergy/pdfs/2006/061213%20metgasco%20farmin.pdf 18 September 2008 2 McLennan Magasanik Associates
  17. 17. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE 2.3 Historical financial performance According to a study by the Productivity Commission4, CS Energy has made a return on assets of 5.5% over three recent years, and a return on total equity of 11.9%. This equity return was the highest of the three GOGs. Details are shown in Table 2-2. Table 2-2 Historical financial performance Return on assets 2004/05 2005/06 2006/07 Average Qld Pool Price $ 28.96 $ 28.12 $ 52.14 $ 36.41 CS Energy 4.5% 5.2% 6.9% 5.5% Stanwell 3.6% 7.6% 13.6% 8.3% Tarong Energy 9.0% 7.3% -0.1% 5.4% Average 5.7% 6.7% 6.8% 6.4% Return on total equity 2004/05 2005/06 2006/07 Average Qld Pool Price $ 28.96 $ 28.12 $ 52.14 $ 36.41 CS Energy 8.3% 8.1% 19.2% 11.9% Stanwell 4.1% 8.4% 21.8% 11.4% Tarong Energy 12.1% 9.7% 2.4% 8.1% Average 8.2% 8.7% 14.5% 10.5% 2.4 Market position CS Energy has some of the lowest variable cost plant in Queensland in Kogan Creek, Callide B and 50% of the Callide Power Project. Other CS Energy plants are relatively higher cost. As seen in Figure 2-1, this results in CS Energy having plant spread intermittently across the cost-based merit order curve. 4 Financial Performance of Government Trading Enterprises 2004–05 to 2006–07, July 2008, http://www.pc.gov.au/__data/assets/pdf_file/0003/82227/gte-2006-07.pdf 18 September 2008 3 McLennan Magasanik Associates
  18. 18. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE Figure 2-1 Cost-based merit order curve Queensland Thermal Merit Order including GEC, NGAC & MLF effects $80 $70 Privately-controlled $60 Ergon $50 $/MWh sent out $40 $30 Stanwell $20 Tarong CS Energy $10 Swanbank E $- - 2,000 4,000 6,000 8,000 10,000 12,000 Cumulative MW The above costs are based on NEMMCO’s 2008 transmission planning assumptions5, and are adjusted for transmission Marginal Loss Factors (MLF). These costs are used because they are publicly available and have been consulted on. MMA has its own views on generator costs which may differ in some cases from those above. A typical week’s dispatch pattern for Callide B power station and the Callide Power Plant are shown in Figure 2-2 and Figure 2-3. 5 2008 ANTS Consultation: Final Report, http://www.nemmco.com.au/psplanning/410-0099.pdf Table 46, adjusted for MLF 18 September 2008 4 McLennan Magasanik Associates
  19. 19. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE Figure 2-2 Typical weekly dispatch pattern of Callide B (from 20 Jan 2008) Callide B MW Generated Price 700 $140 600 $120 500 $100 400 $/MWh $80 MW 300 $60 200 $40 100 $20 - $- 1 49 97 145 193 241 289 Half-hours of the week starting Sunday Figure 2-3 Typical weekly dispatch pattern of Callide Power Plant (from 23 Mar 2008) Callide Pow Plant er MW Generated Price 900 $140 800 $120 700 $100 600 $/MWh 500 $80 MW 400 $60 300 $40 200 $20 100 - $- 1 49 97 145 193 241 289 Half-hours of the week starting Sunday Over the long term, Callide B has fallen from capacity factors in excess of 90% to closer to 80% in recent years, as shown in Figure 2-4. 18 September 2008 5 McLennan Magasanik Associates
  20. 20. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE Figure 2-4 Long term dispatch trends of major Queensland power stations Dispatch of major Queensland power stations before and after the NEM 100% Merit Order Dispatch prior to 1998 NEM from 1999 onwards Tarong drought effect not included 90% Tarong 80% Callide B Stanwell being commissioned CF 70% Stanwell 60% Gladstone 50% 40% 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 Financial Years The generation-weighted pool price6 of major stations vs capacity factor for the last three years is shown in Figure 2-5. Figure 2-5 Generation-weighted pool price vs capacity factor 2005-06, 2006-07 and 2007-08 Financial Years $60 Ave rage Price s $55 $52.34 (2007-08) Generator Weighted Average Price $52.14 (2006-07) $50 $45 $40 $35 $30 $28.12 (2005-06) $25 30% 40% 50% 60% 70% 80% 90% 100% Capacity Factor Callide Pow er Plant Callide B Gladstone Stanw ell Tarong Tarong North A verage prices 6 This is similar to pool price received, except for the effects of parasitic load and MLF, which have not been applied. 18 September 2008 6 McLennan Magasanik Associates
  21. 21. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE Three general observations can be made. Average prices were significantly higher in the last two years, compared to before the drought. Kogan Creek’s generation has had the effect of reducing the capacity factor of all other plant in 2007/08. If a generator can choose the timing of its outages, for a given year, a lower capacity factor would be expected to result in a higher generation-weighted price, which is most clearly seen in 2005/06. Forced outages and contract positions would affect this pattern. Callide Power Plant recovered from a low dispatch year in 2005/06. While 2006/07 seems more normal between these two plants, in 2007/08, Callide Power Plant had a lower capacity factor and price than Callide B. 2.5 Market access 2.5.1 Location in network The location of CS Energy’s plant in the Queensland transmission network is shown in Figure 2-6, courtesy of Powerlink7. This flow diagram is of the summer of 2010/11 after some years of load growth. Collinsville and Swanbank are well located in power importing areas and are unlikely to be constrained down in their generation. The larger Callide stations and Kogan Creek are less well located from a market access viewpoint. 7 Powerlink 2008 Annual Planning Report, http://www.powerlink.com.au/data/portal/00005056/content/56727001214541091625.pdf 18 September 2008 7 McLennan Magasanik Associates
  22. 22. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE Figure 2-6 CS Energy plant in transmission network Collinsville Callide B Callide Power Kogan Creek Swanbank B & E • 2.5.2 Marginal loss factors Transmission Marginal Loss Factors in the NEM affect the pool revenue of a power station and its ability to trade contracts at the regional reference node. The more local supply exceeds local demand, the lower the MLF will be and the lower the energy market revenue available to the plant. Local supply includes local generation and imports by transmission. CS Energy has a widely varying exposure to this issue because of the varying location of its NEM power stations in Queensland, Collinsville, Callide B, Callide C, Swanbank B and E, and Kogan Creek. 18 September 2008 8 McLennan Magasanik Associates
  23. 23. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE 2.5.3 North Queensland Figure 2-7 shows the historical trend in MLF for its north Queensland power station, Collinsville, as published by NEMMCO since 1998/99. Figure 2-7 Collinsville MLF Collinsville PS MLF 1.100 1.050 MLF 1.000 Linear Trend 0.950 0.900 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Financial Year Ending June Historically, this has generally been above 1.00 and quite favourable. However while north Queensland’s load is growing strongly, more generation has also been locating there, bringing MLFs down. Transmission reinforcement from central Queensland is also lowering MLFs. However further reductions are considered less likely without a fuel source for new high capacity factor plant. 2.5.4 Central Queensland Figure 2-8 and Figure 2-9 show the historical trend in MLF for its central Queensland power stations, Callide B and Callide Power Plant. 18 September 2008 9 McLennan Magasanik Associates
  24. 24. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE Figure 2-8 Callide B MLF Callide B PS MLF 1.100 1.050 MLF 1.000 Linear Trend 0.950 0.900 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Financial Year Ending June Figure 2-9 Callide Power Plant MLF Callide Power Plant MLF 1.100 1.050 MLF 1.000 Linear Trend 0.950 0.900 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Financial Year Ending June These values are low and trending worse. Given the ample coal reserves in Central Queensland the long-term trend may remain unfavourable, but may also be mitigated by the commissioning of new stations in South-West Queensland. 18 September 2008 10 McLennan Magasanik Associates
  25. 25. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE 2.5.5 South-east Queensland Figure 2-10 and Figure 2-11 show the historical trend in MLF for its south-east Queensland power stations, Swanbank B and Swanbank E. Figure 2-10 Swanbank B MLF Swanbank B PS MLF 1.100 1.050 MLF 1.000 Linear Trend 0.950 0.900 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Financial Year Ending June Figure 2-11 Swanbank E MLF Swanbank E PS MLF 1.100 1.050 MLF 1.000 Linear Trend 0.950 0.900 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Financial Year Ending June 18 September 2008 11 McLennan Magasanik Associates
  26. 26. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE These are stable, favourable values representing their relative proximity to Queensland’s regional reference node at South Pine. 2.5.6 South-west Queensland Figure 2-12 shows the recent MLFs for its new south-west Queensland power station, Kogan Creek. Figure 2-12 Kogan Creek MLF Kogan Creek PS MLF 1.100 1.050 1.000 MLF 0.950 0.900 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Financial Year Ending June The MLF is currently not too unfavourable. In the future, a high volatility is considered likely for MLFs in this region. For some future time periods, MLFs are likely to decrease due to the following factors: • The commissioning of Braemar 2 and Darling Downs power stations will further increase power flows from south-west Queensland to the Brisbane region, reducing these MLFs. • Any further development of gas fired intermediate generation in south-west Queensland would also reduce MLFs. While it is possible that intermediate gas fired generation will be sited closer to Brisbane or in central Queensland, south-west Queensland remains a favourable area for generation development. There are also some factors which may cause MLFs to increase. These are: • The augmentation of transmission capacity from Millmerran and Tarong to Brisbane and the Gold Coast should reduce losses for a given power flow and provide some MLF relief for a period until transmission flows build up to rated levels again. 18 September 2008 12 McLennan Magasanik Associates
  27. 27. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE • Any augmentation of the QNI capacity to increase power flows south may also enhance the MLF for south-west Queensland as the power flow from Tarong to Brisbane is reduced. This would also mitigate the impact of additional capacity built in the Bulli Creek/Braemar area. A likely future for this region is regular decreases in MLF with increasing generation, relieved from time to time with increases resulting from augmented transmission capacity, leading to a volatile future for south-west Queensland MLFs. 2.6 Fuel 2.6.1 Coal Collinsville is supplied from an adjacent mine owned by Xstrata coal. Except for local physical supply issues, this will ensure fuel supply security. The terms of Collinsville’s PPA are not public concerning energy pricing or fuel pricing from the mine to Collinsville power station. The Callide stations are supplied with 5.8 – 6.0 million tpa8 from an adjacent mine owned by Anglo Coal. Except for local physical supply issues, this also ensures fuel supply security. The terms of the fuel pricing from the mine to the Callide power stations are not public. Swanbank B’s coal supply of approximately 1 million tpa is trucked “and railed from mines in South-east Queensland, including Oakleigh, Jeebropilly and Acland.” Kogan Creek power station is supplied with 2.8 million tpa from its adjacent mine also owned by CS Energy. Except for local physical supply issues, this will ensure fuel supply security, and relative security of fuel pricing. Some details of CS Energy’s coal suppliers are shown in Table 2-3. Table 2-3 Selected CS Energy coal suppliers9 Size Gross (Measured Specific % Ash Fusion- Distance Open cut Energy Moisture Deformation Hardgrove (km) Delivery Ownership Thermal Mt) (MJ/kg ad) (ad) % Ash C Grindability Callide Mine Callide Southern 2 Conveyor Anglo Coal 225 20.8 10.9 18.9 1,334 85 Kogan Creek mine Raw coal 4 Conveyor CS Energy 310 21.1 8.4 26.6 1,320 40 Except for Kogan Creek CS Energy remains exposed to future long term volatility in coal prices. 8 Terms of reference for an Environmental Impact Statement Boundary Hill Mine Extension Project, Part A, http://www.epa.qld.gov.au/register/p02396aa 9 Coal specifications from Queensland Coals 2003 18 September 2008 13 McLennan Magasanik Associates
  28. 28. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE 2.6.2 Gas Swanbank E’s gas requirements of approximately 18 PJpa are initially being “supplied from the Scotia gas field near Wandoan via the Roma to Brisbane Pipeline”. Other gas supply deals have been done with Arrow Energy10 for the Kogan North field, Santos, QGC, BHPBilliton and the Metgasco deal metioned in Section 2.2. Mica Creek’s gas requirements of approximately 21 PJpa are “conveyed from the southwest Queensland gas fields, via the Carpentaria gas pipeline”. Except for any gas farm-in arrangements, CS Energy is exposed to future long term volatility in gas prices. 2.7 Water supply Swanbank power stations are supplied from Wivenhoe dam, the Warrill Scheme and recycled water. The last option was developed in response to the recent drought, and has been operational since August 200711. Wivenhoe supplies most of south-east Queensland’s water. As a combined cycle plant, Swanbank E has a lower water usage than conventional coal-fired plant. The Callide stations are supplied from Awoonga dam. Awoonga dam has been affected by drought previously. Kogan Creek is supplied from local bores, and being dry-cooled has very low water usage. 2.8 Greenhouse Intensity 2.8.1 Greenhouse intensity of fuel burnt The following emissions factors were used from the National Greenhouse and Energy Reporting (Measurement) Technical Guidelines 2008 v1.012 published by the Department of Climate Change. Table 2-4 Greenhouse gas emissions factors for combustion of fuels Combustion of fuels only kg Co2-e/GJ Reference Method 1, All gases Black coal 88.43 Table 2.2.2 Natural gas 51.33 Table 2.3.2 Diesel fuel 69.50 Table 2.4.2A Emissions from production of fuels were not addressed, and hydro is assumed to produce negligible emissions. 10 http://www.csenergy.com.au/_cmsimages/csenergy/pdfs/pre2005/0412csearrowrelease_001.pdf 11 http://www.westerncorridor.com.au/Media/media_releases/Purified_recycled_water_read_for_swanbank.pdf 12 http://www.climatechange.gov.au/reporting/guidelines/pubs/nger-technical-guidelines.pdf 18 September 2008 14 McLennan Magasanik Associates
  29. 29. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE 2.8.2 Emissions from NEM power stations The greenhouse intensity of CS Energy’s NEM power stations and portfolio was derived for the 2007/08 year. The Heat Rates are based on NEMMCO’s 2008 transmission planning assumptions13. These Heat Rates are used because they are publicly available and have been consulted on. MMA has its own views on generator Heat Rates which may differ in some cases from those below. Table 2-5 Emissions intensity of CS Energy NEM plant Emissions Heat Rate Emissions 2007/08 Intensity kg GJ/MWh Intensity t CO2- Capacity CS Energy-controlled plant MW Fuel CO2-e/GJ so e/MWh so Factor Callide B 700 Coal 88.43 9.97 0.882 75% 50% Callide Power Plant 450 Coal 88.43 9.23 0.816 72% Kogan Creek 724 Coal 88.43 9.47 0.838 71% Collinsville 187 Coal 88.43 13.00 1.149 47% Swanbank B 480 Coal 88.43 11.50 1.017 49% Swanbank E 350 Gas 51.33 7.06 0.362 63% NEM Total 2,891 0.83 At 0.83 t CO2-e / MWh, the portfolio has the lowest intensity of any of the GOGs. This ignores any carbon off-set activities, and will be even lower if Swanbank F proceeds. Figure 2-13 shows the impact of a carbon cost of $20/t CO2-e on the cost-based merit order curve. This is simply added to current costs and does not include considerations such as the removal of NGACs, increasing gas and other costs, changes in Tarong’s marginal costs and peak/off-peak roles. Figure 2-13 Cost-based merit order curve @ $20/tonne CO2-e Queensland Thermal Merit Order including GEC, NGAC* & MLF effects @$20/tonne CO2-e *NGAC to be discontinued $80 $70 $60 $50 LRMC NE CCGT SEQ $/MWh sent out CS Energy $40 Privately-controlled Stanwell $30 SRMC NE CCGT SEQ Tarong $20 Swanbank E $10 $- - 2,000 4,000 6,000 8,000 10,000 12,000 Cumulative MW 13 2008 ANTS Consultation: Final Report, http://www.nemmco.com.au/psplanning/410-0099.pdf Table 46, Thermal efficiencies converted to Heat Rates 18 September 2008 15 McLennan Magasanik Associates
  30. 30. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE As its costs rise less than other plant, Swanbank E’s position improves to third position. The short-run marginal cost of a new entrant CCGT plant in South-east Queensland, based on NEMMCO’s assumptions, is also shown. Such a new entrant plant would be dispatched before most plant in Queensland at this carbon price. For such a new entrant plant, NEMMCO assume fixed costs of $115 / kWpa. At a conservatively assumed capacity factor of 60%, this translates to an additional $22/MWh in fixed costs, and a long run marginal cost of $46/MWh. Most plants would still be returning significant contributions to fixed costs in this scenario. MMA has its own views on generator costs which may differ in some cases from those above. Figure 2-14 similarly shows the impact of a carbon cost of $50/t CO2-e on the cost-based merit order curve. Figure 2-14 Cost-based merit order curve @ $50/tonne CO2-e Queensland Thermal Merit Order including GEC, NGAC* & MLF effects @$50/tonne CO2-e *NGAC to be discontinued $80 $70 Tarong $60 LRMC NE CCGT SEQ Stanwell $50 $/MWh sent out Privately-controlled $40 CS Energy SRMC NE CCGT SEQ $30 Swanbank E $20 $10 $- - 2,000 4,000 6,000 8,000 10,000 12,000 Cumulative MW Swanbank E moves to be the lowest cost thermal plant and only highly efficient coal-fired plant would make any contributions to fixed costs from a long run marginal cost of $57/MWh. Some plant may still be viable with reduced dispatch. This is intended to be a simple illustration and detailed market modelling would provide more useful analysis. 18 September 2008 16 McLennan Magasanik Associates
  31. 31. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE 3 STANWELL 3.1 Current Portfolio Stanwell has the largest portfolio of 3,314 MW in a widely dispersed portfolio of plant, although its major plant is all located in Central Queensland. It has fuel diversity across coal and hydro, although once again its major plant is all coal-fired. Since 2007 it controls the dispatch of the Gladstone power station, which is owned by a consortium of private owners including NRG Energy, Inc., Rio Tinto Alcan and several Japanese companies. This power purchase agreement ends in 202914. Characteristics of its plant are summarised in Table 3-1. Table 3-1 Stanwell plant Market Fuel Stanwell-controlled plant MW Share Region Fuel Ownership Fuel Supply Barron Gorge 60 North Qld Hydro 3rd party River Gladstone PPA 1,680 Central Qld Coal 3rd party Rail 500km Kareeya 88 North Qld Hydro River Koombooloomba 7 North Qld Hydro River Wivenhoe small hydro 5 SE Qld Hydro River Mackay GT 34 North Qld Liquid 3rd party Truck 400km Stanwell 1,440 Central Qld Coal 3rd party Rail 400km Total 3,314 30% 3.2 Future Projects In the past Stanwell has developed various renewable energy projects, which have since been sold off. It also initiated the ZeroGen clean coal project, which was then sold to the Queensland government, although Stanwell remains as a major service provider to the project. Stanwell are seeking to secure “access to a coal resource in the Central Queensland region for the development (in conjunction with joint venture partners) of a new baseload power station.” Stanwell has an “energy park” adjacent to the power station, where they wish to attract customers for off-grid energy supply, steam and other utilities. Its recent purchase of a stake in Blueenergy15, an oil and gas development company, is in line with a stated initiative of pursuing gas-based opportunities. The Stanwell site may offer some greenfield expansion potential. 14 1994 Australian Trade Practices Reporter, Comalco Limited and Comalco Aluminium Limited (1994) ATPR (Com) 50-142 s4.32 15 http://www.blueenergy.com.au/ 18 September 2008 17 McLennan Magasanik Associates
  32. 32. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE 3.3 Historical financial performance According to the Productivity Commission study, Stanwell has made a return on assets of 8.3% over three recent years, and a return on total equity of 11.4%. This return on assets was the highest of the three GOGs. Details are shown in Table 2-2. 3.4 Market position 3.4.1 Merit order cost curve As seen in Figure 2-1, Stanwell controls the relatively high cost coal-fired plant in Queensland in the Stanwell and Gladstone power stations. While this is not a low cost base for a portfolio, the large combined capacity gives Stanwell significant control over prices for a large section of the daily price curve. 3.4.2 Weekly Dispatch A typical week’s dispatch pattern for Stanwell power station is shown in Figure 3-1. Figure 3-1 Typical weekly dispatch pattern of Stanwell (from 17 Feb 2008) Stanwell MW Generated Price 1,400 $140 1,200 $120 1,000 $100 800 $/MWh $80 MW 600 $60 400 $40 200 $20 - $- 1 49 97 145 193 241 289 Half-hours of the week starting Sunday A typical week’s dispatch pattern for Gladstone power station is shown in Figure 3-2. 18 September 2008 18 McLennan Magasanik Associates
  33. 33. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE Figure 3-2 Typical weekly dispatch pattern of Gladstone (from 20 Jan 2008) Gladstone MW Generated Price $140 1,600 $120 1,400 1,200 $100 1,000 $/MWh $80 MW 800 $60 600 $40 400 $20 200 - $- 1 49 97 145 193 241 289 Half-hours of the week starting Sunday 3.4.3 Capacity Factors Stanwell power station often had units in commissioning phases until the NEM was introduced, but as shown in Figure 2-4 has maintained approximately 80% capacity factor since. The privately-owned Gladstone power station’s dispatch has been controlled by Enertrade from 1994 until 2007, and by Stanwell since then. As seen in Figure 2-4, the introduction of the NEM in 1998 has seen an increase in long term average dispatch from Gladstone power station from the low 50% region to 60% since, while the average capacity factors of the State-owned major generators have actually fallen slightly. As shown in Figure 2-5, for each year, Gladstone has lower capacity factors and higher prices than Stanwell. 3.5 Market access 3.5.1 Location in network The location of Stanwell’s major plant in the Queensland transmission network is shown in Figure 3-3. 18 September 2008 19 McLennan Magasanik Associates
  34. 34. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE Figure 3-3 Stanwell plant in transmission network Barron Gorge Kareeya Stanwell Gladstone 3.5.2 Marginal loss factors Figure 3-4 and Figure 3-5 show the historical trend in MLF for Stanwell’s central Queensland power stations, Stanwell and Gladstone. 18 September 2008 20 McLennan Magasanik Associates
  35. 35. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE Figure 3-4 Stanwell MLF Stanwell PS MLF 1.100 1.050 MLF 1.000 Linear Trend 0.950 0.900 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Financial Year Ending June Figure 3-5 Gladstone MLF Gladstone PS 275 kV MLF 1.100 1.050 MLF 1.000 Linear Trend 0.950 0.900 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Financial Year Ending June These values are low but stable. Further discussion of central Queensland MLFs is in Section 2.5.4. 18 September 2008 21 McLennan Magasanik Associates
  36. 36. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE The north Queensland hydro stations have higher values but have a smaller revenue impact than these two. 3.6 Fuel Stanwell’s coal requirements of three to four million tpa are delivered by rail from several mines in Central Queensland, including some ownership and on-sale arrangements. Curragh North is often mentioned however other suppliers have not been outlined recently. In 2003, suppliers were Blackwater, Burton, Cook, Curragh and Ensham16. Gladstone’s coal requirements are similarly delivered by rail from several mines in Central Queensland, but current details are not public. From the same source in 2003, suppliers were Blackwater, Callide, Curragh, Ensham, Gregory-Crinum, Jellinbah East and Rolleston. Except for Curragh North and any other coal ownership arrangements, Stanwell remains exposed to future long term volatility in coal prices. 3.7 Water supply Gladstone’s cooling water supply is from the ocean, and process water is supplied from Awoonga dam. Awoonga dam has been affected by drought previously, but a proposed link to the Fitzroy river would improve this significantly. Stanwell’s water supply is from a barrier on the Fitzroy river. Due to its large catchment, the Fitzroy river represents a very secure water supply. Stanwell’s coal-fired stations therefore have the most secure water supply of GOG coal-fired power stations. 3.8 Greenhouse Intensity The greenhouse intensity of Stanwell’s NEM power stations and portfolio was derived for the 2007/08 year, although long term average capacity factors were used for Koombooloomba and Wivenhoe small hydro. Table 3-2 Emissions intensity of Stanwell plant Emissions Heat Rate Emissions 2007/08 Intensity kg GJ/MWh Intensity t CO2- Capacity Stanwell-controlled plant MW Fuel CO2-e/GJ so e/MWh so Factor Barron Gorge 60 Hydro 0 50% Gladstone 1,680 Coal 88.43 10.23 0.904 57% Kareeya 88 Hydro 0 64% Koombooloomba 7 Hydro 0 27% Wivenhoe small hydro 5 Hydro 0 30% Mackay GT 34 Liquid 69.50 12.86 0.894 0% Stanwell 1,440 Coal 88.43 9.89 0.875 77% Total 3,314 0.85 At 0.85 t CO2-e / MWh, the portfolio benefits significantly from the hydro generation. This ignores any carbon off-set activities. 16 The Queensland Coal Industry Review 2002-2003 18 September 2008 22 McLennan Magasanik Associates
  37. 37. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE As seen in Figure 2-13 and Figure 2-14, Stanwell’s major thermal plant still seem viable at $20 /t CO2-e, but are very marginal at $50 /t CO2-e. The hydro plants experience a windfall gain. 18 September 2008 23 McLennan Magasanik Associates
  38. 38. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE 4 TARONG ENERGY 4.1 Current Portfolio Tarong has a concentrated presence in southern Queensland with its major plant all on the one site. This proved vulnerable in the recent drought. It has fuel diversity across coal and hydro, although its major plant is all coal-fired and the hydro plant is pumped- storage. Characteristics of its plant are summarised in Table 4-1. Table 4-1 Tarong Energy plant Market Fuel Tarong Energy-controlled plant MW Share Region Fuel Ownership Fuel Supply Tarong 1,400 SW Qld Coal Own fuel 1-16 km Conveyor Tarong North 50% PPA 443 SW Qld Coal Own fuel 1-16 km Conveyor Wivenhoe 500 SE Qld PS Hydro Local Total 2,343 21% 4.2 Future Projects In the past, Tarong Energy has successfully developed the Tarong North project, and also various renewable energy projects which have since been sold off. Recent business development has concentrated on securing its fuel supply in purchasing the Meandu mine and Kunioon deposit. Other future plans are not clear. The Tarong site could offer greenfield expansion potential to a sixth unit. 4.3 Historical financial performance According the Productivity Commission study, Tarong Energy has made a return on assets of 5.4% over three recent years, and a return on total equity of 8.1%. These returns were heavily adversely affected by the recent drought. Tarong Energy had the highest returns of the three GOGs on both measures prior to the drought. Details are shown in Table 2-2. 4.4 Market position As seen in Figure 2-1, Tarong Energy has its thermal plant concentrated in a low cost portion of the cost-based merit order curve. Wivenhoe is available for short term back-up to the limit of its pumped storage capacity which is reportedly 10 hours17. A typical week’s dispatch pattern for Tarong power station and the Tarong North power station are shown in Figure 2-2 and Figure 2-3. Tarong’s capacity was effectively limited by water restrictions to 700 MW during this time. 17 http://seqwater.com.au/content/standard.asp?name=WivenhoePowerStation 18 September 2008 24 McLennan Magasanik Associates
  39. 39. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE Figure 4-1 Typical weekly dispatch pattern of Tarong (from 20 Jan 2008) Tarong MW Generated Price 1,400 $140 1,200 $120 1,000 $100 800 $/MWh $80 MW 600 $60 400 $40 200 $20 - $- 1 49 97 145 193 241 289 Half-hours of the week starting Sunday Figure 4-2 Typical weekly dispatch pattern of Tarong North (from 20 Jan 2008) Tarong North MW Generated Price 500 $140 450 $120 400 350 $100 300 $/MWh $80 MW 250 $60 200 150 $40 100 $20 50 - $- 1 49 97 145 193 241 289 Half-hours of the week starting Sunday Excluding the effect of the drought, over the long term, Tarong has actually increased its capacity factors to in excess of 90% in recent years, as shown in Figure 2-4. As shown in Figure 2-5, this was seriously reversed for the last two years, with capacity factors falling both years for both stations. In 2006/07 for Tarong, the generation- weighted price was well below the year’s average price. This appears to be due to high 18 September 2008 25 McLennan Magasanik Associates
  40. 40. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE generation early in the year and reduced generation due to water restrictions during the higher priced periods later in the year. 4.5 Market access 4.5.1 Location in network The location of Tarong Energy’s major plant in the Queensland transmission network is shown in Figure 4-3. Figure 4-3 Tarong Energy plant in transmission network Tarong Tarong North Wivenhoe Wivenhoe is well located in south-east Queensland, however the Tarong site in south- west Queensland has previously been subject to constrained access to the node. Recent 18 September 2008 26 McLennan Magasanik Associates
  41. 41. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE transmission upgrades as well as the presence in the portfolio of Wivenhoe close to the node, help to mitigate this risk. 4.5.2 Marginal loss factors 4.5.2.1 South-east Queensland Figure 4-4 shows the historical trend in MLF for Tarong Energy’s south-east Queensland power station, Wivenhoe. Figure 4-4 Wivenhoe MLF Wivenhoe PS MLF 1.1 1.05 MLF 1 Linear Trend 0.95 0.9 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Financial Year Ending June These are stable, favourable values representing Wivenhoe’s relative proximity to Queensland’s regional reference node at South Pine. 4.5.2.2 South-west Queensland Figure 4-5 and Figure 4-6 show the historical trend in MLF for Tarong Energy’s south- west Queensland power stations, Tarong and Tarong North. 18 September 2008 27 McLennan Magasanik Associates
  42. 42. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE Figure 4-5 Tarong MLF Tarong PS MLF 1.1 1.05 1 MLF Linear Trend 0.95 0.9 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Financial Year Ending June Figure 4-6 Tarong North MLF Tarong North PS MLF 1.1 1.05 MLF 1 Linear Trend 0.95 0.9 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Financial Year Ending June These values are somewhat low but relatively stable. Further discussion of factors affecting south-west Queensland MLFs is in Section 2.5.6. 18 September 2008 28 McLennan Magasanik Associates
  43. 43. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE 4.6 Fuel Tarong, and latterly Tarong North, have historically been supplied with 6.5 to 7.2 Mtpa18 of coal from the Meandu Creek mine previously owned by Rio Tinto Coal Australia. To fuel both these power stations well into the future (“at least 20 years”), a new source of coal was required. Three sources were assessed over a long period and recently Tarong Energy chose to purchase the existing Meandu Creek mine, and the Kunioon deposit from Rio Tinto Coal Australia, and develop the Kunioon deposit for its new fuel source. Details of these and the other two major contenders are detailed in Table 4-2. Table 4-2 Tarong power stations’ fuel supply options19 Size Gross (Measured Specific % Ash Fusion- Distance Open cut Energy Moisture Deformation Hardgrove (km) Delivery Ownership Thermal Mt) (MJ/kg ad) (ad) % Ash C Grindability Previously Meandu Rio Tinto Creek now Tarong (existing) 1 Conveyor Energy 364 21.1 5.5 30.1 1,485 53 Kunioon (selected) Previously (Specifi- Rio Tinto cations New now Tarong inferred) 16 conveyor Energy 214 19.30 35.0 New New Acland 71 conveyor New Hope 242 28.90 3.7 13.0 1,572 40 Tarong Glen Wilga 150 New rail Energy 132 25.60 5.6 14.8 1,387 35 This decision provides Tarong Energy with full control and pricing security over its fuel supply in the long term. Ownership of the mines also reduces the stations’ marginal costs to that required to extract and ship each tonne of coal, plus royalties. This will increase dispatch, and the security of dispatch planning. Whether it proves a low cost strategy depends on the price paid, coal available and further mine development and operating costs. 4.7 Water supply Tarong’s water supply is from the Boondooma and Wivenhoe dams, which have recently been heavily affected by drought. Boondooma also supplies local graziers, and Wivenhoe supplies most of south-east Queensland. Since June 2008, Tarong has received recycled water from the Western Corridor Recycled Water Project20. The Wivenhoe power station is also supplied by Wivenhoe dam. 18 Initial Advice Statement, Kunioon Project, April 2007 http://www.epa.qld.gov.au/publications/p02408aa.pdf/Initial_Advice_Statement_Kunioon_Project_/_Parsons_Brinc kerhoff_Australia_Pty_Limited.pdf 19 Coal specifications from Queensland Coals 2003, except for Kunioon from Metallica Minerals website: http://www.metallicaminerals.com.au/pdf/04_july_06_metallica_kingaroy_coal_resource_upgrade_asx_release.pdf 20 http://www.westerncorridor.com.au/Media/media_releases/DP_release_-_Water_to_Tarong.pdf 18 September 2008 29 McLennan Magasanik Associates
  44. 44. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE 4.8 Greenhouse Intensity The greenhouse intensity of Tarong Energy’s power stations and portfolio was derived for the 2007/08 year. Wivenhoe was assumed to use a weighted average supply from the Tarong Energy thermal plant, and have an 80% energy efficiency in its pumping/generation cycle. Table 4-3 Emissions intensity of Tarong Energy plant Emissions Heat Rate Emissions 2007/08 Intensity kg GJ/MWh Intensity t CO2- Capacity Tarong Energy-controlled plant MW Fuel CO2-e/GJ so e/MWh so Factor Tarong 1,400 Coal 88.43 9.94 0.879 39% Tarong North 443 Coal 88.43 9.11 0.806 72% Wivenhoe 500 PS Hydro 1.065 3% Total 2,343 0.86 At 0.86 t CO2-e / MWh, the portfolio has the highest emissions intensity of the GOGs. This ignores any carbon off-set activities. As seen in Figure 2-13 and Figure 2-14, Tarong Energy’s thermal plant still seem viable at $20 /t CO2-e, but Tarong is very marginal at $50 /t CO2-e. 18 September 2008 30 McLennan Magasanik Associates
  45. 45. 12TH ANNUAL QUEENSLAND STATE ENERGY OUTLOOK CONFERENCE 5 CONCLUSIONS CS Energy has a diversified and lower risk portfolio of plant from all three perspectives of physical location, fuel options and cost curve. It has partially secured its fuel risk, has significant transmission risk exposure, but has the best portfolio and most proven development capabilities for gas-fired generation. This will be valuable in a high carbon cost environment. Stanwell has the largest portfolio, but its portfolio is largely based on central Queensland coal-fired generation. It has partially secured its fuel risk, but has significant transmission risk exposure. It has proven development capabilities for renewable energy projects. In a high carbon cost environment, these projects will become more economically viable. Tarong Energy has a low marginal cost advantage but is largely concentrated on the one site, and based on south-west Queensland coal-fired generation. It has secured its fuel risk and dispatch risk but still has some transmission risk exposure. Its future strategy for a high carbon cost environment is currently unclear. 18 September 2008 31 McLennan Magasanik Associates

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