Tasmanian Power Shortage Looms - ZFX etc. - Aussie Stock Forums

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  1. #1

    Default Tasmanian Power Shortage Looms - ZFX etc.

    This has potential investment relevance to various companies operating in Tasmania. The following is, however, primarily technical (electrical) rather than financial.

    Tasmania's electricity is predominantly supplied from 30 hydro-electric power stations which entered service between 1906 and 2004 (earlier schemes operated as early as 1893). These stations generate some 60% of the total renewable electricity produced in Australia and produce twice the energy output of the Snowy Mountains scheme.

    Just one problem...

    At present water storages are approximately 22.8% full. Whilst levels have risen slightly since modest rain last weekend, the overall trend is flat since reaching this level in May. May through October is the wet season in Tasmania and by now it would be normal to expect levels to be rising. They rose slightly and have since fallen slightly. It was yet another clear sunny day in Hobart today - not at all typical for July.

    The storages are large and do not "fill and spill" every year like a farm dam does. For example, Great Lake holds 5 years worth of average inflows when full. Lakes Gordon and Pedder combined hold 2.5 years worth of inflows which is 27 times the volume of Sydney Harbour.

    At present all electrical loads are being supplied in full. Available peak generating capacity continues to exceed peak load by a considerable margin (as is relatively easily achieved in a hydro system). The threat is of a supply shortage at some future date (possibly September if rationing is introduced as a precaution).

    Solutions? Since the problem is an ENERGY constraint and not a peak power constraint, any supply side solution necessarily involves large energy flows. Likewise any form of load shedding necessarily involves outright demand reduction. Simply shifting loads to off peak time would achieve practically nothing. This is not about a blackout on a hot (or cold) day but rather, a potentially significant shortfall in total generation over an extended period the likes of which has not been seen in Australia for some decades.

    Available gas-fired and wind power is being fully utilised. However, this still leaves the state 80% dependant on hydro on an annualised basis. If storage levels continue to fall and reach critical levels (simply staying flat would be regarded as critical by Spring since Summer is normally dry and levels normally fall then).

    So, what does this mean?

    Physical options for boosting supply in the short term are, in practice, limited to diesel engines or gas turbines, neither of which are particularly cheap in the configuration (open cycle in the case of the gas turbines) that they would need to be used. Any such emergency plant would necessarily be very hastily constructed - likely in a matter of weeks which makes gas somewhat difficult.

    If any emergency gas-fired plant were to be used it would certainly use gas transported across Bass Strait by Alinta and sourced physically from the Longford plant in Victoria (Esso/BHP). Alinta is also the most likely supplier (on a lease basis) of any such plant IMO.

    Load. About 63% of total generation is used by Major Industrial (MI) customers. The largest being Comalco (alumiunium - owned by Rio Tinto) which uses some 24% of total generation (including transmission losses). Next comes Zinifex Hobart Smelter at 11%, Norse Skog (paper) at just under 8% and then TEMCO (Tasmanian Electro Metallurgical Company - a local unit of BHP Billiton which is the sole Australian manganese alloy producer and exports to around 70 countries) which also uses around 8%.

    So, 4 customers use half the total supply. Another 16 or so including various mines, Cadbury, the Burnie and Wesley Vale paper mills and so on use a furthur 13%. The Zinifex Rosebery Mine is included in this.

    Of the remaining 37%, around half is used for household heating and hot water. 98% of Tasmanian households have electric hot water, close to 100% cook with electricity and electricity is dominant for heating (and actively promoted due to the disgusting smog from the wood heating alternative). Politically, this load is untouchable.

    Then comes small business. Even there, a substantial portion goes into space heating.

    By now you have likely come to the conclusion that refrigeration, lighting, washing machines, computers etc. use only a small fraction of the electricity generated in Tasmania. This is correct. By the time it becomes clearly necessary, in Spring, cutting space heating would be substantially ineffective anyway.

    So, in pactice, the ONLY option to meaningfully reduce load simply has to involve the "Big 4". That is, Comalco, Zinifex, Norske Skog and/or TEMCO will be forced to reduce production.

    What about emergency power? The cost of diesel is prohibitive given the end use of the power produced. The fuel cost alone would exceed the value of aluminium, zinc etc. produced. A temporary gas-fired plant would be viable only with government subsidy. Remember that any such plant would necessarily operate 24/7 - we are talking about millions of litres of diesel. Easily a million litres a day in fact. Not cheap.

    Whilst the existing gas-fired power station is operating flat out, BHP are selling more gas. The plant is adding about 10% (annualised average basis) to normal Tasmania/Victoria gas demand, most of which is supplied by Esso/BHP. Since the SA/Vic/Tas/NSW gas systems are interconnected, Santos and the minor Cooper Basin producers might also be getting a minor benefit though that is less likely.

    Alinta will not be gaining from transporting additional gas to the existing plant. It has fixed contracts covering that. It would only gain if a new (temporary) gas-fired plant were used.

    Comalco (Rio Tinto), Zinifex, Norske Skog and TEMCO (BHP Billiton) are potential losers from power rationing. As a company, Zinifex would be by far the hardest hit due to the significance of the Hobart plant to their operations. The underlying commodity markets could also be impacted if the reduction in output were significant and sustained. Zinifex Hobart is a significant producer - 256,000 tonnes per annum. Likewise TEMCO is significant in its' market.

    I will let you know when the situation becomes clearer. At this stage there is a POSSIBILITY of a problem only but I must say that the rainfall trends since late June are concerning.

    This comment is general only. It's up to you to decide if/how it affects your investments and what to do about it. I am happy to answer any technical questions on the subject however.

    Last edited by Smurf1976; 5th-July-2005 at 09:24 PM.

  2. #2
    Mmmmmm 2nd breakfast Knobby22's Avatar
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    Oct 2004

    Default Re: Tasmanian Power Shortage Looms - ZFX etc.

    What about the new link being built (has it been built?) linking Tassie and Victorian power? Won't that solve the problem?

  3. #3

    Default Re: Tasmanian Power Shortage Looms - ZFX etc.

    Quote Originally Posted by Knobby22
    What about the new link being built (has it been built?) linking Tassie and Victorian power? Won't that solve the problem?
    The Basslink interconnector is a DC link between Victoria (connection at Loy Yang) and Tasmania (connection at Bell Bay). The link has a continuous rating of 480MW at the receiving end (500MW at the sending end) in either direction and a peak rating of 600/630MW.

    For reasons of the technical stability of the power system at the Tasmanian end, the actual transfer will be limited to import 300MW, export 630MW measured at the Tasmanian end. This is a highly technical field but in simple terms there is a very high probability that from time to time Basslink will trip offline. This is an inherent feature of such a link. The whole grid would go down if it suddenly lost half its supply since the resultant overload would trip other generation sources as well, so there is a practical limit to the scale of imports through a single link. Based on the present load, this is approximately 300MW.

    So, Basslink is a 300MW import / 630 MW export at the Tasmanian end link. This compares with Tasmanian average load of around 1240MW (assuming 1% growth in past year) and peak demand of 1789.8MW. Basslink would thus give the storages what could be termed "positive expectancy" even in a dry period but fundamentally the hydro system must remain operational and meet at least 60% of total demand (average load).


    It was originally planned to enter service in November 2005. Had this occurred, the problem would have been substantially (most likely totally) overcome. Unfortunately, the transformers for the converter stations at each end of the link were effectively destroyed in a shipping incident (manufactured overseas). This has delayed the expected commissioning of Basslink until towards the end of April 2006 assuming no additional problems.

    Once it's running, the problem will be fixed assuming rainfall within the historical limits. The problem is therefore one limited to 2005/06 unless something truly extraordinary happens.

    The problem right now is that storages are low and so are inflows. If it starts raining heavily tomorrow and doesn't stop for a while then the problem is fixed. But right now we have storages below 23% in early July. That is not a disaster in itself but the persistent lack of rain is cause for concern.

    It's like being out in the country with the car's fuel tank just under a quarter full and having no idea how far it is to the next service station. If it's just around the corner then you fill up and all is well. If the tank was half full then you wouldn't be worried in the first place. But if you keep driving and don't find a servo then you have a problem...

    Inflows and outflows are roughly balanced at the moment so the problem is not immediate but if we were to go into next Summer and the typical Autumn seasonal drought period with levels like that then we're in big trouble. It is therefore critical that storage levels rise over the next 3 and a half months to at least the low 30's as an absolute minimum. 40% would be a more comfortable level. When you consider that in a good (wet) year the minimum to peak rise is only around 20% and it can easily be half that then the situation becomes clearer. If recent rainfall trends continue (and June is normally a wet month when storages should have risen - they didn't) then the storage levels just aren't going to rise sufficiently.

    The system has withstood drought since the storages peaked in late 1997 but time is running out. And with Basslink delayed the finish line has been extended by six months. If the camel's back breaks then that delay most certainly is the guilty straw.

    At least we now have gas to run the fuel buring power plant on. If it were still oil-fired then at $60 a barrel Tassie would be going broke rather quickly. So yes, the government has done quite a bit to overcome this problem. It's just that a 6 month Basslink delay and a severe drought at the same time are, well, how much bad luck can we have?

    The risk IS reasonably low at this stage. If it doesn't start raining during July however then the risk will be getting pretty high.

  4. #4

    Default Re: Tasmanian Power Shortage Looms - ZFX etc.


    Very interesting stuff...but surely it will not come to cutting production. These guys would pay anything for power before they cut production on the kind of margins they can achieve in the present resources boom.

    Don't these smelters have energy recovery units (ERU's) where they can create their own power. Won't they just sink more money into these so that they can use more of their own created power?

  5. #5

    Default Re: Tasmanian Power Shortage Looms - ZFX etc.

    Thanks for posting this Smurf.

    I can't see a direct effect on my current holdings (I sold ZFX a while back - sorry Chicken!), but it's very interesting.


  6. #6
    Mmmmmm 2nd breakfast Knobby22's Avatar
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    Oct 2004

    Default Re: Tasmanian Power Shortage Looms - ZFX etc.

    Thanks Smurf.
    Very interesting and informative.

  7. #7

    Default Re: Tasmanian Power Shortage Looms - ZFX etc.

    You said it could be probable.....well so far nothing has been announced re power shortage but the whole world has a power shortage...as far as ZFX...Tasmania is only one of their operation...and they have stockpiled ZN so they have no shortage for shipments...so why worry ....worry when it happends......as far sa the company is concerned they are going great guns....there should be some new announcements which will be very intresting......

  8. #8
    DTM's Avatar
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    Newington, Sydney

    Thumbs up Re: Tasmanian Power Shortage Looms - ZFX etc.

    Yes, thanks Smurf. Greatly appreciated.

  9. #9

    Default Re: Tasmanian Power Shortage Looms - ZFX etc.

    The Tasmanian power situation has unfortunately continued to worsen with the state government now negotiating with major industry to reduce power consumption (that is, reduce production) and calls for householders to do likewise.

    This issue is now front page news in Tasmania. It has gone from a mere point of interest to major concern very quickly. One major industrial energy user, which is reported to be Norske Skog, is already cutting production although it is not clear whether that is due to maintenance activities being brought forward or is an actual cut in production.

    The Tasmanian Premier, Paul Lennon, appears to have stepped infront of the Energy Minister as spokesman on the issue. And yes, Mr Lennon is talking in terms of megawatts and system inflows rather than politician's speak.

    The government appears to be expressing a reluctance towards diesel generation as a backup and is already overstating the problems (such as diesel being too polluting which in a steady application it isn't). The reason, of course, is the massive cost which far exceeds the value of the electricity produced. The government has also stated that, if necessary, the measures it plans to take would have "broad political support" or words to that effect. Since by definition this includes support from the Greens who were initially founded on the basis of opposing power developments and heavy industry, such support can realistically only mean that the plan involves cuts to heavy industry. Either that or there will be no such "broad political support". On the other hand it should be noted that Mr Lennon is staunchly in favour of productive industry and jobs so his comment might simply be an advance shot at the Greens if the government is in fact planning on diesel generators.

    Tasmania has almost completely missed out on rain which I understand has fallen in other parts of the country recently. The weather is cold, pushing up power demand for heating, but the sun was out yet again today.

    Either it rains, and we are talking about hundreds of mm of rain, or there is a problem. The present storage level is in the order of 23%, largely unchanged for several weeks when it should be rising.

    I will update this thread if the situation changes but for the moment cuts to industrial power supplies are looking increasingly likely although that could change if the rain starts to fall.


  10. #10
    PlanYourTrade > TradeYourPlan RichKid's Avatar
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    Jun 2004

    Default Re: Tasmanian Power Shortage Looms - ZFX etc.

    Quote Originally Posted by Smurf1976
    The Tasmanian power situation has unfortunately continued to worsen with the state government now negotiating with major industry to reduce power consumption (that is, reduce production) and calls for householders to do likewise.
    ...............I will update this thread if the situation changes but for the moment cuts to industrial power supplies are looking increasingly likely although that could change if the rain starts to fall.

    Thanks for the updates Smurf, I didn't realise things were so serious, hope it gets better. Maybe heavy rains are just around the corner....

    My posts are not recommendations (even when I rave about something). Always rely on your own research & judgement.

  11. #11

    Default Re: Tasmanian Power Shortage Looms - ZFX etc.

    UPDATE for those interested. In short, the situation has continued to deteriorate.

    The total system storage level last Friday (15th) was 22.5%, down from 23.1% a week earlier.

    As yet, there is no official announcement regarding any form of rationing although consumers and industry are being asked to make voluntary savings. However, Hydro Tasmania has previously stated that rationing is likely if good rains do not fall by the end of July. Only minor falls of rain are forecast over the next week.

    At present nothing is certain but time is running out for the rain to fall. Whilst essential supplies are secure (so there's no reason to cancel any planned holidays to Tassie - the showers will still be hot and the lights are on etc.) there is a clear danger to industry which takes nearly two thirds of the power.

    My reason for posting here relates to the potential share price impacts. Refer to my previous posts for details of the relevant companies.

  12. #12

    Default Re: Tasmanian Power Shortage Looms - ZFX etc.

    An update on the situation, and it is reasonably good news.

    Hydro Tasmania has obtained 3 temporary gas turbines which, in total, could generate about 8% of Tasmania's total electricity requirements on an annualised basis. This was no simple matter, and the paperwork isn't done yet so there's no certainty and they're coming from an existing power station in the US, but it seems to be doable. Whilst they are a high cost (and relatively polluting) means of generation and are far less than ideal, they beat being in the dark or using diesel. They should be operational in January 2006.

    On Monday the system storage level stood at 30.9% and looked to have peaked. This is considerably below the comfortable level but with maximum gas-fired generation both from permanent and temporary plant combined with allowing storage levels to fall to very low (15%) levels it should have been possible to meet most or all demand prior to Basslink commissioning in April 2006. That said, the gas would cost a fortune.

    HOWEVER, the past 48 hours has produced record rainfall and extensive flooding in parts of Tasmania. And, in a "too good to be true" (but it IS true) happening, the highest falls fell literally straight into the Great Lake - sometimes referred to as the "reserve bank of the Hydro" since it represents around half the total storage capacity.

    The level at Great Lake is still low, less than a quarter full, but added to the flood (literally) in the smaller catchments which is generating most of the power at the moment (thus avoiding use of stored water), use of gas etc. it now seems probable that electricity demands over the coming Summer can be met in full.

    So, saved by the rain! For anyone with an interest in the National Electricity Market I would suggest that Tasmanian spot prices will remain high relative to the other states over Summer since storage levels are still abnormally low. They are adequate only in the context of being able to import electricity after April 2006 which does imply a reasonably high spot price. But this does not have major impacts on customers (including major industry) so, in short, all should be OK assuming ongoing moderate rainfall in line with normal seasonal patterns

    Since the crisis seems to have passed, I shall cease updates to this thread unless the problem returns (there is still some chance of a problem but it's a lot lower than it was).

  13. #13

    Default Re: Tasmanian Power Shortage Looms - ZFX etc.

    Smurf..remember I posted $4 for ZFX and everyone rubbished me....even with a power crisis...I sold my holding but looking in buying back in....too good to be true...but ZFX never missed a beat...just I did....Should have listen to myself...there are at present a lot of shorts I wonder maybe they will see going short was a dam stupid idea..I DID NOT....

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