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Email PageRegional Review - Australia
severe drought
impacts on performance
in australia
Profit from operations decreased from £124 million in 2006 to £82 million. The severe drought in 2007 had a significant impact on the Australian results by increasing inter-regional pricing differentials and the cost of power purchased to cover both unplanned outages and transmission constraints. Inter-regional pricing differentials were the most significant factor and arose where we forward hedged our power outside of the state in which we have our generation.
This resulted in contracts for the sale of power being settled by purchases in the spot market at times of high prices and was compounded by a lack of liquidity in the market preventing us from closing out these positions. This policy had historically worked well during periods of low market liquidity in Victoria and South Australia. There are no such inter-regional positions in 2008.
Given current reserves of cooling water, we remain confident that Hazelwood and Loy Yang B have sufficient water supply to generate at full load throughout 2008 and into 2009. In 2008 we have forward contracted 80% of our expected merchant output and still expect to achieve an average price of A$45 per MWh at Hazelwood.
| Results – Australia | ||
| Year ended 31 December 2007 £m |
Year ended 31 December 2006 £m | |
|---|---|---|
| (Loss)/profit from operations | (91) | 74 |
| Exceptional items and specific IAS 39 mark to market movements - losses | 173 | 50 |
| PFO (excluding exceptional items and specific IAS 39 mark to market movements) | 82 | 124 |
The acquisition of the remaining 50% stake in the Australian retail partnership was completed in August with a payment of A$142 million (£56 million) to EnergyAustralia. The company was renamed ‘Simply Energy’.
Hazelwood has signed the financing documents with the federal and Victorian governments for an A$80 million grant, and reached agreement with its supplier (Alstom) for an innovative retro-fit solution to reduce greenhouse gas emissions by 20% on one of its 200 MW brown coal fired units. The pilot project comprises a fluidised bed coal drying plant, boiler efficiency improvements, fitting a new highly efficient turbine, and a pilot carbon dioxide capture facility. Work on the project has begun and we expect the pilot carbon capture facility to be commissioned in late 2008, with the coal drying plant commencing operation in 2010.
At Pelican Point, the non-recourse debt facility was refinanced in February 2008 for a total of A$190 million. The funds will be used to repay existing debt and fund the maintenance reserve for the plant. In addition an increased distribution has been paid to International Power plc.
Market environment and growth prospects
In Australia, the South Australian and Victorian power markets continue to grow at just under 2% per annum. At this growth rate, and with no new capacity, the reserve margin is currently forecast to fall below 15% from 2010/2011. Even with the addition of expected new capacity, the reserve margin is currently forecast to remain below minimum desirable levels and could fall below 15% by 2014.
Australia has large scale indigenous low cost fuel resources, principally brown and black coal, and gas. To date there has not been any significant link with international energy prices (fuel or electricity) but high international coal prices, an Australian emissions trading scheme from mid 2010, and the longer-term potential to export gas from the eastern states, may change this trend in the future.
The introduction of this emissions trading scheme in 2010 is the subject of a very detailed review. Details of the proposed scheme should be announced by the end of 2008, and we are very closely involved in the debate. This is clearly an important initiative in Australia, and we will continue to work hard to ensure our portfolio is well positioned, including projects already underway to improve the efficiency and CO2 output of our brown coal fired generation.
Our balanced asset portfolio in the region, with experience and capabilities in producing electricity using coal, gas and renewable technologies and then selling the output in both the wholesale and retail markets, offers us a solid platform for further growth in the region. We are actively pursuing growth opportunities such as the 350 MW peaker in New South Wales and a number of renewables opportunities.
In December 2007, the New South Wales state government announced its intent to privatise its energy sector, which includes 12,500 MW of generation assets and three million retail customers. We will be reviewing opportunities arising from this privatisation.
- Total installed capacity: 13 GW in South Australia and Victoria
- Market type: merchant market
- Peak demand growth: 2.0%
- Peak reserve margin: 22% in 2007/2008
- Peak demand season: summer
- Australian CO2 Emission Reduction Target:
– Signed up to the Kyoto Protocol in December 2007
– 60% reduction from 2000 levels by 2050 - International Power’s current installed capacity in the market 3,163 MW (net)
– 858 MW gas, 2,259 MW coal, 46 MW wind
South Australia
