2003 Power System Review€¦ · 2003 Power System Review Page 1 CHAPTER INTRODUCTION 1.1 This is the third annual review of prospective trends in the capacity and reliability of

ANNUAL POWER SYSTEM

REVIEW

OCTOBER 2003

Level 9, 38 Cavenagh Street Darwin NT 0800

GPO Box 915, Darwin NT 0801

[email protected]

www.utilicom.nt.gov.au

2003 Power System Review Page i

Table of Contents 1. Introduction ....................................................................................................1

Consultation with interested parties ........................................................ 1 Inquiries ................................................................................................. 1

2. Summary of Key Findings................................................................................3 Adequacy of generation capacity .............................................................. 3

Alice Springs regulated system..................................................................3 Darwin-Katherine regulated system..........................................................3 Tennant Creek regulated system...............................................................3

Adequacy of gas supplies......................................................................... 4

3. Focus of the Review.........................................................................................5 Nature of power system ‘reliability’........................................................... 5 Reasons for the Commission’s focus ........................................................ 5

4. Outlook for Electricity Demand .......................................................................7 Baseline demand forecast ........................................................................ 7

Darwin-Katherine regulated system..........................................................8 Alice Springs regulated system..................................................................9 Tennant Creek regulated system.............................................................10

Major developments impacting on the power system .............................. 10 ConocoPhillips’ LNG Plant........................................................................11 Bechtel Construction of the LNG Plant .....................................................11 Alice Springs to Darwin Railway .............................................................11 Air 87 Defence Project..............................................................................11 Forecast demand – major developments .................................................11

Overall demand – Territory baseline plus developments.......................... 13

5. Adequacy of Generation Capacity ..................................................................15 Existing capacity ................................................................................... 15 Factors affecting supply......................................................................... 17 Baseline supply projections ................................................................... 17 Indicators of system adequacy ............................................................... 18 Darwin-Katherine regulated system ....................................................... 18

Baseline scenario.....................................................................................19 Major developments equilibrium scenario................................................20 Impact of offsite power requirements by major developments.................22 Impact of a net addition to generation capacity by major developments.24 Summary .................................................................................................25

Alice Springs regulated system .............................................................. 26 Tennant Creek regulated system............................................................ 27

6. Adequacy of Gas Supplies ..............................................................................29 Natural gas supply ................................................................................ 29 Gas supply-demand outlook .................................................................. 31

Supply projections....................................................................................31 Existing gas supply-demand balance......................................................32 Alternative sources of fuel .......................................................................33 Commission’s view ..................................................................................35

Appendix A - Key Features of the Territory’s Power System.....................................37 Introduction .......................................................................................... 37 Unique aspects of the Territory’s electricity supply industry ................... 37 Generation ............................................................................................ 38 Networks............................................................................................... 38 Retailers ............................................................................................... 38 Composition of demand......................................................................... 38

Utilities Commission October 2003

Page ii 2003 Power System Review

Demand profile...................................................................................... 39

Appendix B - Key Features of the Territory’s Economy and Environment ................45 Introduction .......................................................................................... 45 Climate ................................................................................................. 45 Population ............................................................................................ 45 Economy and industry .......................................................................... 46

Appendix C - Glossary ..............................................................................................47

Disclaimer

This review is based upon information received from participants in the Territory’s electricity supply industry, and agencies within government on a ‘reasonable endeavours’ basis. The review contains certain predictions, estimates and statements that reflect various assumptions concerning load growth forecasts including accounting for major developments which may impact on the Territory’s power system over the period to 2012-13. The Commission believes that the contents are accurate within the normal tolerance of economic forecasts and that the broad analyses are correct. The purpose of this document is to review and report to the Minister in accordance with section 45 of the Electricity Reform Act 2000. It is not intended to be relied upon or used for other purposes, such as making decisions to invest in further generation or network capacity. Any person proposing to use the information in this document for such other purposes should independently verify the accuracy, completeness, reliability and suitability of the information in this document, and the reports and other information relied upon by the Commission in preparing it. The Commission and its officers accept no liability (including liability to any person by reason of negligence) for any use of the information in this document or for any loss, damage, cost or expense incurred or arising by reason of any error, negligent act, omission or misrepresentation in the information in this document or otherwise.

October 2003 Utilities Commission

2003 Power System Review Page 1

CHAPTER

INTRODUCTION

1.1 This is the third annual review of prospective trends in the capacity and reliability of the Territory’s power system relative to projected load growth prepared and published by the Commission pursuant to section 45(1)(e) of the Electricity Reform Act 2000 (“the Act”).

1.2 This Annual Power System Review (“2003 Review”) also incorporates related activities by the Commission authorised under section 45 of the Act, namely:

• developing forecasts of overall electricity load and generating capacity in consultation with participants in the electricity supply industry and reporting the forecasts to the Minister and electricity entities (sub-section (1)(a)); and

• advising the Minister on matters relating to the future capacity and reliability of the Territory’s power system relative to forecast load (sub-section (1)(c)).

Consultation with interested parties

1.3 The Commission has again consulted with various parties, including participants in the Territory’s electricity supply industry and agencies within Government. The parties providing information to the Commission were also provided with drafts of this report. The final report has benefited significantly from the comments received on the earlier drafts, although the views expressed in this final report are those of the Commission alone and are not necessarily those of the parties consulted by the Commission.

Inquiries

1.4 Inquiries regarding the 2003 Review should in the first instance be directed to:

The Executive Officer Telephone: (08) 8999 5480 Utilities Commission Fax: (08) 8999 6262 GPO Box 915 DARWIN NT 0801 Email: [email protected]


Page 2 2003 Power System Review



CHAPTER

SUMMARY OF KEY FINDINGS

2.1 The focus of the 2003 Review (as for the previous reviews published by the Commission) is predominantly on whether the power system has:

• adequate generation capacity; and

• adequate fuel supplies

to keep it reliable over the next decade in all but the most extraordinary circumstances.

Adequacy of generation capacity

2.2 The Commission’s assessment of the ‘adequacy’ of generation capacity in the Territory’s regulated power systems has involved a comparison of various electricity demand forecasts over the next decade with forecast supply including allowing an appropriate reserve margin.

Alice Springs regulated system

2.3 The most pressing supply situation in prospect continues to be in the Alice Springs system, with a breach of the existing 13MW reserve margin continuing until 2005-06. Although no formal advice has been received, the Commission understands that the Power and Water Corporation (“Power and Water”) are planning to increase generation capacity in Alice Springs with effect in late 2006. The fact that capacity is not being augmented sooner represents some risk which presumably Power and Water have taken into account.

Darwin-Katherine regulated system

2.4 The situation in the Darwin-Katherine system continues to be adequate over the medium term, with reserve capacity in excess of projected peak demand in most of the scenarios presented over the forecast period. According to the Commission’s projections, a net additional 30% of the electricity demanded by the ConocoPhillips LNG Plant (i.e., its impact on offsite power requirements) would see a breach of current reserve margin of 51MW in 2009-10.

2.5 Nevertheless, the Darwin-Katherine supply-demand balance needs to be kept under watch as electricity supply arrangements for prospective major developments firm up and a clearer picture of their impact is evident.

Tennant Creek regulated system

2.6 The Tennant Creek system with capacity of 16MW appears manageable. Supply deficiencies would only be in prospect in the Tennant Creek system with the commencement of major new mining and industrial developments requiring power from the system. Consideration will also need to be given to other risk factors, particularly the age of existing generation plant and performance.



Adequacy of gas supplies

2.7 The Commission’s assessment of the ‘adequacy’ of gas supplies in the Territory’s regulated power systems has involved a comparison of potential gas production with forecast demand for gas used in electricity generation to 2009.

2.8 The Commission findings are that existing supplies of natural gas do not give rise to significant adequacy issues until 2009. This is a more sanguine assessment than in the Commission’s 2002 Review for the following main reasons:

• the Palm Valley producer’s latest forecasts are more optimistic than at this time last year; and

• the Commission is more comfortable regarding the Mereenie field’s capacity to supply all contracted gas through to 2009, with some scope also existing for acceleration of gas volumes – admittedly at a cost – to forestall any short-term supply-demand imbalances.

2.9 Increased liquid fuel usage will only be required before 2009 to maintain electricity supply during peak demand periods, and then only as a last resort.

2.10 As the production from existing gas fields declines, a number of large offshore gas reserves could supply future electricity generation requirements post 2009. The lead times for the development of alternative gas supplies mean that new gas supply arrangements may have to be established in the next two years or so.

2.11 This assessment is less pessimistic than in the Commission’s 2002 Review mainly because, over the last year, it is apparent that:

• some gas may be available on a short-term basis from Bayu-Undan producers prior to 2009; and

• several other options have emerged for future uptake of additional recoverable gas reserves.

2.12 Together, these short-term fuel purchasing options increase the likelihood that longer-term, lower-cost arrangements can be entered into for electricity generation in the Territory based on the lower price of Timor Sea gas.



CHAPTER

FOCUS OF THE REVIEW

3.1 The focus of the 2003 Review (as for the previous reviews published by the Commission) is predominantly on whether the power system will be able to meet the supply requirements of end-use customers over the next decade in all but the most extraordinary circumstances.

3.2 This chapter briefly outlines the main terms used in discussion of a power system’s reliability and explains the Commission’s particular focus.

Nature of power system ‘reliability’

3.3 Two aspects of a power system’s reliability can be distinguished:1

• adequacy, which is the power system’s ability to supply the aggregate energy requirements of end-use customers at all times, taking into account scheduled and reasonably expected unscheduled outages of system elements; and

• security, which is the power system’s ability to withstand sudden disturbances such as electric short circuits or unanticipated loss of system elements.

3.4 Adequacy is a matter of installed generating capacity contracted fuel supply and does not fluctuate from minute to minute. Security refers to the system’s ability to withstand contingencies,2 and system security can change from minute to minute. Immediately after a contingency, the system is much less secure.

3.5 Although security and adequacy are distinct concepts, they are closely linked. A system with adequate capacity can maintain enough security to reduce periods of involuntary load shedding to, say, a total of 1 day in 10 years. A system that maintains security for all but one day in 10 years can be said to have adequate installed capacity. Nevertheless, the two aspects of reliability are not simply different views of the same problem. With an inappropriate policy on operating reserves, the system will have insufficient security in spite of adequate capacity.

Reasons for the Commission’s focus

3.6 The focus of the Commission’s annual power system reviews to date has been on the adequacy issue (and associated planning reserves), on the basis that adequacy is

1 This distinction is based on the North American Electric Reliability Council’s (NERC) 1996 glossary of terms, cited in Steven Stoft, Power System Economics, IEEE Press, New Jersey, 2002, p.135. 2 A contingency is a possible or actual breakdown of a physical component of the power system. Typically, a generation unit becomes unavailable, leaving the system unbalanced with demand greater than supply. System frequency and voltage drop as a consequence, and the system controller may need to shed load.



the primary economic problem.3 Analysis of the requirements for operating reserves (which are intended to provide security) continues to be excluded from the 2003 Review.

3.7 This is not to suggest that a shortage of installed generating capacity (and so inadequate planning reserves) is the only cause of unreliable operation. However, the potential for market failure is greatest when it comes to planning for increments in capacity, because provision of system adequacy is relatively expensive. Security requirements are more likely to be met provided the system has adequate planning reserves, and it is relatively cheap to maintain sufficient operating reserves in an adequate system. Moreover, maintaining security is the primary responsibility of the power system controller. By contrast, the power system controller currently does not have any responsibilities when it comes to ensuring adequacy – this remains solely with generators (and the Commission). Hence, from the Commission’s external monitoring perspective, the problem of security is considered secondary to the problem of adequacy.

3.8 In the 2003 Review, the Commission has continued to reassess its evaluation of power system reliability including examining the gas supply outlook and any implications for system reliability (both adequacy and security) in the Territory.

3.9 Nevertheless, the 2003 Review remains limited in certain other respects. First, while the scope of section 45(1) of the Act covers the Territory’s power system as a whole (and so both generation and network elements of the system), this review continues to focus mainly on generation reliability. In the Commission’s view, network adequacy is not as pressing an issue in the Territory, with Power and Water, as the sole network service provider, charged with responsibility for ensuring that capacity keeps pace with usage growth. It is in the generation area where there is potential for market failure when it comes to planning for increments in capacity, and where the Commission continues to give priority.

3.10 Secondly, coverage of the review is limited to the customers supplied in the regulated power systems of Darwin-Katherine, Tennant Creek and Alice Springs. The load outside this network coverage (e.g., isolated systems, rural townships and remote aboriginal communities) is not included in the review.

3.11 Finally, the review has not undertaken any sophisticated modelling of power demand. Instead, the Commission has developed its own forecasts which are predominantly based on the growth assumptions and methodology used by Power and Water.

3 While section 45(1) of the Act refers to the future capacity and reliability of the Territory’s power system, this review limits its concern to those aspects of the reliability of the system arising from supply relative to demand and reserve margins.



CHAPTER

OUTLOOK FOR ELECTRICITY DEMAND

4.1 This chapter develops forecasts for electricity demand in the Territory’s regulated power systems for the period to 2012-13.

4.2 In developing the forecasts, the Commission has taken account of current economic projections and participants’ views on future electricity demand, including views on the quantum and timing of electricity demand of prospective major developments.

4.3 Generally, the Commission has taken a cautious approach to forecasting the impact of major developments. This involves factoring-in demand increases from the earliest point they could impact the system and, at the same time, assigning a high probability to associated developments taking place.

Baseline demand forecast

4.4 The overall demand forecasts have been undertaken in a two-stage process to illustrate the load growth likely to occur in the Territory over the period to 2012-13. The first stage is a ‘baseline’ demand forecast, showing the demand in the Territory based on a moderate economic growth scenario and excluding the impact of both one-off projects and possible major developments. The second stage incorporates the forecasts associated with both one-off and prospective developments, some of which are associated with the Timor Sea gas discoveries and the construction of the Bayu-Undan gas pipeline to Darwin. Together, these two stages provide an overall picture of prospective power demand in the Territory.

4.5 Electricity sourced from Independent Power Producers (“IPPs”) connected to the regulated network have been included in the figures. Minor centres with their own independent generating capacity have been excluded.

4.6 Consistent with Power and Water’s view on load growth over the period to 2012-13, the Commission’s baseline demand assumptions underlying the forecasts are:

• approximately 2.4% average annual growth in electricity demand in the Darwin-Katherine regulated system;

• approximately 1.2% average annual growth in electricity demand in the Alice Springs regulated system; and

• approximately 1.1% average annual growth in electricity demand in the Tennant Creek regulated system.

4.7 The forecasts take account of lower expected consumption in the Darwin-Katherine regulated system in 2003-04, due to a significant Power and Water customer ceasing operations in September 2003. However, in terms of underlying baseline growth, it is expected that electricity demand growth in the Darwin-Katherine system will still more than double the growth in regional centres over the next 10 years.



4.8 The baseline demand forecasts do not take into account the demand for the projects relating to proposed major developments (“direct demand”). The demand flow-on effects provided by these developments, such as the increase in workforce and commercial services (“indirect demand”), are also excluded from the baseline forecast. These components of demand are considered later in this chapter.

4.9 The peak demand forecasts in the Darwin-Katherine system are based on the 2002-03 year, where a maximum of 233MW occurred on 9 December 2002. For the purposes of this review, forecast energy and peak demand growth rates are identical.

4.10 The ‘baseline’ peak demand and consumption forecasts through to 2012-13 in each regulated system are summarised in Table 4.1 below. The electricity generation is on an annual ‘sent-out energy’ basis.

Table 4.1 – Peak Demand and Energy Actual and Forecast – Regulated Systems

Darwin-Katherine Alice Springs Tennant Creek

Financial Year

Demand (MW)

Energy (GWh)

Demand (MW)

Energy (GWh)

Demand (MW)

Energy (GWh)

2000-01 218 1291 44 205 6 27

2001-02 223 1357 43 210 7 31

2002-03 233 1253 48 220 8 33

2003-04 238 1278 49 225 8 33

2004-05 244 1310 50 230 8 34

2005-06 250 1343 50 232 8 34

2006-07 256 1376 51 234 8 34

2007-08 262 1411 51 237 8 35

2008-09 269 1446 52 239 8 35

2009-10 276 1482 52 241 8 35

2010-11 283 1519 53 244 8 36

2011-12 290 1557 53 246 8 36

2012-13 297 1596 54 249 8 36

4.11 The following sections briefly detail these forecasts for each of the regulated power systems.


4.12 The Darwin-Katherine regulated system accounts for about 80% of all electricity demand in the Territory and is significantly influenced by mining and commercial/industrial activity as well as by weather conditions from year to year.

4.13 Chart 4.1 shows that, over the three years to 2002-03, peak demand has increased modestly by an average rate of 2.7% pa, which was in line with the Commission’s previous forecasts. Energy growth on the other hand has wavered over the past three years, and is mostly attributed to changes in mining activity in the Darwin-Katherine region. Historically, however, energy demand has grown on average at 2.5% per annum since 1992-93, and is mainly due to population growth, particularly related to the defence build-up, as well as due to various mining developments.



Chart 4.1 – Peak Demand and Energy Darwin-Katherine

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4.14 This baseline scenario produces an expected peak demand of about 300MW and energy consumption of about 1,600GWh in 2012-13, an overall increase of approximately 27% from current levels.


4.15 In 2002-03, Alice Springs experienced a 4.6% increase in energy consumption, compared with a 2.3% increase in the previous year. This increase was mostly on account of construction of the Alice Springs to Darwin railway. Under the forecast baseline scenario (see Chart 4.9), the Commission expects average annual growth of approximately 1.2% over the 10 years to 2012-13. This baseline scenario excludes any additional demand arising on account of the Alice Springs to Darwin railway.

Chart 4.2 – Peak Demand and Energy Alice Springs

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4.16 Due to its small size, the Tennant Creek system experiences greater volatility in electricity demand from year to year, and is influenced by the level of mining activities and other projects. In past reviews, the Commission reported a substantial decrease in electricity demand with the scaling down of Normandy’s Warrego mine. More recently, however, the system has seen a progressive increase since 2001-02 due to increased industrial activity associated with the construction of the Alice Springs to Darwin railway.

4.17 The baseline forecasts for Tennant Creek (see Chart 4.3) show an average annual growth of about 1.1% over the ten years to 2012-13. The baseline forecast ignores the direct impact on account of the railway and prospective mining projects.

Chart 4.3 – Peak Demand and Energy Tennant Creek

Major developments impacting on the power system

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4.18 In addition to the above baseline forecasts, also playing a role is the demand that arises from major developments, be they one-off projects (like the Alice Springs to Darwin railway) or developments associated with the Timor Sea gas discoveries and the construction of the Bayu-Undan gas pipeline to Darwin.4

4.19 In considering the range of major developments likely to impact on the Territory’s power system over the next five years, it is important to note that some projects could have onsite generation capacity and take advantage of relatively low cost gas to generate electricity when Timor Sea gas comes onshore (as could be the case with the ConocoPhillips LNG Plant). However, power requirements for most other projects are

4 A number of resource projects have been put on hold pending improved economic conditions, or are subject to further review or a feasibility study, and as such are not considered in the 2003 Review. Some of these include the Bachelor Magnesium project, the Browns Polymetallic project (also at Bachelor), the Burnside joint venture gold project in the Pine Creek region, the McArthur River Mine expansion, and Alcan’s Alumina expansion at Nhulunbuy which is currently undertaking a feasability study. Other projects in the Tennant Creek region which are commencing or proposed have not been included in the forecasts as some projects will have there own power supply (e.g., Giants Reef development of the Chariot Mine).



expected to be met by external network-sourced electricity, through power purchase agreements with a third-party generation supplier.5

4.20 This section outlines the electricity demand that is expected to arise from major projects, mostly notably the Bechtel construction of the LNG Plant including estimates of the load of the LNG Plant itself. Also considered are the impacts arising from the Air 87 Defence Project and the completion of the Alice Springs to Darwin railway. Brief project updates are provided below and the aggregate forecast electricity demand is shown in Table 4.3.

ConocoPhillips’ LNG Plant

4.21 On 15 June 2003, ConocoPhillips announced that the gas development plan for the Bayu-Undan project had been approved by the Timor Sea Designated Authority. The gas development project involves a gas pipeline from the Bayu-Undan field in the Timor Sea to Darwin and a LNG facility located at Wickham Point. A Heads of Agreement was signed in early 2002 with the Tokyo Electric Power Company and the Tokyo Gas Company detailing the terms of sale of LNG over a 17-year period. The first LNG cargo is scheduled for delivery in 2006.

Bechtel Construction of the LNG Plant

4.22 Bechtel Corporation, a US multinational, has been contracted to build the LNG Plant at Wickham Point. Work commenced on 23 June 2003 and preparations are now being made to accommodate the 1000+ workers needed for the three year construction phase. A workers’ camp is currently being built in Palmerston.

Alice Springs to Darwin Railway

4.23 The construction of the 1420km Alice Springs to Darwin railway was completed on 25 September 2003. Testing of the line will now be carried out before the first train is scheduled to arrive in Darwin in January 2004. Construction of passenger terminals in Darwin, Katherine, and Tennant Creek will also continue over the next three months in readiness for the first train.

Air 87 Defence Project

4.24 As part of the Air 87 Defence Project, 22 Tiger attack helicopters are to be based at Palmerston’s Robertson Barracks from 2005. A $75 million defence facility will be constructed to house the helicopters and to accommodate the relocation of the 400-member 1st Aviation Regiment.

Forecast demand – major developments

4.25 The demand and energy impacts of major developments are two-fold: they have a direct impact through the operational requirements of the projects themselves and an indirect impact due to residential and commercial flow-on effects.

4.26 A summary of the impacts these developments may have on the Territory’s power systems is shown in Table 4.2 and illustrated in Chart 4.4.6

5 For forecasting and comparison purposes, the projects outlined here are assumed to be connected to Power and Water’s electricity networks. 6 The forecasts are based on currently available data and are subject to change. The projections for the ConocoPhillips LNG Plant are indicative only.



Table 4.2 – Peak Demand and Energy Forecast Major Developments

Demand (MW)

Energy (GWh)

Financial Year Direct Indirect Total Direct Indirect Total

2003-04 10 3 13 10 15 25

2004-05 0 6 6 10 30 41

2005-06 15 6 21 46 31 77

2006-07 19 6 25 100 32 132

2007-08 19 6 25 107 32 139

2008-09 19 6 25 116 33 149

2009-10 19 6 25 130 34 164

2010-11 19 7 26 130 35 165

2011-12 19 7 26 130 35 165

2012-13 19 7 26 130 36 166

4.27 The Commission’s forecasts assume the indirect demand component arising from these projects will have a ripple-effect throughout the Territory – mainly in the Darwin-Katherine region where most of the projects are to be based.

Chart 4.4 – Energy Forecast Major Developments

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4.28 The forecasts indicate a progressive increase in the electricity demand for major developments, corresponding to the planned levels of construction and industrial activity. In early years, between 2003-04 and 2005-06, the indirect impacts relating to construction workforces and other commercial activities are expected to be more significant than the direct impacts of the projects themselves. Overall, electricity consumption in the Territory could increase by a further 160GWh by the end of the decade.



Overall demand – Territory baseline plus developments

4.29 The Commission has consolidated the regional baseline forecasts in Table 4.2 with the major developments forecasts (including the indirect component) in Table 4.3 to produce combined forecasts in Table 4.3 and in Chart 4.5 below.

Table 4.3 – Peak Demand and Energy Actual and Forecast – Baseline plus Developments

Territory baseline Major developments Total Financial

Year Demand

(MW) Energy (GWh)

Demand (MW)

Energy (GWh)

Demand (MW)

Energy (GWh)

2000-01 269 1523 0 0 269 1523

2001-02 273 1598 0 0 273 1598

2002-03 288 1505 0 0 288 1505

2003-04 294 1537 13 25 307 1562

2004-05 301 1573 6 41 307 1614

2005-06 308 1609 21 77 329 1686

2006-07 315 1645 25 132 340 1777

2007-08 322 1682 25 139 347 1821

2008-09 329 1720 25 149 354 1869

2009-10 336 1759 25 164 362 1923

2010-11 344 1799 26 165 369 1963

2011-12 351 1839 26 165 377 2005

2012-13 359 1881 26 166 385 2047

4.30 Once account is taken of the major developments, the overall Territory system 10 years from now could have an indicative demand of about 380MW and energy consumption of 2,000GWh, about 36% greater than that of the Territory’s existing system.

4.31 Some caution should be taken when interpreting these forecasts due to indicative nature of the quantum and timing of electricity requirements for the projects considered, particularly those of the LNG Plant.

Chart 4.5 – Energy Actual and Forecast Baseline plus Developments

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CHAPTER

ADEQUACY OF GENERATION CAPACITY

5.1 As the focus of this review is on adequacy issues, the Commission’s examination of generation capacity is concerned with what is termed the planning reserves of the power system, being the reserves required to maintain system adequacy by meeting annual demand peaks. This contrasts with operating reserves, which are required to maintain system security by handling short-term disturbances to the system.7

5.2 This chapter first outlines the generation capacity available in the Territory’s regulated power systems, and briefly outlines some of the factors influencing supply-side decision making. Against the background of the demand forecasts canvassed in the previous chapter, this chapter concludes by examining the prospective supply-demand position in the Territory’s power system.

Existing capacity

5.3 Supply of electricity in the Territory’s regulated power systems is predominantly provided by Power and Water in all major regions. Power and Water has power purchase agreements with a number of IPPs. At the regional level, about 80% of all generation capacity in the Territory’s regulated networks is installed in the Darwin-Katherine system, with the bulk of this capacity located at the Channel Island Power Station. The remaining 20% of generation capacity is installed in the Alice Springs and Tennant Creek regulated systems.

5.4 The Territory’s generation facilities, consisting mainly of gas and liquid fuel driven turbines, are summarised in Table 5.1. Two indicators of ‘supply capacity’ are provided:

• total capacity (in MW); and

• N-1 capacity (in MW), which indicates the generation capacity excluding the largest generating set in a particular system.

Operating reserves include spinning reserves. 7



Table 5.1 – Power Facilities in Regulated Systems8

Power Station/Region Capacity (MW) % of Total Capacity

at N-1 Darwin-Katherine regulated system: Channel Island (Power and Water) 254.5

Berrimah (Power and Water) 30.0

Katherine (Power and Water) 20.4

Pine Creek (IPP) 26.6

Total 331.5 81% 287.5 Tennant Creek regulated system: Tennant Creek (Power and Water) 16.3

Total 16.3 4% 14.1 Alice Springs regulated system: Ron Goodin (Power and Water) 50.6

Brewer (IPP) 8.5

Total 59.1 15% 47.4 Total Capacity 406.9 100%

5.5 Power and Water has power purchase agreements with two IPPs which operate in regulated systems: Pine Creek Power and Central Energy Power. Overall, about 35MW of capacity is currently available from these IPPs.

Chart 5.1 – Regulated Capacity per Power Station

5.6 Power and Water is additionally responsible for the provision of power services to remote indigenous communities and townships that are not connected to the regulated power system. Some of these areas include Yulara, Borroloola, Timber Creek, Daly Waters, Newcastle Waters, Elliot, Ti-Tree and Kings Canyon. The generation capacity associated with these rural areas has not been included in system supply (for

Channel Is land(P o we r and Water)

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7%

Kathe rine(P o we r and Water)

5%

P ine Creek (IP P )7%

Tennant Creek(P o wer a nd Water)

4%

Ro n Go o din(P o wer a nd Water)

12%

Brewer (IP P )2%

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Alice Springs

8 Power and Water’s power purchase agreement with Cosmo Power Pty Ltd lapsed in March 2003, having the effect of reducing available capacity by 15MW from the Cosmo Howley Power Station (7.5MW) and the Pine Creek B Power Station (7.5MW). Gas supply to the Cosmo Howley Power Station was disconnected in September 2003 and is therefore excluded from Table 5.1. At the Pine Creek B Power Station two generating sets (2x2.5MW) could be started in an emergency, however these are currently not operating and have also been excluded from available capacity.



the purposes of this review) and is consistent with the treatment of associated demand in chapter 4.9

Factors affecting supply

5.7 Broadly, the factors affecting supply in the Territory in the short to medium term are:

• the level of demand, particularly from the mining industry;

• the level of additional effective capacity introduced into the system;10

• the existing condition and economic life of generation assets;

• the introduction of newer technologies or environmentally friendly generating systems;

• the minimum standards of system reliability that stakeholders (i.e., consumers and generators) are willing to accept;

• the risk for capacity to ‘come and go’;11 and

• existing network constraints.

Baseline supply projections

5.8 For the purposes of this review, the Commission has once again adopted a ‘baseline’ supply scenario incorporating only known developments. Supply additional to this baseline depends upon the supply characteristics of the various major development scenarios.

5.9 The baseline supply projections take account of the recent decommissioning of the Cosmo Howley Power Station and the Pine Creek B Power Station, thereby reducing available capacity in the Darwin-Katherine regulated system by 15MW in 2002-03.12 Over the period to 2012-13, baseline supply in the Darwin-Katherine and Tennant Creek regulated systems is projected on the basis that system capacity remains unchanged from existing capacity as outlined in Table 5.1.

5.10 In the Alice Springs regulated system, the Commission has been advised that Power and Water is planning to increase generation capacity by investing in an 8MW generator – expected to be installed in late 2005. The resultant baseline supply projection for the Alice Springs system is illustrated in Chart 5.2.

9 In future reviews, the Commission may consider the supply and demand arising in areas not connected to the regulated power system. 10 For example, additional capacity may accompany new onshore gas developments and other projects, which could significantly increase supply. The average net export (if any) into the system from these major developments would contribute to available capacity for the Territory system. This possibility is considered later in this chapter. 11 This is more of a concern to the Territory than in other States due to the small number of participants and size of the Territory market. 12 Also, this does not include the possibility of an eighth generation set at Channel Island, which media reports during October 2003 indicated may be under consideration by Power and Water.



Chart 5.2 – Baseline Supply Projection Alice Springs Regulated System

Indicators of system adequacy

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N-1 capa city

To ta l capacity

5.11 System adequacy depends fundamentally on the level of installed capacity measured against expected demand. The difference is known as the reserve margin, which is a margin that allows for both planned maintenance and forced outages (failures). If system adequacy is low, there is a greater chance of electricity supply interruption.

5.12 The current reserve margin for each regulated system has been provided by Power and Water, and indicates the point at which intervention in the market is required to ensure risks to supply are adequately minimised. It reflects the nature of demand and the supply capabilities in servicing that demand, in a particular system.

5.13 The Commission has undertaken its analysis for each regulated system.


5.14 In this section, the prospective supply-demand balance in the Darwin-Katherine regulated system is presented under a number of scenarios over the forecasting horizon. First, the baseline scenario is shown, and then the likely impacts of major developments are shown in alternative scenarios. The following four scenarios are examined:

• a baseline scenario, where no account is made for the demand (or supply) associated with major developments;

• a major developments impact scenario, with only the direct demand arising from the ConocoPhillips LNG Plant assumed to be met in its entirety by onsite generating capacity;

• in addition to scenario two above, a 30% net draw on offsite generation capacity by the major developments (only the ConocoPhillips LNG Plant is considered); and

• in addition to scenario two above, a 50% net addition to generation capacity by major developments (only the ConocoPhillips LNG Plant is considered).



Baseline scenario

5.15 Table 5.2 and Charts 5.3 and 5.4 indicate the reserves implied by the Commission’s baseline supply and demand forecasts for the Darwin-Katherine regulated system. This scenario ignores any impact on demand arising from major developments, whether direct or indirect.

5.16 The assumptions underlying the baseline demand forecasts were outlined in chapter 4. Also assumed over the forecast period is an absolute reserve margin of 51MW, which is based on 22% of current peak demand.13

Table 5.2 – Supply-Demand Balance Forecast Darwin-Katherine Baseline (MW)

Financial Year

Generator Capacity IPPs Forecast

Capacity Peak

Demand Supply-Demand Balance

Reserve Margin

Reserves over

Margin

2002-03 305 27 332 233 98 51 47

2003-04 305 27 332 238 94 51 43

2004-05 305 27 332 244 88 51 37

2005-06 305 27 332 250 82 51 31

2006-07 305 27 332 256 75 51 24

2007-08 305 27 332 262 69 51 18

2008-09 305 27 332 269 62 51 11

2009-10 305 27 332 276 56 51 5

2010-11 305 27 332 283 49 51 -2

2011-12 305 27 332 290 42 51 -9

2012-13 305 27 332 297 35 51 -16

Chart 5.3 – Supply-Demand Balance Forecast Darwin-Katherine Baseline

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2007

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2010

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MW

Res e rve ma rgin (51 MW)

Res e rves o ve r margin

Fo reca s t ca pacity

Fo reca s t pe ak demand

13 In larger systems, a 10% (of peak demand) reserve capacity may be sufficient, however in the Darwin-Katherine system, the current demand levels and supply capabilities would dictate around 22% as being the reserve margin.



Chart 5.4 – Forecast Reserves of Margin Darwin-Katherine Baseline

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-10%

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Res e rve ma rgin %

5.17 Under the Commission’s baseline scenario, with annual demand growth of about 2.4%, all reserves over the margin (51MW) are exhausted in 2010-11. This represents about a 50MW decrease in reserves from those levels existing in 2002-03. Even so, no significant issues appear likely under this scenario over the forecast horizon. However, an ongoing evaluation of system reliability over the period would determine whether the system has deteriorated, in which case additional capacity could be required to ensure reliability requirements are satisfactorily met. To ensure the system remains adequate Power and Water have indicated they may install an additional generator at Channel Island in around 2008.14

Major developments equilibrium scenario

5.18 Table 5.3 and Charts 5.5 and 5.6 indicate the reserves implied by the Commission’s supply and demand forecasts for the Darwin-Katherine system, based on the assumption that the demand arising on account of the ConocoPhillips LNG Plant is met in its entirety by onsite generation capacity.

5.19 The technical assumptions underlying this scenario are:

• demand for all other major projects considered are assumed to be met by network sourced electricity; and

• the reserve margin remains at 51MW over the forecast horizon.

14 Media reports in October 2003 indicate that the timing of the new generator is dependent on the outcome of commercial negotiations between Power and Water and ConocoPhillips. There is a possibility that an agreement could be reached with ConocoPhillips to supply energy for the LNG plant at Wickham Point, in which case Power and Water has indicated it is likely install a new generator providing 30-40MW by 2005.



Table 5.3 – Supply-Demand Balance Forecast Major Developments Equilibrium (MW)

Financial Year

Forecast Capacity

Major Dev’ts Supply

Total Forecast Capacity

Peak Demand

Supply-Demand Balance

Reserve Margin

Reserves over

Margin

2002-03 332 0 332 233 98 51 47

2003-04 332 0 332 249 83 51 32

2004-05 332 0 332 248 83 51 32

2005-06 332 15 347 270 77 51 26

2006-07 332 19 351 280 70 51 19

2007-08 332 19 351 287 64 51 13

2008-09 332 19 351 293 57 51 6

2009-10 332 19 351 300 50 51 -1

2010-11 332 19 351 307 43 51 -8

2011-12 332 19 351 314 36 51 -15

2012-13 332 19 351 322 29 51 -22

Chart 5.5 – Supply-Demand Balance Forecast Major Developments Equilibrium

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Year

MW

Indirec t demandRes erve margin (51 MW)Res erves o ver marginFo rec as t c apac ityFo rec as t peak dema nd



Chart 5.6 – Forecast Reserves over Margin Major Developments Equilibrium

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Re s erve margin %

5.20 Once major developments proceed, the Commission recognises that not only will there be a direct demand impact arising from the projects themselves, but also indirect demand associated with the flow-on effects throughout the Darwin-Katherine region. This has been shown in the demand projection in Chart 5.5 above.

5.21 Introducing the equilibrium supply-demand scenario of major developments into the Darwin-Katherine system sees supply risks emerging from the end of the decade, reflecting an overall decrease in available reserves of 70MW from 2002-03 levels. Under this scenario, peak demand in the Darwin-Katherine regulated system is forecast to increase by about 38% to 322MW in 2012-13, predominantly due to the load of the LNG Plant. Additionally, accounting for potential onsite capacity at Wickham Point, the forecast shows that total capacity of the Darwin-Katherine regulated system may increase to 350MW in 2012-13.15

5.22 This scenario indicates that, provided all additional demand arising on account of the major developments were met by onsite generation capacity provided as part of these developments (here only the ConocoPhillips LNG Plant), the Darwin-Katherine system would have sufficient capacity to meet expected growth in demand, including any additional indirect demand, until the end of the decade. Prospects for a supply-demand mismatch may emerge towards the end of the forecast horizon.

Impact of offsite power requirements by major developments

5.23 The above assessment is dependent upon the assumption made that the additional direct electricity demand arising from the ConocoPhillips LNG Plant is met entirely from onsite generation.

5.24 To illustrate the effect were the ConocoPhillips LNG Plant to draw energy from the remaining power system in order to meet their energy requirements, Table 5.4 and Charts 5.7 and 5.8 illustrate the effect of a 30% net draw on offsite generation capacity. The 30% figure is chosen because it is around the level that would see the need for increased generation capacity well before the end of decade.

15 For the purposes of this review and the scenarios presented herewith, the ConocoPhillips LNG plant is assumed to have onsite generating capacity at least capable of servicing its estimated load requirements. At this stage, the specific generating arrangements for the LNG plant are not yet known.



Table 5.4 – Supply-Demand Balance Forecast Major Developments as Net Users (MW)

Financial Year

Forecast Capacity

Peak Demand


Reserve Margin

Reserves over

Margin

2002-03 332 233 98 51 47

2003-04 332 249 83 51 32

2004-05 332 248 83 51 32

2005-06 347 274 72 51 21

2006-07 351 286 65 51 14

2007-08 351 292 58 51 7

2008-09 351 299 52 51 1

2009-10 351 306 45 51 -6

2010-11 351 313 38 51 -13

2011-12 351 320 30 51 -21

2012-13 351 327 23 51 -28

Chart 5.7 – Supply-Demand Balance Forecast Major Developments as Net Users

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MW

Indirec t demandRes erve margin (51 MW)Res erves o ver marginFo rec as t c apac ityFo rec as t peak dema nd

5.25 The Darwin-Katherine system capacity would likely need to be extended before the end of the decade were at least 30% of the expected external demand from the ConocoPhillips LNG Plant to be met by offsite generation. Without additional capacity, under this scenario demand could breach the reserve margin by 2008-09.



Chart 5.8 – Forecast Reserves over Margin Major Developments as Net Users

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Impact of a net addition to generation capacity by major developments

5.26 An alternative possibility is that generation capacity associated with the ConocoPhillips LNG Plant generates in excess of its own power requirements, to be exported into the power system.

5.27 Table 5.5 and Charts 5.9 and 5.10 illustrate the effect of a 50% increase in supply from generation relating to the LNG plant. The 50% figure is chosen because it is sufficient to postpone any need to introduce additional external generating capacity until after the end of the decade.

Table 5.5 – Supply-Demand Balance Forecast Major Developments as Net Generators (MW)

Financial Year

Forecast Capacity

Peak Demand


Reserve Margin

Reserves over

Margin

2002-03 332 233 98 51 47

2003-04 332 249 83 51 32

2004-05 332 248 83 51 32

2005-06 354 270 84 51 33

2006-07 360 280 80 51 29

2007-08 360 287 73 51 22

2008-09 360 293 67 51 16

2009-10 360 300 60 51 9

2010-11 360 307 53 51 2

2011-12 360 314 46 51 -5

2012-13 360 322 38 51 -13



Chart 5.9 – Supply-Demand Balance Forecast Major Developments as Net Generators

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Year

MW

Indirec t dema ndRes erve margin (51 MW)Res erve s o ver marginFo recas t capacityFo recas t pea k demand

Chart 5.10 – Forecast Reserves over Margin Major Developments as Net Generators

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5.28 With an increase in supply of 50% from generation associated with the LNG plant, the Darwin-Katherine system could be well placed to satisfy forecast demand through to at least the end of the decade.

5.29 This scenario estimates only a 50MW decrease in reserves over the forecast period from those levels existing in 2002-03.

Summary

5.30 The future supply-demand balance situation in the Darwin-Katherine regulated system may fall somewhere between the major development scenarios presented above. For example, in initial years (including during construction), additional power may be drawn from the system to satisfy the demand of major



developments and, in later years, major developments could build up spare additional capacity and export into the system.


5.31 The Commission has not undertaken alternative scenarios for the regions outside the Darwin-Katherine region.

5.32 Table 5.6 and Charts 5.11 and 5.12 indicate the supply-demand balance and reserves implied by the Commission’s forecasts for the Alice Springs regulated system. This includes some additional indirect demand associated with the flow-on effects arising from the impact of major developments including the Alice Springs to Darwin railway.

Table 5.6 – Supply-Demand Balance Forecast Alice Springs (MW)

Financial Year

Generator Capacity IPPs

Total Existing Supply

Peak Demand


Reserve Margin

Reserves over

Margin

2002-03 51 9 59 48 12 13 -1

2003-04 51 9 59 49 10 13 -3

2004-05 51 9 59 51 8 13 -5

2005-06 59 9 67 51 16 13 3

2006-07 59 9 67 52 15 13 2

2007-08 59 9 67 52 15 13 2

2008-09 59 9 67 53 14 13 1

2009-10 59 9 67 53 14 13 1

2010-11 59 9 67 54 13 13 0

2011-12 59 9 67 54 13 13 0

2012-13 59 9 67 55 12 13 -1

Chart 5.11 – Supply-Demand Balance Forecast Alice Springs

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Indirec t demand

Re s erve margin (13 MW)

Re s erves o ver ma rginFo re cas t capa city

Fo re cas t peak de mand



Chart 5.12 – Forecast Reserves over Margin Alice Springs

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5.33 The forecast demand and supply in the Alice Springs regulated system indicates a tight supply situation over the next few years, until a new generator is installed – expected in late 2005. While the forecasts indicate that system adequacy will be restored, the use of a conservative reserve margin of 13MW indicates supply risks may re-emerge at the end of the forecast period.


5.34 Table 5.7 and Charts 5.13 and 5.14 indicate the supply-demand balance and reserves implied by the Commission’s forecasts for the Tennant Creek regulated system.

Table 5.7 – Supply-Demand Balance Forecast Tennant Creek (MW)

Financial Year

Forecast Capacity

Baseline Demand

Railway Demand

Total Demand


Reserve Margin

Reserves over

Margin

2002-03 16 8 0 8 9 3 6

2003-04 16 8 1 9 7 3 4

2004-05 16 8 0 8 9 3 6

2005-06 16 8 0 8 8 3 5

2006-07 16 8 0 8 8 3 5

2007-08 16 8 0 8 8 3 5

2008-09 16 8 0 8 8 3 5

2009-10 16 8 0 8 8 3 5

2010-11 16 8 0 8 8 3 5

2011-12 16 8 0 8 8 3 5

2012-13 16 8 0 8 8 3 5



Chart 5.13 – Supply-Demand Balance Forecast Tennant Creek

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Fo re cas t peak de mand

5.35 Current generation capacity in Tennant Creek of 16.3 MW appears sufficient to accommodate the expected baseline demand over the next 10 years, even after taking into account the reserve margin of 3MW. With railway work completed in September 2003 and no further major activity (impacting on the power system) on the immediate horizon, Tennant Creek is expected to experience annual baseline growth of around about 1.1%.

Chart 5.14 – Forecast Reserves over Margin Tennant Creek

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CHAPTER

ADEQUACY OF GAS SUPPLIES

6.1 In the Territory context, system adequacy concerns can also arise if declining gas reserves and production give rise to a fuel supply shortfall for electricity generation. This chapter addresses this issue.16

Natural gas supply

6.2 Over 99% of electricity in the Territory’s regulated system is generated from natural gas-fuelled plant through direct powering of gas turbines and reciprocating engines and the production of steam through the recovery of waste heat from the gas turbines.

6.3 These plants are serviced by two gas fields in the Amadeus Basin: the Palm Valley field operated by Magellan Petroleum Australia Ltd and the Mereenie field operated by Santos Ltd. Each operator has significant interest in both fields. These gas fields are shown in Chart 6.1.

6.4 In 1983, Power and Water entered into an agreement with the operator of the Palm Valley field to supply gas to Alice Springs primarily for electricity generation.

6.5 In 1985, the Power and Water subsidiary Gasgo contracted to purchase gas totalling 200 petajoules (“PJ”) from the Palm Valley field until 2012 to fuel electricity generation in the Darwin-Katherine region. In the same year, Gasgo also entered into a gas purchase agreement with the operator of the Mereenie field for the supply of 66PJ during the period until 2012. Since that time, natural gas has been the major fuel source for electricity generation in the Territory.

16 The 2002 Review also addressed system security issues associated with fuel, finding that the gas supply system and the back-up liquid fuel supplies have proven reliable over the past 15 years and electricity supply has not been interrupted through a fuel-related contingency. The Commission indicated that it was comfortable that the levels of liquid fuel storage maintained by Power and Water and the scope for pipeline line pack should together continue to allow the maintenance of electricity supply during short-term interruptions to gas production or transportation.



Chart 6.1 – Location of Amadeus Basin Gas Fields

6.6 The Palm Valley field has not met original expectations and, although Gasgo has funded substantial development work as required by the gas purchase agreement, the operator has downgraded the resource (including forecast cumulative production) to approximately 50% of the original reserves figure.

6.7 The poor performance of the Palm Valley field and the greater than expected energy demand have resulted in three other gas purchase contracts totalling 113PJ being established with Mereenie.

6.8 Chart 6.2 illustrates the declining production of the Palm Valley field and the increasing reliance upon the Mereenie field over the last 10 years.

Chart 6.2 – Annual Gas Purchases in the Northern Territory 1992-93 to 2002-03

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MereeniePalm Valley

6.9 The Gasgo contracts for the supply of gas are expected to expire in 2009.



Gas supply-demand outlook

Supply projections

6.10 The Commission has updated its analysis of potential gas production from existing sources over the period to 2009. Although the Commission has had access to Gasgo’s forecasts on a commercial-in-confidence basis, the Commission’s own analysis is based on publicly available information and its judgment on the range of probable gas supply outcomes.

6.11 In the 2002 Review, the Commission chose to present scenarios for the Palm Valley and Mereenie fields independently of one another. In this review, the Commission has revised its scenario analysis to account for the potential to accelerate gas volumes from the Mereenie field on account of developments at the Palm Valley field. The scenarios presented involve an ‘upper bound’ scenario indicating the potential upside from the Amadeus Basin, and a ‘lower bound’ scenario indicating a probable downside from Amadeus Basin (predominantly the declining reserves in the Palm Valley field) with some account being made of the scope for acceleration of gas volumes from Mereenie.

Palm Valley

6.12 With Palm Valley unable to meet contract requirements since 1996, gas production could be reduced to significantly lower levels by the end of the decade.

6.13 On the information available to the Commission, it appears that:

• the ‘lower bound’ scenario involves production from the Palm Valley field continuing its natural decline over the next few years at the same rate as evident over the last 3-5 years; and

• the ‘upper bound’ scenario involves the Palm Valley resource being downgraded by only 30% (an improvement over the current assessment of 50% downgrade).

Mereenie

6.14 Mereenie contract volumes are expected to be at least met through to 2009. Indications are that, after 2009, Mereenie will have gas available although the production rates may fall short of current output.

6.15 On the information available to the Commission, it appears that:

• the ‘lower bound’ scenario involves production from Mereenie meeting its current contractual commitments plus the acceleration of gas volumes by 5% from 2005-06; and

• the ‘upper bound’ scenario involves accelerating gas volumes by up to 10% over the current Mereenie gas supply contracts and thereafter additional gas purchases are made to maintain production through to 2009.

Existing supply outlook

6.16 The combined outlook for gas supplies from the Amadeus Basin sources under alternate scenarios is illustrated in Chart 6.3.

6.17 As such, the Commission’s outlook for gas supplies is based on likely production by existing gas fields only – Mereenie and Palm Valley in Central Australia – with future gas from the Bonaparte/Timor Sea region and other fields within the Territory not being considered.



Chart 6.3 – Gas Supply Projections

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Year

PJ

SupplyGas Purchases

Gas supply (upper bound)

Gas supply (lower bound)

Existing gas supply-demand balance

6.18 Whether the lower bound supply scenario gives rise to system adequacy concerns depends on how the supply outlook compares with demand for gas as a fuel for electricity generation.

6.19 As for the 2002 Review, the Commission’s projections of gas demand growth are based on the growth projected in electricity consumption (in chapter 4). Reflecting a resultant 2.4% annual average growth in demand for gas, Chart 6.4 compares demand with the Commission’s upper and lower bound supply scenarios:

Chart 6.4 – Gas Demand-Supply Imbalances

-1.3 -2 .8-1.2-1.2

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PJ

SupplyDemand

Gas supply (upper bound)

Gas supply (lower bound)

0

Lo wer b ound gassup p ly sho rt fall (PJs )

-4



6.20 Chart 6.4 indicates that, overlaying the upper and lower gas supply scenarios, and just considering the existing sources of gas (the Mereenie and Palm Valley fields), it is possible:

• there could be a small gas fuel supply shortfall as early as 2006; and

• such a shortfall could continue to be in prospect until as late as 2009 under the lower bound scenario.

6.21 In summary, the Commission considers that:

• the production from the Palm Valley field is likely to decline substantially over the next few years;

• the combined volumes available under existing contracts from the Palm Valley and Mereenie fields may then not be sufficient to supply all the Darwin-Katherine requirements after 2008;

• scope exists for acceleration of gas volumes from the Amadeus Basin to maintain electricity supply up to 2009; and

• increased liquid fuel usage will only be required before 2009 to maintain electricity supply during peak demand periods, and then only as a last resort.17

6.22 Hence, the existing supplies of natural gas do not give rise to significant adequacy issues until 2009, and then possibly not a major one. This is a more sanguine assessment than in the Commission’s 2002 Review for the following main reasons:

• the Palm Valley producer’s latest forecasts are more optimistic than at this time last year; and

• the Commission is more comfortable regarding the Mereenie field’s capacity to supply all contracted gas through to 2009, with some scope also existing for acceleration of gas volumes – admittedly at a cost – to forestall any short-term supply-demand imbalances.

Alternative sources of fuel

6.23 As Amadeus Basin gas production declines towards the end of the decade, Power and Water is expected to manage any potential gas production shortfalls by entering into gas purchase arrangements with offshore gas producers. Such discussions are currently underway.

6.24 Power and Water’s existing demand for gas of around 20PJs per annum is incapable of driving offshore developments by itself, so that future sources of gas are contingent on aggregated demand supplied via offshore projects. To develop a new gas resource, gas producers, gas purchasers and gas pipeliners need to negotiate agreements that collectively establish workable commercial arrangements for the complete supply chain from field production to gas end users. For both commercial and operational reasons, the lead times between commencement of negotiation and the physical supply of new gas can be 3-5 years.

17 While an increased use of liquid fuels will maintain electricity supply, another set of supply chain logistics, reliability issues and risks are introduced. Additionally, there is likely to be a substantial extra cost impost on industry participants and end users.



6.25 A number of offshore fields (see Chart 6.5) have the potential to supply gas for electricity generation and to potential new major industrial users as the supply from the Amadeus basin declines:

• Bayu-Undan (3.4 trillion cubic feet (“TCF”));18

• Greater Sunrise (7.7 TCF);

• Blacktip (1.1 TCF); and

• Petrel & Tern (1.4 TCF).

Chart 6.5 – Offshore Fields

6.26 A number of other fields also have the potential to supply gas to the Territory and exploration and appraisal work is continuing to progress.

6.27 The ConocoPhillips-operated Bayu-Undan field in the Timor Sea has a long-term export contract to supply LNG from a Darwin-based processing plant. An LNG Plant at Wickham Point is being constructed and production is expected to commence in 2005-06. Known reserves are committed to the LNG contract, however some gas may be available on a short term basis as may newly identified gas.

6.28 Woodside is the operator of the Blacktip discovery south west of Darwin in the Joseph Bonaparte Gulf. All known reserves are currently conditionally committed to supplying gas to Alcan’s expansion project at Gove. Further appraisal and exploration might see additional recoverable reserves offered to Power and Water.

6.29 The offshore Petrel and Tern fields 300km west of Darwin operated by Santos are other potential gas supply sources. Development of these fields seems contingent on aggregating customers with total demand of 60PJs per annum. These fields seem more likely to be developed in the immediate future now that the final development decision for the Sunrise field in the Timor Sea has been postponed until the end of the decade at the earliest.

6.30 Gas delivered to Darwin from the Timor Sea (e.g., Bayu-Undan, Sunrise) represents a market overhang risk for Power and Water. Entering into any long-term

18 One TCF is equivalent to approximately 1,000PJ or about 50 times the existing Territory annual gas demand.



contract that is not priced competitively with Timor Sea gas would expose Power and Water and its customers to significant price risks. It is therefore prudent that Power and Water takes account of such market exposures, with short-term fuel purchasing options most likely to ensure access to longer term, lower-cost arrangements.

Commission’s view

6.31 A number of large offshore gas reserves could supply future electricity generation gas requirements as production from existing gas fields declines. To meet the potential requirements post 2007, the lead times for the development of alternative gas supplies mean that new gas supply arrangements may have to be established in the next two years or so.

6.32 This assessment is less pessimistic than in the Commission’s 2002 Review mainly because, over the last year, it is apparent that:

• some gas may be available on a short-term basis from Bayu-Undan producers prior to 2009; and

• several other options are available for future uptake of additional recoverable gas reserves.

6.33 Together, these short-term fuel purchasing options increase the likelihood that longer term, lower-cost arrangements can be entered into for electricity generation in the Territory based on the lower price of Timor Sea gas.





APPENDIX

KEY FEATURES OF THE TERRITORY’S POWER SYSTEM

Introduction

The ‘power system’ essentially involves two key processes: producing electricity (generation) and transporting electricity (networks). Those involved with these activities are integral to the supply of electricity to end-use customers, and the decisions they make in respect of generation and network operation can have widespread effects on the continued supply of electricity.

For the purposes of this review, the Territory’s power system consists of three distinctly separate systems/regions of Darwin-Katherine, Tennant Creek and Alice Springs, with the Darwin and Katherine distribution networks being connected by a 132kV transmission line. The review is focused on the regulated aspects of these systems. Chart A.1 depicts these three systems, indicating the electricity consumption in each regulated network and the approximate population of major centres.

Chart A.1 – Territory’s Regulated Regions

Unique aspects of the Territory’s electricity supply industry

The Territory’s power system, unlike those of the south-eastern States, is not interconnected with the National Electricity Market (“NEM”). Technical and economic limitations, due to the great distances from other major centres in Australia, mean that the Territory’s systems operate in isolation from other markets.



Furthermore, the small size of the Territory market means that it is not possible to operate a wholesale pool like that operating in the NEM. Instead, end-use customers and third-party retailers are obliged to have supply agreements in place directly with generators (termed ‘bilateral contracting’).

The dispatch and system control functions are essential to ensure that the power system as a whole (generators and networks together) produces and delivers the quantity of power required by all customers. Power and Water currently undertakes the role of power system controller in the interests of all participants in the market, in accordance with section 38 of the Electricity Reform Act.

Generation

The Power and Water Corporation (“Power and Water”) remains the single largest generator of electricity throughout the Territory. Over 80% of all generation capacity in regulated power systems is installed in the Darwin-Katherine region with the remainder in the southern regions of Tennant Creek and Alice Springs.

Each of the licensed independent power producers (“IPPs”) is currently contracted with Power and Water to supply electricity into various systems. IPPs currently operating in the regulated system include Pine Creek Power Pty Ltd and Central Energy Power Pty Ltd.

Outside of the regulated networks, the Commission has issued licenses to McArthur River Power Pty Ltd as an IPP servicing Power and Water’s McArthur River customers, and Energy Resources of Australia Ltd as an IPP serving Power and Water’s Jabiru customers, and issued a Special Isolated System Licence to Groote Eylandt Mining Company Pty Ltd who supply to the township of Alyangula. The licensing of operations at Gove are under active consideration by the Commission.

The Territory’s generation market remains open to competition. Generation plant in the Territory consists mainly of gas and liquid fuel driven turbines.

Networks

Power and Water is the sole owner of the regulated networks in the Territory, and is responsible for operating and maintaining power transmission and distribution in most cities, suburbs and townships. In carrying out its responsibilities, Power and Water is responsible for ensuring that network capacity keeps pace with usage growth, while working within existing transmission and network constraints.

Retailers

Following NT Power’s withdrawal from the market in September 2002, Power and Water is the sole licensed retailer operating in contestable segments of the Territory’s electricity market, currently involving customers consuming 750MWh or more per annum. These market segments remain open to competition.

Power and Water is the sole licensed retailer for supplying non-contestable customers.

Composition of demand

Demand patterns depend upon those associated with the two main types of consumers: residential consumers and commercial/industrial consumers. Residential consumers



include those in individual homes and apartments and are the biggest class of consumers in terms of numbers. Commercial/industrial consumers are the largest users of electricity, and include both private businesses and government service providers.

Table A.1 shows the extent of these two categories in each regulated system, in terms of energy usage (gigawatt-hours (“GWh”) per annum) and number of customers.

As shown in Table A.1, commercial and industrial customers, while fewer in number, accounted for about 67% of total energy consumption in 2002-03. Typically, electricity demand in the Territory is marginally more dependent on commercial and industrial customers than is the case in other jurisdictions around Australia.19

Table A.1 – Regulated Electricity Market – 30 June 2003

Energy Sales (GWh)

Energy Sales (%)

No. of Customer

Sites Darwin-Katherine:

Residential 369 33% 44,168 Commercial/Industrial: 776 68% 8,541 <750 MWh 286 8,360 >750 MWh 490 181

Total 1,146 100% 52,709 Tennant Creek:

Residential 7 24% 1,289 Commercial/Industrial 22 76% 375 <750 MWh 13 366 >750 MWh 9 9

Total 29 100% 1,664 Alice Springs:

Residential 75 37% 9,785 Commercial/Industrial 130 63% 1,936 <750 MWh 62 1,903 >750 MWh 67 33

Total 204 100% 11,721 Total:

Residential 451 33% 55,242 Commercial/Industrial 928 67% 10,852 <750 MWh 361 10,629 >750 MWh 567 223

Grand Total 1,379 100% 66,094

Demand profile

The Territory exhibits a unique demand profile which is a result of numerous demand drivers related to seasonal, population and economic characteristics. The Territory’s current demand profile is illustrated and briefly described below.

The electricity demand shown is measured in two ways: as demand in megawatts (“MW”) at a particular point in time (i.e., the generation required to meet the estimated likely load 19 Refer to national statistics from the Electricity Supply Association of Australia (ESAA), Electricity Australia 2002, p.47.



conditions), and as a consumption rate measured in GWh per annum (i.e., the amount of electricity consumers use on average over a 12 month period).

Chart A.2 shows the sent-out energy for each regulated system in 2002-03. Sent-out energy is energy measured leaving the generator and therefore does not reflect network losses.

Chart A.2 – Monthly Energy Regulated Systems 2002-03

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The chart clearly shows the Darwin-Katherine system is the largest, accounting for about 83% of overall energy sent-out in 2002-03. There is some evidence of seasonal variations in the Darwin-Katherine system with the period from October to January (the Wet season) usually having the highest electricity consumption.

Since the 132kV Darwin-Katherine transmission line (“DKTL”) was constructed in 1989-90, maximum demand in the Darwin-Katherine system has grown at an average annual rate of about 4%. Chart A.3 shows the historical monthly maximum and minimum demand in the Darwin-Katherine system.

Chart A.3 – Historical Demand Darwin-Katherine Regulated System 1989-90 to 2002-03

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The seasonal variations in the Darwin-Katherine and Alice Springs regulated systems are illustrated below.

Chart A.4 – Daily Demand Darwin-Katherine Regulated System 2002-03

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Chart A.5 – Daily Demand Alice Springs Regulated System 2002-03

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Charts A.4 and A.5 above show the daily maximum and minimum demand experienced over 2002-03. The Darwin-Katherine system exhibits some consistency throughout the year in terms of its relative daily variations, although the Wet and Dry seasonal influence is also apparent. The Alice Springs system differs somewhat in that the period between January and April typically exhibits higher volatility in maximum demand than any other period throughout the year. The Alice Springs system also shows signs of a four-seasonal influence as defined by its unique waveform.

The weekly demand profile of the Darwin-Katherine system is shown in Chart A.6.



Chart A.6 – Hourly Demand – Darwin-Katherine Regulated System Typical Seasonal Weeks

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Chart A.6 shows the hourly demand for the typical Wet season week of 1-7 December 2002, and the typical Dry season week of 11-17 August 2002, in the Darwin-Katherine system. The hourly demand profile is typically consistent throughout the working week with peaks usually experienced between 12-3pm, and a noticeable ‘kink’ in demand between 6-8pm reflecting ‘close of trading’ and ‘end of day’ residential activities. Maximum weekly demand is usually experienced mid-week, though in the Dry season we find that Mondays have weekly maximum demand points, however this does vary from time to time. The typical Dry season week is broadly similar to the Wet season, however demand is lower and additionally less ‘peaky’. During a typical weekend, demand is also less volatile and less ‘peaky’, and mostly corresponds with daily weather patterns and residential activities than with commercial activities.

The Darwin-Katherine and Alice Springs load duration curves are shown in Charts A.7 and A.8 below. A load duration curve is a plot of the demand in each hour of the year, arranged by the level of demand. The horizontal axis indicates the percentage of time that the load is above a certain MW level as indicated by the vertical axis.

Chart A.7 – Darwin-Katherine Regulated System Load Duration Curves

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Chart A.8 – Alice Springs Regulated System Load Duration Curves

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The Territory experiences relatively longer duration peaking loads, as compared to southern jurisdictions (such as South Australia and Victoria) which have considerably shorter peak load periods. This difference is due mostly to contrasting climate conditions between the Territory and southern States.

Another feature of the load duration is its general slope. A flatter curve indicates higher customer load factors, and is usually exhibited by large systems with the potential for greater diversity in demand profiles. The Territory’s load duration curve is steeper than that exhibited by other jurisdiction and is due mostly to this size-effect.

Another load characteristic not so apparent in load duration curves is the ratio of peak demand to average demand. The Darwin-Katherine system has a peak to average demand ratio of about 1.3:1. In Tennant Creek the ratio is about 1.6:1 and in Alice Springs ranges from 1.5:1 in summer to 1.9:1 in winter. The ratio is useful in illustrating the current efficiency in the use of capacity. For example, shorter periods of peak demand would see the ratio move higher, and therefore require capacity to be available for shorter periods, which is economically inefficient. The ratio is a reflection of the demand and supply realities facing a particular system.





APPENDIX

KEY FEATURES OF THE TERRITORY’S ECONOMY AND ENVIRONMENT

Introduction

The nature of demand in the Territory’s power system is determined by economic and environmental factors. This Appendix briefly describes these factors, presenting climate, population and industry statistics.

Climate

Weather conditions throughout the Territory are the main variable contributing to the daily and seasonal fluctuations in electricity demand.

The Territory has two distinct climate regions:

• the Top End and the Gulf District – which is distinctly monsoonal; and

• Central Australia (or Alice Springs District) – which is characterised as arid.

The Top End has two distinct seasons, the Wet (November to April) and Dry (May to October). Throughout the year, temperatures are similar to Cairns, Bali and Singapore. The mean annual temperatures in Darwin are 23.2°C and 31.9°C, and vary little throughout the year. The Top End is also one of the most lightning prone areas in the world.

South of Tennant Creek, the environment becomes increasingly arid, with the Alice Springs District being generally hot and dry. The mean annual temperatures in Alice Springs are 13.3°C and 28.6°C, and can vary considerably from season to season. Generally temperatures are high throughout the year, but with a large diurnal (day-night) range.

The amount and reliability of rainfall decreases considerably from north to south, with Darwin on the northern coast receiving an average annual rainfall of about 1710mm, while in the south at Alice Springs, average annual rainfall is about 285mm.

Population

As at 30 June 2002, the Territory’s population was 198,013 persons. The Territory is sparsely populated, with a density of about 0.1 persons per square kilometre, lower than any other State or Territory in Australia and well below the national average of 2.6 persons per square kilometre. Despite this, over three-quarters of the population live in urban areas.

As at 30 June 2002, the Darwin region (comprising of Darwin, Palmerston and Litchfield areas) accounted for 54% of the Territory’s population. Alice Springs accounted for a further 13.5%, while other major centres accounted for around 9%. Table B.1 below provides the population distribution in the Territory.



Table B.1 – Territory Population – June 2002

Region Population Proportion of Persons

Darwin 68,378 34.5 Palmerston 22,818 11.5 Litchfield 15,738 7.9 Darwin Region 106,934 54.0

Jabiru 1,171 0.6 Katherine 8,824 4.5 Nhulunbuy 3,777 2.0 Tennant Creek 3,003 1.5 Alice Springs 26,306 13.5 Rest of Territory 47,998 23.9

Total 198,013 100.0 Source: NT Budget Paper, 2003-04, Northern Territory Economy, p.26.

The Territory’s population is estimated to have increased by 0.5% in 2002-2003, however over the last three years it has remained below the national growth rate (which has consistently ranged between 1-2%).20 Historically the Territory’s population growth has been greater than the national average, and over the five years to June 2000 the Territory recorded the highest growth rate of all jurisdictions. Population growth is expected to pick up in 2003-04.

Further out, a return to stronger population growth is expected to be driven by large construction workforces over a number of years, relating to onshore gas expansions and projects, as well as defence force expansion and other building infrastructure works.

Economy and industry

The Territory’s Gross State Product (“GSP”) increased by 4.8% in 2001-02 to about $9.062M, and in 2002-03 GSP is estimated to have risen by 3.7%.21

In terms of output, the mining and energy industry remains the most significant industry in the Territory, having accounted for 22.2% of GSP in 2001-02. In addition to this industry, the Territory is relatively more dependent on the Government and defence, and tourism industries than is the case on a national level.

In the near term (2003-04) the value of minerals and energy production has been forecast by NT Treasury to fall by 23%, due to in the main, a reduction in oil production and prices. Over the medium term, the prospects for mineral and energy production is positive with onshore and offshore energy production commencing, particularly from the Bayu-Undan project. There are also a number of proposals for significant expansion of mining and processing capacity in the Territory.

A recent report by BIS Shrapnel has indicated that it expects average GSP growth in the Territory of around 4.5% pa over the next 5 years, the highest of all jurisdictions.22

20 NT Budget Paper, 2003-04, Northern Territory Economy, p.25. 21 NT Budget Paper, 2002-03, Northern Territory Economy, p.1. 22 BIS Shrapnel State Industry Prospects 2003-2018.



APPENDIX

GLOSSARY

Capacity – The maximum output that a generating unit can provide under specific conditions for a given time period without exceeding temperature and stress limits.

Co-Generation – Involves the capture of exhaust heat (or other useful thermal energy such as steam) from a generating facility that produces electricity, for use in industrial, commercial, heating, or cooling processes.

Demand – The amount of electricity consumed by customers at any given time or over a period of time.

Demand Side Management – The planning, implementation, and monitoring of utility activities designed to encourage consumers to modify patterns of electricity usage, including the timing and level of electricity demand. It refers only to energy and load-shape modifying activities for the purpose of reducing peak load and the need for generating capacity at such times.

Forced Outage – The shutdown of a generating unit, transmission line or other system asset for either emergency reasons or unexpected breakdown.

Gigawatt-hour (GWh) – A measure of electricity consumption in gigawatts for a one-hour continuous period. One gigawatt hour equates to one million kilowatt hours.

Interruptible Load – Load that, in accordance with contractual arrangements, can be interrupted at times of peak load. Load can be disconnected, either manually or automatically, and usually involves commercial and industrial consumers.

Kilowatt-hour (kWh) – The total amount of energy used in one hour by a device that uses one kilowatt of power for continuous operation. Electric energy is commonly sold by the kilowatt-hour, which equates to 1000 watt-hours.

Line Pack – Refers to the gas that is in the pipeline at any given point in time for the purpose of maintaining minimum pipeline operating pressure. Line pack does not increase gas supply availability, but increases short-term deliverability by moving gas from one place on the pipeline to another.

LNG – An abbreviation for liquefied natural gas. LNG consists mainly of methane – the simplest hydrocarbon.

Load – The amount of electricity required to meet demand at any given time.

Load Duration – Indicates the proportion of time that particular levels of demand (expressed as a proportion of the maximum demand for a year) are exceeded.

Load Shedding – Occurs when there is inadequate generation to meet demand resulting in disconnected load. Load shedding protocols enable the System Controller to automatically disconnect load in order to maintain frequency and voltage and prevent the possible collapse of the system.



Megawatt (MW) – One megawatt equates to one thousand kilowatts.

Megawatt-hour (MWh) – One megawatt-hour equates to one thousand kilowatt-hours. One MWh of electricity can power ten thousand 100-watt light bulbs for one hour.

Network – That part of the power system involved in the transmission and distribution of electricity from generation sources to end-use customers.

Operating Reserves – The generation arrangements required to maintain system security by handling short-term disturbances in the system.

Petajoules (PJ) – A measure of energy in petajoules. One petajoule equates to 1000 terajoules.

Planned Outage – Occurs when a network provider disconnects supply in order to undertake maintenance or capital works on a part of its network.

Planning Reserves – The generation reserves required to maintain system adequacy by meeting annual demand peaks.

Regulated Power System – A system for generating and supplying electricity that is based on an electricity network that is subject to regulation under the Electricity Networks (Third Party Access) Act 2000.

Reserve Margin – The reserve level associated with the point at which, given the current demand and supply capabilities of a power system, intervention in the market is required to ensure risks to supply are minimised.

Sent-out Energy – The amount of electricity measured leaving a generator at its connection point to the transmission or distribution network, and therefore does not reflect network losses.

System Adequacy – The power system’s ability to supply the aggregate energy requirements of end-use customers at all times, taking into account scheduled and reasonably expected unscheduled outages of system elements.

System Security – The power system’s ability to withstand sudden disturbances such as electric short circuits or unanticipated loss of system elements.

TCF – A measure of the size of a resource in trillion cubic feet. One TCF equates to 930PJ.

Terajoules (TJ) – A measure of energy in terajoules.


Documents

2003 Power System Review€¦ · 2003 Power System Review Page 1 CHAPTER INTRODUCTION 1.1 This is the third annual review of prospective trends in the capacity and reliability of