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Saturday, January 21, 2006

Basslink fingers itch

Basslink fingers itch

ELECTRICITY generator Hydro Tasmania and retailer Aurora Energy are on the verge of a new era.

Both have teams of traders and analysts to sell and buy electricity to and from the mainland.

They have been part of the National Electricity Market since May 29 last year, with the critical time fast approaching when the $780 million Basslink connector is fully commissioned, probably in late April.

Hydro is already sending test blocks of power into the National Electricity Market via the undersea cable.

The theory behind Basslink is simple. Tasmania exports power to Victoria during times of peak demand when prices are high and imports power overnight when prices are cheap.

But even when Basslink becomes fully operational, Tasmanian domestic consumers will not notice any difference in their pricing structure for at least four years.

The State Government has announced tariffs will continue to be set by the State Electricity Regulator until 2010, with the pricing structure after that still to be determined.

Whether Tasmanians will, in future, pay more than they would have done if they hadn't joined the market remains the subject of debate.

Hydro's group manager strategy and development Andrew Catchpole said the motivation behind Tasmania joining the market was the strongly held view that Tasmanians would, in the long run, pay less than if the state hadn't joined.

"The market is about getting the best cost outcome for consumers," Mr Catchpole said.

"Demand keeps going up two, three or 4 per cent a year until it reaches a point where demand exceeds supply and requires a new generation plant.

"In a place the size of Tasmania that means a very big investment, whereas being interconnected to a national market means you can source your power from the most efficient source available at the time."

The Hydro's trading team comprises 16 traders and market analysts who offer blocks of power to the National Electricity Market at a set price.

There are seven spot traders in the team, with the trading desk staffed 24 hours a day.

Whether the offers are accepted is determined by the National Electricity Market Management Company which is responsible for allocating the wholesale of the National Electricity Market to retailers.

While the weather will play a big part in the Hydro's ability to export to the national market in any given year, the figures used to assess its economic viability were based on 25-year averages.

A few hundred metres away from the Hydro building, another team of traders based at Aurora in Kirksway Place is responsible for buying electricity for the state.

This team comprises two traders, three market analysts and two risk management specialists.

Aurora's general manager retail Paul Bloomfield said these traders and analysts were negotiating a mix of long-term, mid-term and short-term contracts and working out how to balance Aurora's portfolio to maximise returns.

"Basslink opens us up to a whole new resource," Mr Bloomfield said.

"It should work to keep prices down. At least everyone knows it's a fair price as it's part of the national market."

To guard against being exposed to extended periods of high prices in the National Energy Market, Aurora has long-term contracts with the Hydro and will make similar contracts with Victorian generators once Basslink is commissioned.

Aurora is facing competition from other energy retailers, with the market gradually being opened up to competition over the next four years.


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