THE PRIVATISED POWER STATIONS - 5. VICTORIAN POWER STATIONS

THE PERFORMANCE OF VICTORIA'S PRIVATISED POWER STATIONS Contents

5. VICTORIAN POWER STATIONS
5.1 Privatisation of power generation in Victoria.

Privatisation in Victoria has not been a single simple activity but has taken 10 years, and in some ways it still continues. There were three major approaches to privatisation in Victoria.

The sale of 49% of Loy Yang B to Edison Mission in 1991 This was the first major step. The sale was conducted by the Labor Government. This sale was accompanied by a guarantee concerning the price of coal and the sale of electricity at a pre-determined price to the SECV of $62 MW/hr (Walker 1997). This sale must be regarded as an indirect way of borrowing money and was carried out a time of very high interest rates. The remainder of the station was sold by the Liberal Government in 1997 and apparently electricity purchases are no longer guaranteed, the station competing on the same basis as the other stations. Apart from any financial effect this sale has had, the original sale introduced a new private element into the LaTrobe Valley and new industrial relations structures with the compliance of the then Labor Government.

Outsourcing of non-core SECV businesses. This began in 1989 with fringe activities such as catering and car maintenance. After the election of the Liberal Government in October 1992, major outsourcing started to occur. Major maintenance and service outsourcing occurred in the period 1993- 95.

Sale of assets. By 1996 most of the power stations had already been significantly reduced in staffing and were already performing much more efficiently. At this point the ownership of the assets of the power stations plus coal mine were offered for sale. This occurred on the basis of the time table shown in Table 1 from 1996 to 1999.

Aiding these developments have been other activities which have changed the mode of operation in the Victorian electricity system from a government service to a commercial operation. These included, with approximate dates:

Business accounting - 1989

Corporatisation - 1993
Competition among suppliers - 1993-2000

Competitive national market - 1993-?

5.2 Improvement in availability in Victoria

The historical availability figures for Victorian power stations from the period of government ownership prior to any privatisation are given in the SECV 1990/1 Annual report (SECV 1991). More recent data for the individual power stations is available from company newsletters. This data is compared on Table 6.

Table 6: Some power station capacity factors

Power station	1989 – 91(3 year average)	Recent
Loy Yang (A)	85.0% CF	96.4 (1st half 99)
Yallourn (W)	69.7	91.6 (98/99)*
Hazelwood	56.7	89.4 (7 months 99)

Data from recent company newsletters

Prior to privatisation, the capacity factor (CF) for the large coal burning power stations were very close to the AF because of the way the system was run. These stations were considered to be “high on the order of merit” and difficult to start up and were generally loaded as soon as they were available.

Loy Yang A. between 1989 and 1991 averaged an AF of 85%. In 1998 Loy Yang A achieved an AF of 97.4% (Loy Yang 1997). This is actually close to the absolute possible value of the station (see Table 5) and was aided by a there being no large planned outage in that year. The average which Loy Yang can achieve is about 95%. Even so this change is significant and it is like adding another 200 MW to the station.

Hazelwood, between 1989 and 1991 averaged AF of 56.7% which is a very poor figure. Hazelwood had suffered persistent long term problems with reliability and in fact 1989-91were actually better than previous years. For most of its life the station struggled with AFs between 48% and 60% (SECV 1991). There had been only two occasions, in 1974 and 1991, lasting only a few weeks on each occasion, when all 8 boilers had been simultaneously in operation.

In 1998 (to November) an AF of 82.7% was achieved (Hazelwood 1998). This change is, on its own, like having a new power station of over 400 MW on the grid.

When events immediately prior to privatisation are considered, the Hazelwood case is particularly dramatic. In 1996 only 6 of the 8 boilers were in service. Unit 7 had been severely damaged by a severe thermal transient in 1993 and Unit 8, which shares some common equipment with Unit 7, was in mothballs. Moreover the state owned corporation at this time considered Hazelwood to be low on its order of generation merit order so generally only 3 or 4 of the remaining 6 units were regularly in service.

The prior poor performance of Hazelwood was not because of neglect. While it belonged to the SECV, Hazelwood received enormous attention and expenditure but achieved very little in terms of improved output. Nowadays Hazelwood is a successful station for its age.

5.3 The causes of improvement

The cause of this change of fortune for Hazelwood and the solid improvement in the other stations is one of the most interesting issues in electricity generation in Australia. The fundamental reasons seem to be better management of maintenance and operations.

There are two basic ways that AF improves:

Reduced forced outages. The forced outages due to sudden equipment failures are being reduced.
Reduced planned outages. Overhauls and inspections are done faster and less frequently.

At a recent conference a forum was held by the author with maintenance managers to discuss how these changes were achieved (OPE, 1999). The most frequently used response was "change of culture". This term was also used by representatives of non-Victorian power stations where performance improvements have also occurred.

Other issues were discussed:

better use of employees
penalties for having plant out of service was now clear
parts of salary based on performance measurement
planned outages had been reduced in length
quality criteria have been placed on suppliers of services
better blending of coal is occurring
unionisation of work force had been greatly simplified.

One of the key ways these changes may have occurred is that the relationship between the power station managers and the maintenance service providers has changed. In the government organisation the relationship took the form of "boss" to "workers". Nowadays there are likely to be contractual relationship between companies involved. The workers now instead of being permanent employees of a government organisation are part of private contractors or even working for themselves or in small companies. This, it is suggested, has changed the focus of the workers activities.

The surveying, which would be required to identify what the phrase "change of culture" encompasses, has not been conducted among the workers to the author's knowledge. It is to be noted that the companies which now operate and maintain the power generation system are, in many cases, largely composed of former SECV employees.

One issue, which has been pointed out to the author by a number of people, is that many of the improvements in performance were made during the period of corporatisation and outsourcing and before the asset sales. Thus it is not clear that the actual equity arrangements of a plant are critical for performance issues

5.4 Adequacy of generation capacity for the future

One of the significant issues in electricity privatisation is whether there will be adequate generation capacity in the future. The problem surrounds the peak load in the state. Victoria is a summer peaking state: the largest demand occurs on a few hot days in summer.
As shown on Figure 2 projections by NEMMCO indicate that current capacity will be inadequate on hot days by about 2001- 2004.

Any new capacity will be gas fired. Because this new plant may only be used for a few days a year, the cheapest capital option would have to be used. There has already been suggestions in the press that open ended gas turbine will be built on the Edison Mission site in the LaTrobe Valley. Even so it is likely that this extra capacity will have to be financially encouraged by the State of Victoria (through the Office of the Regulator General). This is required since it is unlikely to be commercially attractive to build a power station, which would only operate for a few hours a year. The author is unaware of any public information as to how this encouragement is being arranged.

In the NEMMCO data on Fig 2, demand for the peak is assumed to increase at about 170 MW per year and there is inadequate reserve capacity by 2004/5. VPX however in 1998 recorded faster growth rates. "The strong growth in the Victorian economy, high growth in air-conditioning load and higher than average temperatures during summer have produced the forecast 4.7% per annum demand growth rate which represents about 350 MW per year." (VPX 1998). If the growth which occurred in 1996/7 were to be continued, then additional generation capacity will be required earlier than shown on Fig 2, perhaps as early as 2001.

Figure 2: Victorian summer supply/demand balance (NEMMCO 1999)

5.5 Value of electricity sales from Victoria to the other states

Electricity now represents a significant export industry for Victoria. Data can be obtained from the NEMMCO web site under the heading Regional Summary Reports.

A brief survey of this data, which is presented weekly, suggests that there is typically about $1.5 million of electricity being sold to South Australia each week. The trade to NSW varies considerably and is confused by the fact that the Snowy Scheme also participates in the market as a separate entity. However a typical figure of the trade North may be $0.5 million per week. If that data is averaged over the entire year the trade had a net worth of about $80-$100 m to Victoria.

National Conference 1999

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