IHS Global Insight Perspective | |
Significance | It is hoped the PNG hydropower project can generate 1,800MW of electricity after launching operations in 2020, of which 1,200MW would be made available to the Australian national grid, helping the state of Queensland to meet forecast growth in electricity consumption without increasing carbon dioxide emissions. |
Implications | The PNG government stands to benefit from foreign investment in developing its hydroelectric generation potential, while sales of electricity from the Purari River project will boost government coffers and support electrification of nearby areas in PNG. |
Outlook | Although the project appears to have the support of the PNG government, economists, environmental groups and the political opposition in Queensland have criticised the project proposal, reflecting the significant uncertainties relating to funding, costs, and returns on investment, as well as technical and sociological aspects. |
PNG Power Dreams
Queensland's Premier Anna Bligh has signed a memorandum of understanding (MoU) with the PNG government and with PNG Energy Developments Ltd., a 50:50 joint venture between Australian power company Origin Energy and the PNG Sustainable Development Programme Ltd. to link a multi-billion dollar hydroelectric power project in Papua New Guinea (PNG) with Australia's national electricity grid at Townsville, north Queensland, via subsea transmission cables. Under the plan, power would be generated at the Purari Hydropower Resource on the Purari River near the village of Wabo in Gulf Province in PNG, which is located around 350 km north-west of the capital Port Moresby. According to Origin Energy, the hydropower project is expected to be capable of generating 1,800MW of electricity of which around 1,200MW would be capable of being transported to Australia. The remaining quantities of electricity would be made available to villages and communities in PNG. The electricity would then be transported via two 250-km subsea transmission lines to the town of Weiba on north Queensland's Gulf of Carpentaria. The lines would connect to the national electricity grid at Townsville on the eastern coast. A spokesman for Origin Energy has stated that talks on supplying power to projects in northern Queensland will start very soon, while Premier Bligh has stated that a comprehensive environmental, technical, and sociological study by PDL is due to be completed on the project by 2012 with a view to launching electricity imports from PNG by 2020.
The ambitious hydropower plan promises tangible benefits for both countries. PNG stands to benefit from Australian investment in developing its hydroelectric-generation potential while sales of electricity from the Purari River will boost PNG government coffers and help to improve local supply availability. For Australia, the project can boost electricity supplies, helping to meet forecast growth in power demand as a result of Queensland's growing role as a mineral processing hub for copper and zinc. Project construction could also boost employment opportunities in the area, while helping the state to keep down carbon dioxide emissions. Using cleaner electricity could also potentially allow industrial consumers to offset their carbon emissions costs, if the spectre of a carbon tax becomes a reality under the newly elected coalition government of Julia Gillard (see Australia: 9 September 2010: Labor's Election Victory Has Green Implications for Australian Energy Sector).
Plans for developing the hydropower resources of the Purari River—which empties from the PNG highlands into the Gulf of Papua—have been around for decades, with a feasibility study completed on a potential project as far back as 1974. More recently Russian aluminum giant Rusal expressed interest in damming the Purari River, although the project was only thought viable if there was a market off-take commitment. This commitment is now expected to come from Queensland's mining industries, although no firm power-supply agreements have yet been agreed. Electricity costs from Purari will need to be competitive with power stations fed by coalbed methane (CBM), which is already produced in the state and has significant production growth potential, given world-class reserves in the Surat and Bowen basins, despite the fact that large quantities are set to be liquefied and exported to markets in the Asia-Pacific region in the form of LNG. Financing for the project is another potential concern, as development costs have yet to be established, although the scale and complexity of the project suggests they will run into the billions of dollars. Origin Energy is one of the largest power providers in Australia, and with profits of $6,998 million in 2009, does have favourable financial credentials. Funding could also come from international banks. Given the very long lead times for project construction financing is only likely to be forthcoming if the returns on investment are deemed substantial. On the technical side, the Purari River gets plenty of rain, suggesting that the project can support relatively reliable generation of electricity, particularly given high water flow rates in the area. However, development of the river will likely be capital intensive and technically complex and was previously thought to involve construction of a 60-metre high dam to flood a long and steep gorge in a remote area of the country. Given that there are agricultural activities in the area, construction of the project could lead to resettlement of local populations causing opposition, or run into land-acquisition issues.
Outlook and Implications
Overall, the PNG-Australia hydropower proposal remains something of a distant dream, with more information needed to access its viability. The proposal reflects Australia's continuing interest in harnessing the hydropower resources of PNG, given that the politics of constructing new dams in Australia means that the prospects for a significant boost in domestic hydropower capacity are limited. In PNG, however, the regulatory environment is more relaxed.
In the state of Queensland, the need for additional clean base-load generation capacity is becoming increasingly urgent, although given that the topography is not favourable, development of new domestic capacity is difficult, prompting the government to look towards PNG. Queensland's peak energy consumption is currently around 8,900MW so the project would have a marked impact on the state's generation mix, despite power demand increases over the next decade.
Premier Anna Bligh appears to have the support of the PNG government, and Origin Energy's relative familiarity with the operating environment in PNG could help to progress the project. However, economists, environmental groups, and the Queensland political opposition have voiced concern over the impact on local communities in PNG and the project's economic viability. Confirmation on whether the PNG hydropower project can this time transcend the drawing board and become a long-term renewable electricity supply source for Queensland remains uncertain, with more clarity only likely to be forthcoming following completion of the feasibility study in 2012.