Origin's watertight PNG plan

Origin Energy's Grant King is regarded as a highly strategic thinker. The proposed Papua New Guinea hydro project unveiled today is as lateral as it is strategic.

The eastern seaboard is facing a shortage of baseload generating capacity towards the back end of this decade if not earlier.

The Australian Energy Market Operator's supply-demand forecasts indicate that in a scenario of strong economic growth Queensland could need new capacity even earlier, perhaps within two years. By mid-decade Victoria and NSW could face the same plight.

In NSW the Owen report which formed the backdrop for the proposed quasi-privatisation of its generators and retailers estimated the government would need to spend $12 billion to $15 billion over the next decade on new generating capacity just to keep up with demand.

With the shadow of a carbon price hanging over the sector, there will be only limited new coal-fired baseload capacity added to the system in future and, indeed, it is probable that some of the older and dirtier plants, like Hazelwood in Victoria, will be retired.

The politics of building new dams in Australia makes the construction of significant new hydro capacity unlikely and in any case, in Queensland, where the need for new baseload generation is most urgent, the topography is unfavourable.

PNG, however, gets plenty of rain and does have suitable topography. The Wabo area in western PNG which Origin Energy and the PNG government are considering a dam and hydro plant gets a staggering eight metres of rainfall a year, with the rain falling consistently throughout the year.

Origin Energy and its joint venture partner, PNG Energy Developments, believe the existing Purari River flows would underwrite a project capable of producing 1800 MW of renewable baseload power. That equates to about 20 per cent of Queensland's existing generation.

The concept of a PNG hydro project linked to Queensland's grid by a sub-sea cable isn't outlandish – the Victorian and Tasmanian grids are connected by undersea cable – and could be mutually beneficial for both PNG and Queensland.

The PNG government sees the potential economic development that could be created on its Gulf region once there is large-scale access to power. PNG would have priority access to the project's output.

Queensland would provide the baseload customer to underwrite the project's economics, gaining year-round access to near zero carbon emission generating capacity for its northern regions in the process.

The feasibility study for the project, which would inevitably be a multi-billion dollar project, is scheduled to be completed in 2012, so the project doesn't represent a near term solution to Queensland's supply issues.

Ultimately, however, with some form of carbon pricing inevitable, if the economics of the project stack up, gaining access to clean and reliable baseload energy while aiding economic development in PNG appears a "win-win" concept.