Livesey Report into Generator Acquisition
The Hon. D.C. VAN HOLST PELLEKAAN (Stuart—Minister for Energy and Mining) (14:12): I seek leave to make a ministerial statement.
Leave granted.
The Hon. D.C. VAN HOLST PELLEKAAN: Today, the report by Mark Livesey QC into the purchase of the diesel generators was tabled in parliament by the Attorney-General. It is a sobering read and a damning indictment of the previous Labor government’s decision-making, highlighting serious concerns with its procurement process. It exposes how, seemingly without any expert advice, Labor rushed into owning permanent generators at huge expense without any evidence of their being needed in the long term.
The previous Labor government decided to slug South Australian taxpayers on the basis of politics alone for generators that will likely lie dormant. Mr Livesey QC outlines that the likely total cost of the generators will be a staggering $609.5 million or more—
Members interjecting:
The SPEAKER: Order!
The Hon. D.C. VAN HOLST PELLEKAAN: —over their 25-year lifetime. Even if they were to be used in the future, there is no guarantee that they will be anymore cost effective than alternatives.
I would like to place on the record my acknowledgement of Mr Livesey QC’s words about my department and its remarkable efforts to establish the temporary generators in such a short time under the previous government’s direction and my appreciation for its ongoing work. But I will leave to the words of Mr Livesey QC’s report—
Members interjecting:
The SPEAKER: Order!
The Hon. D.C. VAN HOLST PELLEKAAN: —an explanation of the process overseen by the former energy minister Koutsantonis which led to the procurement and ultimate exercise of the option to purchase the generators, and I quote:
I have seen no comprehensive or contemporaneous independent financial analysis of the long-term implications of exercising the option when it was announced in August 2017 or when it was exercised in November 2017.
That is from paragraph 4. The report continues:
It is difficult to determine the concrete advantage associated with exercising the option early (paragraph 7.2.2).
(N)either the obtaining nor exercising of the option was made the subject of any specific procurement approval from the State Procurement Board (paragraph 7.4).
State Procurement Board approval was probably required—
Members interjecting:
The SPEAKER: Order!
The Hon. D.C. VAN HOLST PELLEKAAN: I continue—
before the option was obtained and, on any view, before it was exercised and the State was thereby committed to its acquisition. That was not done (paragraph 7.5).
I quote:
The likely overall cost—
Members interjecting:
The SPEAKER: Order! The minister has leave. The minister has the call.
The Hon. D.C. VAN HOLST PELLEKAAN: Thank you, Mr Speaker—
will be at least $494.5 million, in addition to the initial lease and associated costs for the first 13 months of around $115 million, a total of $609.5 million (paragraph 7.9).
In my view it is significant that there does not appear to be any independent—
Members interjecting:
The SPEAKER: Order!
The Hon. D.C. VAN HOLST PELLEKAAN: I continue—
expert report or other evidence provided to or considered by the Joint Steering Committee addressing the prospect of energy security risk beyond the proposed lease periods (paragraph 85).
It is significant, in my view, that at the time decision-making was announced concerning the ‘State relocation option’ for the acquisition of the 9GE TM2500 gas turbines from APR Energy, no further or contemporaneous consideration appears to have been given to the necessity for a State owned permanent emergency electricity generator. Rather, the necessity for this permanent facility appears to have been assumed (paragraph 105).
(T)he opportunity was lost to take the time to reflect on whether the large purchase, relocation and operation and maintenance costs could be avoided, together with reflection on the period of time for which this additional capacity may actually be required (paragraph 194).
In short, apart from the logistical issues to which I have referred, there does not appear to have been any overall advantage associated with the early exercise of the option to purchase (paragraph 198).
In these circumstances, it is my opinion that the applicable—
The Hon. A. Koutsantonis interjecting:
The SPEAKER: Order!
The Hon. D.C. VAN HOLST PELLEKAAN: Continuing—
procurement policies and guidelines were not followed—
Members interjecting:
The SPEAKER: Order! Would the Premier and the member for West Torrens please cease their discussions. The minister has the call.
The Hon. D.C. VAN HOLST PELLEKAAN: I will start that again, as it was a quote:
In these circumstances, it is my opinion that the applicable procurement policies and guidelines were not followed in connection with the obtaining or the exercise of the purchase option (paragraph 216).
Finally, the last quote:
(T)he evidence in favour of the case for a permanent emergency electrical generation facility is sparse indeed. None of the procurement materials or expert reports made available to me cite expert advice on the need for a permanent plant (paragraph 231).
I thank Mr Livesey QC for his time and effort in preparing this important report and all who assisted him in this task.
Members interjecting:
The SPEAKER: Before I call the minister again, I call the following members to order: the Premier, the Minister for Infrastructure, the member for Hammond and the member for West Torrens. The Minister for Energy has the call.
Temporary Generators
The Hon. D.C. VAN HOLST PELLEKAAN (Stuart—Minister for Energy and Mining) (14:18): I seek leave to make a ministerial statement.
Leave granted.
The Hon. D.C. VAN HOLST PELLEKAAN: The South Australian government has undertaken a thorough and methodical process to determine the best future for the generators purchased by the previous Labor government. The South Australian government will today provide a market notice that it will undertake an open lease by tender process to operate the generators for a 25-year period subject to strict controls to ensure that they operate—
The South Australian government will today provide a market notice that will undertake an open lease by tender process to operate the generators for a 25-year period, subject to strict controls to ensure that they operate to help deliver more affordable and reliable power in South Australia.
The government will soon take ownership of the nine GE TM2500 generation 8 aeroderivative units and associated equipment. We need to clean up this costly and unnecessary mess left by Labor. The Marshall Liberal government has previously committed to retaining the temporary emergency generators—
Members interjecting:
The SPEAKER: Minister, please be seated. It is going to be a real shame if members depart before question time today. The minister does have leave, and he is entitled to be heard in silence.
Members interjecting:
The SPEAKER: And his colleagues should also allow him to be heard in silence.
The Hon. D.C. VAN HOLST PELLEKAAN: Thank you. The Marshall Liberal government has previously committed to retaining the temporary emergency generators in their current locations until autumn 2019. The government has further determined that some of the capacity may be required for providing emergency generation in the SA market until autumn 2020. Lessees will be responsible for their commercial operation in South Australia and the diligent maintenance of the equipment so that they are running at times of need in the peaks, with the SA government retaining ownership of the units.
Tenders sought for lease of the generators for 25 years will be evaluated on the basis of maximising value to South Australian energy consumers. The tender process is expected to commence in early November to enable completion of negotiations with successful parties by April 2019. The government will continue to monitor market conditions before making its final decision. Therefore, the government has not taken up the options canvassed by Mr Livesey QC of selling the generators or entering into direct negotiations with APR Energy.
It is clear from the Livesey report that the decision to procure the generators was undertaken seemingly without expert advice as to the long-term need and offered no advantage to South Australia at enormous and unnecessary expense to taxpayers.
It was no more than an expensive election stunt by a government that had failed to provide reliable power at an affordable price. The most recent forecasts by the Australian Energy Market Operator in its recent Electricity Statement of Opportunities confirms that there is a declining need for the temporary generators over the coming summers.
There are also important reforms underway, which will mean that, across the whole national energy market, sufficient reserves are procured, if needed, in a more cost-effective way through the development of a strategic reserve by AEMO. With the likelihood that they will not be needed into the future, leasing the generators for 25 years can help with delivering more affordable and reliable power.
We are moving forward positively with our energy solution based upon the world’s largest rollout of home battery storage, an expansion in grid-scale storage and accelerating the interconnector with New South Wales. Some of our older generators will be retiring from the market over coming years. These older and less flexible generators are struggling in a market dominated by renewable energy. This course of action is appropriate in that context. By retaining strict controls, whilst allowing the units to enter the market instead of lying idle for decades at enormous expense, these generators can help deliver what all South Australians are seeking: more affordable and reliable power.