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Marinus Link project cost blowout means the Tasmanian premier needs to walk a tightrope with independents, voters

Jul 11, 2023

While the proposed Marinus Link undersea cable project might aim to deliver electricity between Tasmania and Victoria, premier Jeremy Rockliff is starting to realise it could take power away from him.

Too many of the people whose support the Tasmanian Liberal government depends on are asking questions about the project for Mr Rockliff to continue to give his unconditional support.

That's why last week Mr Rockliff fronted media and announced Tasmania would not support the project at "any cost", revealing the proposed electricity interconnector had suffered a significant cost blowout.

Mr Rockliff has asked the Prime Minister to consider alternative funding models — so Tasmanians will pay less of the burden of the project.

First announced in 2017, Marinus Link is an ambitious plan to build two new 750-megawatt electricity cables under Bass Strait.

Supporter say it would provide an incentive for private developers to build new wind farms in Tasmania because of the potential to export power to the larger mainland market, and for Hydro Tasmania to create pumped hydro schemes so it could export power at high prices and import when prices are low.

The cost of building Marinus Link had been estimated at between $3.1 billion and $3.8 billion.

With that cost in mind, last year the Tasmanian, Victorian and Australian governments agreed to contribute equally to fund 20 per cent of the construction costs, with the remaining 80 per cent to be paid for with borrowings.

Since then, the company set up to manage the Marinus Link project has started seeking more accurate price estimates from the market, and it turns out the interconnectors will cost significantly more than first estimated.

The Tasmanian government won't say exactly how much the cost has blown out by, only that it will commit to Marinus Link only if it can be built at the "right price".

Marinus Link's biggest backers have always been Hydro Tasmania and wind farm proponents, both of whom stand to profit from greater connection to the mainland power market.

The most vocal critics have so far been predominantly environmental groups and some energy market experts, including Marc White from Goanna Energy and Bruce Mountain from Victoria University.

They were detractors the Tasmanian Liberal government could afford to ignore.

But other stakeholder groups have recently been asking questions.

They include small business owners concerned about their power bills, farmers and landholders who would have to host transmission infrastructure on their land, and miners and manufacturers who could face significantly higher network charges.

These groups represent the traditional voter base of the Liberal Party, so the Tasmanian government is having to take their concerns seriously.

Jeremy Rockliff's minority government also depends on the support of two Liberals-turned-Independents, Lara Alexander and John Tucker.

Mr Tucker in particular has voiced loud concerns about Marinus Link, demanding it be subjected to a parliamentary vote in the same way the Macquarie Point Stadium Project will be.

To stay in power, the government has to keep Ms Alexander and Mr Tucker onside.

The Tasmanian parliament will start sitting again this week, and the government can't afford to lose control of the House of Assembly as it did in July, when Mr Tucker repeatedly voted with Labor and the Greens.

It may simply be coincidence that the government's latest Marinus Link announcement aligns with the concerns expressed by the balance-of-power independents.

It may also be purely coincidental that the announcement was made a day before Mr Rockliff had to front a Liberal membership dominated by business owners and primary producers at the party's state council on Saturday.

During his speech to party members, Mr Rockliff revealed the details of a proposed Renewable Energy Dividend, which would redistribute some of Hydro Tasmania's profits to Tasmanian power users in years where a threshold profit of $100 million is reached.

The crux of the debate about Marinus Link is the cost, who gets the benefits and who pays.

The Tasmanian government has argued that Marinus Link would put "downward pressure" on Tasmanians' power bills.

That doesn't mean household bills will be lower than they are now, but that power bills will be lower with Marinus Link in place than they would be otherwise.

Marinus Link will be a regulated asset, meaning its owner (in this case, the Tasmanian, Victorian and Australian governments) will be legally entitled to claw back costs plus a pre-determined profit through extra charges on power users' bills.

Under the current energy market rules, power users in the states at each end of an interconnector share these costs equally.

But Tasmanian power users are expected to benefit far less than mainland power users.

The Tasmanian government plans to ask the Australian Energy Regulator to change the cost recovery rule, so more of the cost is borne by Victorian power users than Tasmanians.

But the change is yet to be made and could take a long time to resolve, if at all.

It means there's a risk Tasmanian power users – families and businesses – could be stuck paying more for Marinus Link than they get back in benefits.

Whether Tasmania can afford Marinus Link remains uncertain.

For the state government, the cost will most certainly be too high if it alienates its most reliable voters.