Aviva questions Synergy power deal

Shunned Mid West power proponent Aviva Corporation has fired a warning shot at state energy retailer Synergy following the retailer's decision to award lucrative power supply contracts to state-owned generator Verve Energy.

Aviva warned it would now have to review the future of its proposed $1 billion Coolimba power project following Synergy's contract announcement.

In a surprise move yesterday, Synergy said it had awarded Verve a contract to supply at least 638MW of power under its 2008 power procurement tender and named Verve as its preferred tenderer for further electricity supplies from its existing generators.

Synergy also said it was still actively considering various windfarm proposals and had signed memoranda of understanding to explore potential future supply deals with geothermal and wave power technology developers.

But no contracts were awarded to Aviva, or rival coal-fired proponent Griffin Energy, which were considered strong contenders to provide a significant portion of the future supplies being sought by Synergy under its annual power procurement program.

Both companies are planning new 450MW coal-fired power plants at Eneabba and Collie respectively and were among eight groups shortlisted by Synergy in March to tender for contracts to supply up to 686MW of new capacity required by the retailer from 2011/12.

Aviva today said it was "disappointed and surprised" that its Coolimba plant at Eneabba had not been successful in the tender, and that the company's board would now meet "as soon as possible to consider further options for the project".

While it said Coolimba was still the only generation project north of Perth with a committed fuel reserve and nearly complete environmental approvals, it was "unlikely to continue promoting the project in its own right" without support from Synergy or a comparatively significant customer.  

That shapes as a potentially huge blow for Mid West power consumers.

While primarily aimed at servicing the South West Interconnected System, the Coolimba plant would also boost capacity at the fast-growing northern end of the state's main grid where demand is expected to surge on the back of new mining developments.

It could also significantly reduce the huge transmission losses suffered by Mid West customers reliant on power transmitted from plants in the south west.  

Given recent assurances that there had been no decision to lift the 3000MW cap on Verve's generating capacity imposed when the old Western Power was disaggregated in 2006, Aviva said it did not see how Verve could provide the additional 500 MW of new generation capacity identified as necessary by the Independent Market Operator in its annual statement of opportunities.  

Synergy's decision also reverses the recent trend set by Synergy's previous power procurement tenders which have effectively underwritten over $2 billion in new capacity investment by private power providers since disaggregation in 2006.  

As a condition of the disaggregation progress, Synergy has been required to put an increasing volume of supply provided by Verve out to public tender in order to boost competition and reduce Verve's dominant position in the generation sector.

While Verve is not precluded from participating in the tender process, it is subject to specific provisions, including supervision by probity auditors, to ensure it does not receive favourable treatment.  

Synergy chief Jim Mitchell yesterday said Verve had simply been the most competitive bidder.

"We have undertaken a competitive tender process, and the selection of Verve Energy was made after consideration of cost, risk and reliability of supply," Mr Mitchell said.

"The fact of the matter is, this time around Verve Energy was by far the preferred option for the benefit of WA electricity consumers."  

Aviva shares were placed in a trading halt ahead of the Synergy announcement yesterday.