Carbon charge in play in power reform

Renewable generators may not earn enough revenue to attract investment as the state shuts down coal, a major electricity market review has found.

The grid’s rules will need reform to reward the new generators for contributing to cutting emissions, according to the Economic Regulation Authority’s three-yearly review of the power market.

A carbon price, emissions trading scheme or support for low-emissions technology would be among the measures that could be introduced, the report said.

The ERA’s report highlights that the existing market structure in the state’s main power grid, the South West Interconnected System, may not be suitable to incentivise investment into renewables or battery storage.

That’s because renewable generators have low operating costs, or marginal costs, and will bid down short term prices in the electricity market.

But those lower prices won’t be enough to repay the initial capital investments.

The end result would be insufficient investment in new power generation.

“The results indicate that prices in the (Wholesale Electricity Market) will not be high enough to support revenue sufficiency for wind, solar and battery storage facilities as more solar, wind and storage facilities enter the WEM, and coal and gas generators exit the market,” the ERA said in the review. 

“The extent of the gap between the revenue received and the revenue required by these renewable energy facilities grows as more renewable energy facilities replace thermal generation. 

“This is because as more solar and wind generators with negligible operational costs enter the market, they set the energy market price at or close to zero more frequently.”

Securing enough investment in battery storage would also be challenging, the report said, because of uncertain revenue streams and the risk revenue would be eroded as more units enter the grid.

“Introducing an efficient market price that recognises the value of battery services, such as fast frequency response, transmission congestion relief and simulated inertia, allows investors to be remunerated for the benefits that their facilities provide to the market,” the ERA said.

A series of large battery projects have been unveiled in WA in recent months.

Those include a 4 gigawatt-hour facility by Neoen in Collie.

Business News revealed in August that the state government would be sounding out industry on a potential carbon penalty for high emission generators in the state’s main grid.

The government has a separate review under way to analyse potential changes to the capacity market, where generators are paid to be available in reserve if they are required.

The capacity market reform could include a mechanism to cut emissions.

This year, the state government said it would spend $3.8 billion to bring new green energy projects onto the market as it seeks to shut its coal power stations by the end of the decade.