State energy minister Peter Collier has moved to reassure Western Australian electricity generators they will continue to receive tens of millions of dollars in capacity credit payments following a revamp of Verve Energy's operating contract.
State energy minister Peter Collier has moved to reassure Western Australian electricity generators they will continue to receive tens of millions of dollars in capacity credit payments following a revamp of Verve Energy's operating contract.
Mr Colliers's assurances come after he last week indicated that cutting the so-called capacity credit payments would contribute to the $1.5 billion in savings the government expects over 10 years from its overhaul of Verve's vesting contract.
Responding to a request from WA Business News to clarify the government's position on the status of the capacity credits this week, Mr Collier stated there would be "no reduction in capacity credit payments as a result of the replacement Vesting Contract."
"Further, the new contract has no impact on any existing commercial contracts that generators may have that include payments for capacity," he said.
Nor would the new contract arrangements affect the role of the Independent Market Operator in setting the price of capacity credits each year, he said.
That contrasts with Mr Collier's response last week when asked whether a reduction in capacity credit payments would contribute to the targeted $1.5 billion in savings expected by the government.
"That's correct," he then replied. "You have actually got state assets sitting there idle at the moment while we are paying capacity credits for private generators. It is unfathomable to the government (why) we continue down that path."
Following reports of those comments, one major private generator contacted WA Business News to reveal its concerns that it had received no advice from government about the status of its capacity credit entitlements.
Capacity credits are paid to generators for having generation capacity available to meet peak demand even if that capacity sits idle most of the time.
The payments jointly total hundreds of millions of dollars annually and are considered a major inducement to private sector investment in new generation capacity. The price is set by the IMO each year and paid per megawatt of available capacity.
The bulk of the savings expected from the Verve revamp will actually come from the government's decision to scrap Synergy's outstanding obligation to put a portion of its base-load supply needs for the next four years out to tender.
That supply will continue to be provided by Verve, enabling it to better utilise its existing generation capacity and reducing the cost to taxpayers.
Net-back pricing arrangements, which effectively resulted in Verve subsidising state-owned siblings Synergy and Western Power, will also be scrapped under the new deal.
To hose down concerns that the revised arrangements would discourage further private sector investment in new generation capacity, Mr Collier this week told WA Business News there would still be significant opportunities for private sector generation investment over the coming years.
He said the IMO had indicated the state would need an additional 1772 megawatts of new capacity over the next decade to service demand growth and replace older generation slated for retirement.
Synergy would also need to procure additional supplies from 2014 on to meet its needs, he said.
Opposition energy spokeswoman Kate Doust said given the time and money invested by the government on its review of Verve Energy, the minister should have been better briefed before announcing the changes.
"This is just another example where this minister and the government continue to provide uncertainty and confusion in the energy market," she said.
