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Designing a market to suit

New South Wales and Victoria have done it and Western Australia is heading there, but a recent World Energy Council review of the Asia-Pacific concluded no regional economy would benefit significantly from a fully deregulated electricity market before 2010.

The WEC maintains affordable modern energy services worldwide are a key to sustainable development and peace, but its Electricity Market Design and Creation in Asia Pacific report is adamant that it is not total market deregulation that will achieve this for the region in the medium term, with the possible exception of South Korea.

Graham Thomas, engaged by the WEC as study coordinator for the Asia Pacific project, told Australian Institute of Energy members and guests in Perth last week that while competition could deliver real benefits, a deficit of competitors in Australia would ensure there was no true competition in deregulated markets here.

However appropriate incentives, regulation and design in the opening up of energy markets could increase the use of cleaner and more efficient technologies and hence contribute to harmful emissions reductions as well as reduce costs.

But for the next decade, any deregulation should retain regulation of costs and prices.

Competition in electricity generation was perhaps more important than electricity supply competition, while simplicity in the market design could prevent the level of exploitation that has disadvantaged consumers in other world regions where total deregulation has gone ahead.

Successful generation competition would require an integrated grid system, spare capacity greater than the size of the largest producer and a capacity excess of at least 20 per cent.

Nonetheless, in addition to spare capacity and good grid interconnection, an attractive State or national investment environment is crucial for any deregulated market design to function adequately.

A key designer of the UK Electricity Pool from the late 1980s and a former chairman of the Association of Electricity Producers in the UK,

Dr Thomas warned of spending big on a more liberalised market design with a view to proportional benefits.

Locally, Dr Thomas said the cost-benefit success of a new market design would be underpinned by the WA Government’s reliance on income from Western Power in the short and medium term.

The level of this dependency needed to be determined and revealed before any adequate cost-benefit analysis could proceed.

The WA market is headed for full retail contestability in 2005 against forecasts of some capacity constraint within the three years.

The WA Government is also seeking to establish a combined regulatory authority to oversee electricity, water, gas and rail service provision.

Submissions in response to a public discussion paper are invited until March 28.

Dr Thomas has shared his views of electricity market design in a submission to the WA Government’s Electricity Reform Task Force and is consulting to Western Power.

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