The chair of the Economic Regulation Authority says signs are encouraging for the state’s energy market, despite a proposed hike in benchmark reserve capacity prices.
The chair of the Economic Regulation Authority says signs are encouraging for the state’s energy market, despite a proposed hike in benchmark reserve capacity prices.
Steve Edwell presides over the board of ERA, which last week released its draft figures pitching a 36 per cent increase to the benchmark price used to model wholesale energy pricing in WA in the years ahead.
The ERA proposed a benchmark reserve capacity mark of $491,700 per megawatt hour of energy generation in the 2028-29 capacity year, up from $360,700/MWh in the preceding 12 months.
The draft was modelled based on the expected cost of a hypothetical six-hour 200MW/1,200MWh battery energy storage system and running it for 15 years.
The benchmark is used to guide the Australian Energy Market Operator when it sets the prices paid to energy providers supplying the South West Interconnected System.
It also gives certainty to project proponents, as they seek to cover the high upfront cost of building a renewable operation.
Speaking to Business News, Mr Edwell said the size of the battery used in the ERA’s modelling had increased year-on-year – from a four-hour, 200MW/800MWh model which informed designs a year earlier – but that project costs were also rising broadly in the sector.
While the cost of batteries themselves has fallen, the rising cost of construction, thermal management, fire suppression, control equipment, air conditioning and steel were among factors which drove price assumptions higher.
Mr Edwell said the ERA opted to remove contingency costs – priced in 2027-28 at $58.8 million – from its model entirely.
“We were conscious that what we needed to do here was contain the cost as much as possible,” he said.
“Where we had discretion as the regulator, we did excise some costs.
“Contingency was a big one, we took that out. We fashioned the technology of the battery to the bare minimum requirement.
“But notwithstanding that, these costs did go up.”
That’s not to say all industrial energy costs will rise with the proposed increase.
Mr Edwell noted the bulk of energy suppliers into the South West Interconnected System are subject to a transitional price arrangement signed in 2021, which leaves them subject to lower prices until 2031.
“Certainly, as coal leaves the industry, we need renewables to replace it,” Mr Edwell said.
“We’re looking at 1.5, 1.8 gigawatts of new capacity coming in, all renewable with very low marginal cost of energy.
“What you’d expect, therefore, is that real-time energy costs would fall and that would have a mitigating effect alongside the transitional mechanism on the capacity impact.
“There are swings and roundabouts – we’re not denying the fact there are significant increase.”
Despite the proposed pricing increase, Mr Edwell said he was buoyed by recent progress in the SWIS – which hit renewable records in the December quarter.
Mr Edwell was at the helm of the state government’s Transformation Taskforce before taking on the ERA role and said the real time energy market started to “behave the way we envisaged it when we did the transformation process”.
“I think there are good signs here in WA, but people have got to realise that it’s not always three steps forward.
“It can be two steps forward, one step back.
“But as long as you’re on the right trajectory and we’ve got the mechanisms right, then we will get there at some point.”
Consultation on the ERA’s draft benchmark closes tomorrow.
