18/03/2014 - 11:39

Electricity reform sparks debate

18/03/2014 - 11:39

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The issue of electricity prices not surprisingly has emerged as a hot topic of discussion following the government’s recent announcement of a statewide review of the electricity market.

Electricity reform sparks debate
Perth Energy managing director Ky Cao says making electricity retailers responsible for demand side management will save end users money. Photo: Attila Csaszar

The issue of electricity prices not surprisingly has emerged as a hot topic of discussion following the government’s recent announcement of a statewide review of the electricity market.

While some sector participants have urged a cautious approach, proposing subtle tweaks to the system, Perth Energy managing director Ky Cao suggested broad changes.

Mr Cao said he disagreed with the current system, which ensures energy availability via the payment of equal prices to generators on standby and to large businesses that agree to reduce their energy use during peak times (a practice known as demand side management).

Mr Cao, whose business makes money through investments in generators, suggested the generators should be relied upon to ensure enough energy was available and DSM should be relegated to a smaller, less important role.

He said those undertaking DSM could receive smaller payments negotiated directly with retailers, instead of a fixed cost determined by the Independent Market Operator.

“I think the way to fix it is to transfer DSM over to the retail market. The IMO doesn’t face commercial pressure to price demand side management correctly, it just pays DSM the same as it pays peaking generation,” Mr Cao said.

EnerNOC Australia and New Zealand managing director Christian Weeks, whose clients represent 60 per cent of WA’s DSM program, defended DSM’s reliability and said scrapping it would lead to energy consumers facing higher bills.

“DSM has proven itself to be a highly reliable resource in markets around the world,” Mr Weeks said,

“If we exclude DSM from the WA capacity market we will need new peaking capacity beginning in 2017, which means someone would need to commit next year to building a new peaking plant.

“This is obviously bad for consumers but good for the generators earning those higher price.”

Mr Weeks said rather than removing DSM from its current role, he supported the IMO setting a lower price paid for DSM and standby generators. 

"Capacity is capacity and should be paid the same regardless of where it comes from so long as it meets the requirements of the market," Mr Weeks said.

Mr Weeks said a lower price was appropriate now, while there was excess energy in the market, but if more energy was needed later the price could then rise.

"When there is insufficient capacity prices will need to go back up to attract new investment. This is how all good markets work." 

ERM Power general manager WA projects Andrew Sutherland, whose company invests in generators, disagreed with Mr Week's support of a uniform price.

Mr Sutherland said he wanted to see different prices paid to DSM contributors than those paid to generators.

He said generators deserved a higher price to offset their high capital costs while DSM should be paid a lower price.

“They’re a different product, they should be valued by price differently.” 

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