Western Australia’s Economic Regulation Authority has approved a nearly 20 per cent cut in “reserve capacity” prices for the state’s electricity generators, including aspiring producer Eneabba Gas.
Western Australia’s Economic Regulation Authority has approved a nearly 20 per cent cut in “reserve capacity” prices for the state’s electricity generators, including aspiring producer Eneabba Gas.
Eneabba, which is seeking to raise $12.5 million so it can complete a feasibility study into construction of a new gas-fired power station at Dongara, has downplayed the impact of the regulatory ruling, which it believes would not have a significant impact on its project.
In its original prospectus, the company highlighted the impor-tance of reserve capacity pay-ments, saying they would underpin its project, which is set to compete with the likes of Western Power, Alinta Ltd and Griffin Energy, not to mention some smaller generators.
Late last year, the company projected potential income of up to $15 million a year from these state government payments, which are designed to ensure the state has sufficient generating capacity. The payments will go to companies for installing reserve capacity even if that capacity doesn’t get used to generate power.
The pricing of the reserve payments is determined by the ERA, after recommendations from the state government’s Independent Market Operator, which supervises the wholesale electricity market.
The ERA’s latest ruling would cut Eneabba’s potential income from such payments to $12.25 million in 2008-09.
Chairman Reg Gillard told WA Business News that it was best to look at the “big picture” opportunity, which includes strong growth in energy demand, particularly in the Mid-West region, and legislative limits on the ability of Western Power to meet that demand.
Mr Gillard said he believed the company, which recently boosted its board with the appointment of former long-standing Foodland Associated general manager finance, Chris Bennett, as a non-executive director, could meet its timeline, which includes finalising project finance by July.
He said the company was in discussions with GE about supplying the 168-megawatt power plant, adding that “GE Finance are talking about funding the plant”.
The total cost of the plant is likely to be more than $120 million. Mr Gillard also said the exact amount of revenue to be earned by the company, including from reserve capacity payments, was “all conjecture”.
“The answer is, it’s a significant amount of revenue that is enough to do what we have to do,” he said.
Eneabba’s prospectus said it may receive reserve capacity payments up to $15 million per year, based on the current maximum reserve capacity price of $150,000 per MW but subject to change.
However, that data became outdated soon after the company approved its prospectus.
On December 21 last year, the Independent Market Operator proposed that the maximum price for 2008-09, when Eneabba expects to qualify for payments, would be $123,000/MW.
Following a process of public consultation and review, the Independent Market Operator recommended that the maximum price should be slightly lower, at $122,500/MW.
On January 20 2006, Eneabba issued a supplementary prospectus, which included Mr Bennett’s options package, but did not refer to the new information about reserve capacity prices.
On January 23, the Economic Regulation Authority announced that it had approved the proposed price of $122,500/MW.
Eneabba believes its disclosure is adequate, because it has noted that prices may change in future.
“Like all energy market participants, Eneabba Gas is unable to predict the exact Maximum Reserve Capacity Price that will apply in 2008-09 (some 30 months out) given the ability of the IMO to seek price revisions, as it has done in the past number of weeks,” a company spokesman told WA Business News.
The supplementary prospectus also includes detailed cross referencing between the general statements at the front of the original prospectus and the detailed notes toward the back of the prospectus.
