The government body that operates the wholesale energy market in WA has applied for a 76 per cent increase in capital spending after underestimating the complexity of market reforms.
The government body that operates the wholesale energy market in WA has sought approval to spend $108 million upgrading its software and systems, up 76 per cent on its previous estimate.
The Australian Energy Market Operator (AEMO) has previously gained regulatory approval for $61.8 million in capital expenditure for its activities in WA’s Wholesale Electricity Market (WEM) for the three years to June 2025.
It has now applied to WA's Economic Regulation Authority for an additional $47.1 million after admitting it has “significantly underestimated the complexity of the reforms and of developing and adapting the associated IT systems”.
“Consequently, substantial additional effort, above that previously estimated, is required to implement the new market and power system arrangements and unlock the benefits of the new market to industry and consumers,” AEMO said in its submission.
It added that the new funding was needed to ensure the new system operated in full from the targeted start date of 1 October 2023.
“AEMO considers that achieving the 1 October 2023 go-live date is imperative.” It said.
“Industry stakeholders, the WA government, and AEMO have invested significant resources in achieving go-live, with any amendment to this date imposing unacceptable financial consequences for all parties, with flow-on effects for WA consumers.”
The WEM reform program is designed to deliver a more sophisticated ‘real time’ energy market that is able to identify the optimal, or least cost, option for delivering electricity to where consumers need it to be, under any operating conditions.
It is being introduced in tandem with big changes in energy generation and storage, with most of WA’s large coal-fired power stations scheduled to close by the end of the decade in favour of wind and solar power.
“The scale of the WEM reform implementation program is unprecedented in WA and is being delivered in the context of a once-in-a lifetime energy transition,” it said.
Of the total increase in capex, the largest component is for WEM reform.
The estimated cost of this component has gone from $44 million to $89 million.
Within this amount, the single largest change is a request for $13.8 million to run a “testing and market trial”.
AEMO applied last year for $1.6 million to run the trial but ERA did not approve any funding.
AEMO has also sought additional funding for sustaining capital expenditure projects and for Gas Services Information platform projects.
Any increase in approved costs will ultimately be recovered from market participants through market fees, which in turn are passed through to consumers.
In its submission, AEMO said the WEM reform was “a first for all involved, with many moving parts”.
However, it also noted that similar changes have occurred in other parts of the country.
It said the expected total cost of delivery in WA was comparable with similar market reforms undertaken elsewhere.
AEMO also said it “understands” that costs associated with the WA government’s energy transformation strategy will be substantially outweighed by the benefits of decarbonisation, energy security and lower-cost generation.
The ERA will publish a draft revised funding determination in early July 2023 for consultation and expects to publish a final determination in early September 2023.
