03/10/2014 - 12:08

Push to keep WA off national grid

03/10/2014 - 12:08

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As the state’s review of its electricity market seeks to turn the system on its head, investors protecting their interests have argued strongly to keep Western Australia out of the national electricity market (NEM).

Push to keep WA off national grid
OPEN: Paul Breslin prefers a market-based approach to power generation decisions. Photo: Attila Csaszar

As the state’s review of its electricity market seeks to turn the system on its head, investors protecting their interests have argued strongly to keep Western Australia out of the national electricity market (NEM).

More than 40 market players have swamped the government with ideas on how to reduce electricity prices after Energy Minister Mike Nahan insisted WA’s electricity market must change.

Of 43 public submissions, only ERM Power and Energy Networks Association have come out in full support of WA joining the NEM, which operates in all other states except the Northern Territory.

Almost a dozen organisations have called for less drastic changes to WA’s market to preserve WA’s unique “capacity” mechanism, which ensures there’s enough electricity when needed through pre-payments rather than relying on more volatile real-time electricity pricing used in the NEM.

Many other submissions declined to state a preference for either choice, or focused on other issues.

If the government decides to join the NEM, in all likelihood this would not involve physically connecting poles and wires to the east coast, but rather adopting their codes with some protective exceptions.

The implications of joining the NEM are enormous for investors, which have already sunk billions of dollars into the current capacity system and potential future investors, which the government is courting as it seeks to reduce Synergy’s dominance and encourage greater competition.

Investors in WA’s capacity mechanism stand to lose the most if WA joins the NEM because this would remove the need for their services.

Those investors include owners of peaking power stations that are paid to be on standby, such as Blue Waters and Perth Energy, and large power users such as clients of EnerNOC, that are paid to shut down their own usage to increase supply in peak times, known as demand-side management.

The results from the public submissions mirror attitudes at a national energy conference held in Perth last month, where 86 per cent of delegates said WA should not join the NEM.

More than half of the public submissions supported splitting Synergy, something the review is considering, including breaking it into three separate entities, which could eventually be sold to private investors.

Selling Synergy break-off entities and encouraging greater private investment is aimed at paving the way for householders to have a choice between retailers, which would compete on price.

Full retail contestability could also herald dual retailing, enabling consumers to buy gas and electricity from one provider as a discounted bundle.

Chair of the review Paul Breslin told Business News a major problem with the current market was the regulator, Independent Market Operator, decided how much power generation was needed based on often erroneous forecasts and since it did not wear any risk, when it got it wrong it led to consumers picking up extra costs.

 “I’d like to move us to a market where some centrally planned body did not have to make that decision, I’d like the market to make that decision,” Mr Breslin said.

“A surplus in a proper market means prices go down, a surplus here unfortunately means prices go up because you’ve got to carry all that capacity you’ve been obliged to pay for.

“The WA system is looking at some increases in its fuel costs, significant increases and there are going to be price increases come through from that. It makes it all the more imperative that we fix up the market and get a competitive market.”

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