25/02/2009 - 22:00

Spotlight on WA’s deregulated market

25/02/2009 - 22:00

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PREMIER Colin Barnett is a long-time critic of the former Labor government's energy reforms, arguing they are structurally flawed.

Spotlight on WA’s deregulated market

PREMIER Colin Barnett is a long-time critic of the former Labor government's energy reforms, arguing they are structurally flawed.

One of his main concerns is that, under the current structure, he can't find any single organisation taking overall responsibility for keeping the lights on.

Strange as it may seem, that is exactly how a deregulated energy market is meant to work.

Labor's energy reforms broke up the old Western Power into four separate businesses and created a new regulatory structure to facilitate new market entrants and more competition among energy generators and energy retailers.

Sitting at the peak of the market is a government agency called the Independent Market Operator, which was established in 2004.

It supervises the wholesale electricity market, which provides a mechanism for energy industry participants to trade electricity within the South-West Interconnected System (SWIS).

More broadly, the role of the IMO is to ensure there is sufficient generation capacity installed in the SWIS to meet expected electricity demand.

It does this by providing reserve capacity credits to companies that build new power stations.

The IMO also supplies capacity credits to electricity users that agree to implement "demand-side management" initiatives.

As part of this process, last month it called for expressions of interest from parties wanting to supply 55 megawatts of extra capacity by 2011-12, which was its estimate of the extra capacity that will be needed at that time.

GENERATORS

The biggest electricity generator in WA is government-owned Verve Energy, which was carved out of the old Western Power.

Verve's generation capacity has been capped at 3,000MW to ensure there is room in the market for new generators.

To put this in context, peak demand in the SWIS this year is expected to be 4,860MW.

Three major competitors in electricity generation have emerged in recent years.

Alinta has established a series of gas-fired power stations in partnership with alumina producer Alcoa.

Griffin Energy is building two coal-fired power stations at Collie and has a wind farm in the mid west, and NewGen Power has built one gas-fired plant at Kwinana and is building a second at Neerabup.

Smaller players include Western Energy, which is developing a gas-fired plant at Kwinana, and WA Biomass, which pans to develop a power station at Manjimup fuelled by forest waste.

Other aspiring generators include Aviva Corporation and Eneabba Gas, which have plans for new power stations in the Mid West.

Generators make their money by negotiating sales agreements with electricity retailers such as Synergy.

They also sell electricity to big projects. For instance, Griffin won a competitive tender to supply the Boddington gold project while Verve won the right to supply Gindalbie Metals' Karara iron ore project.

In practice, this involves a relatively convoluted process involving the establishment of retail entities.

In the Gindalbie case, for instance, the deal was done with Gindalbie subsidiary Karara Energy Pty Ltd, which is registered with the IMO as an electricity retailer.

Karara Energy will operate as a retailer and its foundation customer will be the Karara iron ore project.

RETAILERS

Government-owned Synergy is the dominant electricity retailer in WA. It retains a monopoly in the household sector and is a major supplier to business users.

Alinta has diversified from its foundation gas business to become Synergy's major competitor.

Perth Energy, which has been operating for eight years, is the third major competitor. It has traditionally purchased energy from eight landfill gas generators in the South West. Last year it negotiated a wholesale deal to buy $30 million of energy per year from Verve. It is also building its own gas-fired power station through its subsidiary Western Energy.

TRANSMISSION

The transmission of electricity from power stations to households and business customers is considered a natural monopoly.

This 'poles and wires' business continues to be run by government-owned Western Power, which negotiates contracts with the generators and retailers.

REGIONAL POWER

Horizon Power, which was carved out of the old Western Power, is responsible for delivering power to regional customers. It operates a vertically integrated business covering generation, transmission and retail, similar to the old Western Power.

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