STATE energy minister Peter Collier has rejected claims a major overhaul of local electricity market rules will frighten off private investment in the sector.
STATE energy minister Peter Collier has rejected claims a major overhaul of local electricity market rules will frighten off private investment in the sector.
Mr Collier this week announced the details of a long-awaited revamp of the vesting contract governing state electricity utility Verve Energy aimed at stemming the generator’s ongoing financial losses.
A key feature of the new vesting contract, which will take effect for 10 years from next month, is a freeze on so-called capacity credits that are paid to electricity generators for having generation capacity available to meet demand even if that capacity remains idle.
The credits are aimed at ensuring there is always sufficient capacity in the system to meet peak demand even though peak capacity may be required only a few days a year.
These credits, which typically run to hundreds of millions of dollars annually, are considered a major inducement for private sector investment in new generation capacity.
The new vesting contract also formally scraps energy retailer Synergy’s remaining obligation to put 15 per cent of its forecast supply needs for the next three to four years out to tender, potentially displacing existing supply contracts with Verve.
The move formalises a suspension of the displacement process that has been in force for over a year, and safeguards Verve’s existing base load supply contracts with Synergy from future competition.
In addition, the new contract will scrap netback-pricing arrangements, which saw Verve subsidise Western Power and Synergy.
Mr Collier said the new arrangements would jointly improve Verve and Synergy’s position by $550 million over the next four years and by $1.5 billion over the next decade.
“Importantly, the new contract ensures that taxpayer funded generation assets will not be stranded, which was a very serious consideration as far as the government was concerned,” he said at the Energy in WA Conference.
Mr Collier said Verve was currently forced to keep 500-megawatts of base load generation capacity idle at the same time the state government was paying private generators to make equivalent capacity available.
“It is unfathomable to the government (why) we would continue down that path,” he said.
Those savings would effectively cut the cost of power for WA taxpayers, he said.
Though the contract revision will effectively channel millions of dollars in future capacity payments away from private industry to Verve, Mr Collier denied it would undermine private investment in new generation capacity.
In particular, he said there would still be “significant opportunities” available to private generators to supply proposed mining projects in the Mid-West, while Synergy would also need to procure additional supplies from 2014.
Mr Collier also dismissed suggestions that the end of displacement tendering was a snub for private generators, noting that Verve was the only generator able to meet those loads in the time available anyway.
More significant, however, was the “plethora of opportunities” for private investment in renewable supplies, which was vital for the state to meet its 20 per cent renewable energy target by 2020, he said. Only 5 per cent of the state’s energy currently comes from renewable sources.
“We are talking about 600MW of potential new players into the field for renewable components,” Mr Collier said.
Heralding 2010 as the “year of renewables” Mr Collier announced a string of new state-backed investments in renewable energy, including an expansion of the Grasmere wind farm in Albany to 3 MW and development of a $58 million pilot solar generation project in the Mid-West.
The 10MW pilot solar project, to be managed by Verve in partnership with BP Solar, will be supported with a $20 million grant from the state government.
Slated to come on-stream in 12 months, the project could be expanded to 40MW if needed, but will have to compete a number of larger proposed solar projects such as Midwest Energy’s planned 200MW Perenjori venture.
But the State opposition has rejected Mr Collier’s assurances. Shadow energy minister Kate Doust said the plan created more uncertainty, further discouraged private sector investment, and allowed Verve to extend the life of its oldest and dirtiest coal-fired generators.
“(The government’s) track record of encouraging dirty and inefficient fuels is not reform, it is degeneration,” she said.
Regardless, the reforms have so far received broad approval, particularly from renewable energy proponents.
Midwest Energy chief executive Richard Harris said the 10MW solar project was welcome recognition of solar as the “next cab off the rank” after wind power, but said broader policy change was needed to encourage greater renewable investment.
Midwest, along with several other solar proponents, is seeking a mandated requirement that at least 5 per cent of WA’s energy come from solar projects by 2020, as has been implemented in Victoria.
Sustainable Energy Association of WA chief executive Ray Wills also welcomed the government’s commitment to expand the state’s renewable energy industry and said changes to the vesting contract were a necessary “first step to reshape the market”.
However, he opposed calls for mandated minimum commitments for different types of renewable sources because it would amount to arbitrarily “picking winners”.
Mr Collier indicated he would consider a 5 per cent target for solar and that the draft State Energy Initiative should be complete soon.
