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WA can benefit from electricity reform

An Access Economics report has concluded that the speed at which competition comes into generation is the key to the success of a reformed electricity market in WA and hence a linchpin for securing investment projects.

An Assessment of the Case for Electricity Reform in Western Australia, prepared for the Chamber of Commerce and Industry Western Australia and Chamber of Minerals and Energy of Western Australia, released in Perth last week appears to oppose a view put to an Australian Institute of Energy function in Perth earlier this year, by Western Power consultant Graham Thomas.

Mr Shogren, a senior consultant with Access and a former ACCC commissioner responsible for energy matters, and author of the Access Economics report, said the benefits of competition were well-known throughout most industries.

Reform in the State’s electricity market meant introducing competition where possible and much of the cost leading to electricity tariffs came from generation, he said.

Outlining a view of a workable electricity market, Mr Shogren said competition in generation required retailing competition.

In order to gain and maintain customers and at the same time be profitable, competitive retailers would need to have a choice of generators from which to extract the best deals.

And while competition was not feasible within a network system, to avoid conflict of interest, it was imperative that generation and network operation were kept separate.

The only waiting for WA now should be perhaps for capacity growth and for Western Power to split its network operator and generation roles, rather than for further cost-benefit analysis.

The Electricity Reform Task Force had already recommended sufficient built-in reliability safeguards, and now more emphasis on encouraging competition was needed,

Mr Shogren added.

The view put by Dr Thomas in February concentrated on the analysis process before deciding on market reform and drew from a study not focussed specifically on WA.

A World Energy Council review of Electricity market design in the Asia Pacific region had concluded that competition could deliver real benefits, Dr Thomas said.

But less than 20 per cent of operating markets worldwide were truly competitive, and electricity in Australia remained comparatively cheap, especially when compared with the United Kingdom which had introduced competition.

In the absence of sufficient competitors, Dr Thomas said, prices would end up much higher than intended, and the report had considered Korea the only regional market able to successfully introduce competition with improved prices within the next decade.

The report recommended the introduction of competitive features in all markets, but only after extensive cost-benefit analysis.

However, the Access Economics report states: "Generation is only a natural monopoly in far smaller markets than Western Australia. The current power procurement process appears to be at odds with the need to provide space for new entrants."

In the WA case, Dr Thomas said, the key driver of reform was missing – the Government’s cash requirements of Western Power.

His view was that in WA, generators and suppliers had easy access to the market, that electricity prices were most likely influenced by fuel costs, that there was no generation over-capacity, and few competitors in a grid that was not well inter-connected.

Meanwhile submissions received following the release of the Electricity Reform Task Force’s April discussion paper have been put to consultants, and studies continue.

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