23/08/2017 - 14:45

Wyatt to tackle energy market access

23/08/2017 - 14:45

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Energy Minister Ben Wyatt hopes to introduce laws to ease network access rules for new electricity generators by mid 2018, while acknowledging concerns about Synergy's market power in an address today at the Energy in Western Australia Conference.

Ben Wyatt today shed light on the state government's plans for the energy market. Photo: Attila Csaszar

Energy Minister Ben Wyatt hopes to introduce laws to ease network access rules for new electricity generators by mid 2018, while acknowledging concerns about Synergy's market power in an address today at the Energy in Western Australia Conference.

Mr Wyatt said he understood independent operators were unsettled about Synergy’s share of the electricity generation market in the state’s South West Interconnected System.

About 50 per cent of the system’s generation capacity is in the hands of Synergy, while a further 20 per cent or so is controlled by Synergy through-long term contracts.

Synergy is also the state’s largest electricity retailer, with a legislated monopoly over small use customers, with the retail and generation wings merged in 2014 after being split about a decade earlier.

“I accept there is concern around (Synergy’s market power) ... people don’t have confidence in the ring fencing that’s taken place when Verve and Synergy came back together,” Mr Wyatt said.

“That's something that I’ll address in respect of policy change in the coming months.

“They’re the dominant player; I get the frustration of many hopeful generators.”

Business News understands Mr Wyatt's approach will be to introduce facility level bidding across Synergy's assets, which would require technological upgrades costing around $40 million.

Under the current system, Synergy bids its entire generation portfolio into the electricity market, while other operators bid in facilities.

That has led to concerns around Synergy's bidding strategy which are being investigated by the Economic Regulation Authority.

Mr Wyatt also flagged a plan to formalise changes to network access.

He said he intended to have legislation before parliament by mid-2018 to make permanent alterations to the access regime, following an interim rule change decided by the state government in recent weeks.

The changes will complete a move of the network from an unconstrained to a constrained access regime, which would effectively make it cheaper for private generators to link into the system.

Mr Wyatt hoped the new rules would be in operation from 2020, with the interim arrangement of partial constraint to operate in the meantime.

“It is no secret that the existing framework for regulating access to the Western Power network, the electricity network access code is no longer fit for purpose,” he said.

“The access code is presenting significant barriers to new generation facilities, particularly large scale renewable power stations.

“Generators are commonly subject to substantial connection costs and delays in the connection process.

“Current regulatory arrangements have allowed some existing generators to secure unconstrained access to the network even if these generators don’t use that capacity all the time.

“The current rules to do not accommodate investment in a time of innovative energy solutions coming to market.”

Mr Wyatt said the legislation would be complicated, but a long-term solution would be required, particularly to encourage development of renewables.

“With a constrained access model there will be greater commercial opportunities and incentives for new, lower cost generation to connect and greater competition among all generators,” he said.

“There will also be greater discipline on investment decisions by Western Power.”

He also made a commitment that the Public Utilities Office would consult with industry stakeholders about the best mechanism for pricing reserve capacity, which is a market that ensures reliability of supply during fluctuations.

The previous state government had indicated it intended to move to an auction system by 2021, although Mr Wyatt stepped back from that position today, committing that such a move would be no earlier than 2021.  

The existing system operates on a formula which the Public Utilities Office criticised in a report earlier this year.

"A major shortcoming of the current reserve capacity mechanism is that the administered pricing arrangement has provided grossly inadequate signals to the capacity market to adjust to a more balanced state," the Office said in the Reserve capacity auction: final design and implementation report.

"Currently, the capacity price is $120,199 per megawatt whereas the value of an additional megawatt of capacity to consumers is practically zero.

"Without the means for the market to self-correct consumers would continue to pay for this excess for no material benefit."

On the other side of the market, Mr Wyatt said the government would soon be considering options to support the roll out of smart meters, with Western Power and Synergy keen to be active in this space.

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