12 Apr 2018
WA electricity market reforms – state of play
By Brett Cohen, Armin Fazely
The WA electricity market has been the subject of range of mooted reforms, some implemented, some scrapped and some put on the back-burner.
Various proposals to reform the WA electricity market have been put forward in recent years. Implemented reforms include transferring the operator function of the South West Interconnected System (SWIS) from Western Power to the Australian Energy Market Operator as well as substantially restructuring the Demand Side Management mechanism (which effectively pays businesses to be on standby to reduce electricity demand). Other reforms such as selling Western Power, which remains the owner of the SWIS, have been scrapped.
Implementing a constrained market
The Western Australian Government is in the process of implementing reforms required to adopt a "constrained" access framework within the SWIS.
Currently, access to the SWIS is essentially on an "unconstrained" basis. In an unconstrained network, generators may largely dispatch electricity as they wish. In other words, there is no limitation on the ability of generators to supply electricity into the market. One of the consequences of an unconstrained network is that, if a new generator wishes connect to the SWIS, Western Power will (at the cost of the generator) undertake reinforcements or augmentation of the network to facilitate the generator having the ability to dispatch into the network on an unconstrained basis.
Under a constrained network, generators do not have an unfettered ability to dispatch into the network, as the market operator will have an ability to curtail access. This is viewed as a more efficient access model, which better facilitates grid access to renewable sources of electricity, such as solar and other intermittent generators of electricity. The move to a constrained framework is consistent with the approach taken in the National Electricity Market, which covers the east coast of Australia. Western Power, in anticipation of a constrained access model being implemented, has been negotiating with a number of potential renewable energy generators to allow constrained access subject to bilateral access contracts.
A constrained access framework for the SWIS is expected to be in place by 2022.
Electricity licence review
In February 2018, the Western Australian Government announced a review of the licensing regime for electricity generators and retailers by the Economic Regulatory Authority (ERA).
There are five classes of electricity licences under the Electricity Industry Act 2004 (WA):
- Generation licences, which authorise the construction and operation of generating works;
- Transmission licences, which authorise the construction and operation of transmission systems to transport electricity at nominal voltages of 66 kV or higher;
- Distribution licences, which authorise the construction and operation of distribution systems to transport electricity at nominal voltages of less than 66 kV;
- Retail licences, which authorise the sale of electricity to customers; and
- Integrated regional licences, which authorise the construction and operation of any combination of generation, transmission, distribution and retail activities (other than within the SWIS).
The scope of the review is to examine the format of electricity licence templates and electricity licence terms and conditions.
The ERA has stated that the objectives of the electricity licence review include:
- updating electricity licence templates to be consistent with gas and water licences, to the extent possible; and
- reducing the regulatory burden and compliance costs on licence holders.
The review is expected to be completed by May 2018 and it is intended that updated electricity licences will be in force by June 2018.
Opening up the NWIS
The North West Interconnected System or the NWIS refers to the interconnected electricity generation, transmission and distribution infrastructure in the Pilbara region of Western Australia. In essence, the NWIS is comprised of a number of loosely connected electricity networks with different owners. The two largest players in the NWIS are presently Horizon Power and Alinta Energy. Given the Pilbara's importance to the Western Australian economy, the NWIS is a vital piece of infrastructure.
In February 2018, the Department of Treasury announced details of the WA State Government's proposal to reform the NWIS via the release of a Design Consultation Paper, including:
- Implementing a "fit-for-purpose", light-handed regulatory regime to, in part, to facilitate third party access to designated electricity networks in the NWIS: The Consultation Paper provides that the new access framework will initially apply to the Horizon Power and Alinta Energy networks within the NWIS, with the possibility of extending it to the other electricity networks within the NWIS.
- Establishing an independent system operator of the NWIS: Currently, there is no central system operator for the NWIS, with Horizon Power acting as the de-facto operator (and bearing the costs of doing so). The Consultation Paper states that the introduction of a formal operator will enable a "whole-of-system approach to the operation of the power system, outage and contingency management, procurement of ancillary services and budget management."
The Consultation Paper suggests the introduction of a formal set of technical rules that will set out the new NWIS governance structure and proposes that the operator be a stand-alone separate entity or an extension of an existing system operator (eg. AEMO).
Introducing full retail contestability
Under the Electricity Corporations Act 2005 (WA), no electricity retailer, other Synergy, is allowed to supply electricity to customers in the SWIS who consume 50 megawatts of electricity per annum or less. This effectively means that all households and many small businesses in Western Australia do not have a choice in electricity retailer.
In September 2016, we noted the then State Government's proposal to remove this prohibition, through "full retail contestability".
The introduction of full retail contestability would allow competition for all electricity customers within the SWIS and, it is hoped, result in new entrants to the WA residential and small business electricity market.
As at the date of this article, the State Government's current intention in relation to introducing full retail contestability is not clear, with news reports suggesting that this reform proposal is on hold.
If you would like to discuss how current or potential regulatory reforms to the WA electricity market might impact on you, please contact us.