Western Australia: energy market news

With electricity and gas pricing at historic lows in WA, and uncertainty in the domestic gas market going forward, now is an excellent time to secure electricity and gas contracts.

WA retail electricity and gas pricing at historic lows

Retail electricity and gas pricing are currently at historic lows in WA, with significant excess capacity in the market and aggressive retail competition as retailers compete for share in a flat market. Going to market now using a best practice competitive procurement process is likely to yield significant savings compared with older contracts.

For sites that still have time left on an older contract, there may be an opportunity for a ‘blend and extend agreement’ that will allow you to lock in savings immediately.

For price benchmarking or assistance with contracting for gas or electricity, contact our Perth based team.

Changes to domestic gas supply may see energy prices rise

The 300TJ/day domestic gas plant at Gorgon is expected to come online within the next year, and the 200TJ/day plant at Wheatstone by 2018, bringing new supply to the WA gas market. At the same time, supply from the North West Shelf - which currently provides 50% of WA’s domestic gas - will ramp down as historical, low-cost gas contracts come to an end in 2020.

As the Gorgon plant comes online, Synergy’s gas price is expected to increase significantly compared to its historical North West Shelf contracts. In addition, any further delays to the start-up of the Gorgon or Wheatstone domestic gas plants would risk a short term supply crunch and a spike in prices.

Synergy’s increased gas purchase price, and any further delays to the Gorgon and Wheatstone plants is likely to put upward pressure on retail gas and electricity prices.

Southwest Cogeneration Joint Venture to shut early 2016: creating further upward pressure on prices

The Southwest Cogeneration Joint Venture gas fired cogeneration plant is scheduled to close in early 2016. This 120MW plant, co-owned by Synergy and Origin, has operated since 2000 and represents about 2% of total capacity in the South West Interconnected System (SWIS). It supplies steam to the South32 Worsley Alumina refinery and feeds electricity into the grid.

The closure of the Southwest co-gen plant reduces the amount of low cost power supplied to the wholesale electricity market and may result in upward pressure on energy prices.

Transfer of system and market operations to the Australian Energy Market Operator (AEMO) may have impacts over the longer term

As part of the ongoing WA Electricity Market Review, AEMO - the operator of the east coast National Electricity Market (NEM) - will expand its role to cover the WA market.  Key points to know:

  • AEMO has taken on market operations functions from the Independent Market Operator (IMO), including the Wholesale Electricity Market (WEM) and the Gas Bulletin Board and gas statement of opportunities. This was effective 30 November 2015.
  • AEMO will also take on the system management function from Western Power. This integration process will occur over the coming months.
  • Rule change functions will not transfer to AEMO.  The Public Utilities Office is currently consulting on where these functions should sit. The PUO position paper and submissions can be found at the PUO website.
  • The WEM will continue to operate under the existing market rules and will not join the National Electricity Market (NEM) at this point in time.

The extension of AEMO’s coverage into WA is unlikely to have an immediate impact on most energy consumers however businesses should be aware of the longer term implications of the market review.

Alinta and Horizon told to negotiate access to NWIS transmission assets creating the opportunity for greater price competition in the future

WA Energy Minister Dr Mike Nahan has told Alinta and Horizon to negotiate with each other following an inquiry into access to network infrastructure in the North West Interconnected System (NWIS). Both companies own transmission infrastructure in the region and have requested access to the other’s network. Alinta has a retail licence for the NWIS but cannot serve customers as they lack access to the network. If they do manage to secure access it would introduce competition to this network for the first time, which could be hugely beneficial for electricity users in the region.

Dr Nahan launched the Pilbara Energy Infrastructure Project early this year to investigate opening up access to the NWIS. The inquiry has reached its conclusion, with Nahan indicating that while the state will work towards open access to the NWIS grid in the long term, it is his expectation that Alinta and Horizon can negotiate access to each other’s network assets in the short term.

If Alinta can successfully negotiate access to the NWIS grid, large electricity users in the Pilbara will be able to seek competitive offers for grid electricity for the first time.

Synergy tenders for renewable energy certificates and projects

Synergy has called a tender for the supply of 500,000 MWh per year of large-scale renewable energy certificates (LGCs) starting from 2018. These can be LGCs from anywhere in Australia, or the supply of renewable energy into the SWIS.

Synergy’s tender for 500,000 MWh per year of LGCs closed 20 November.

New renewables projects make progress with Western Power access

Projects competing for network access through Western Power’s Competitive Application Group (CAG) process have started to receive Preliminary Access Offers. A number of generation projects which have been waiting for access to the network through the Northern and Southern CAG processes (some for several years) are now one step closer to going ahead. These projects include over 1,000 MW of wind as well as solar and biomass projects.

After several years of delays, a number of renewable energy projects is now one step closer to execution as Western Power’s CAG process starts to produce preliminary access offers.

EMC will construct the ARENA-funded 1.1 MWh energy storage system at Alkimos Beach

After assessing 13 submissions to their tender, Synergy has selected WA-based Energy Made Clean (EMC) to construct the 1.1 MWh energy storage system at Alkimos Beach. The system, part funded by ARENA, will trial battery storage at a community level. Residents will have virtual energy storage, rebates for solar PV, solar hot water and other energy efficient appliances, an in-home monitoring display, variable price plans and an energy education program.

Vinalco Energy found to have breached market rules: The ERB are likely to impose civil penalties of $50,000 to $150,000

The Economic Regulation Authority (ERA) has completed its investigation into the bidding behaviour of Vinalco Energy – the state owned operator of the Muja power station. The ERA concluded that Vinalco had breached the market rules by bidding into the balancing market higher than their short-run marginal cost of generation during 2,829 half hour intervals in 2014. The ERA findings will be referred to the Electricity Review Board (ERB).

Synergy sued by North West Shelf for breaching gas contract

A Supreme Court ruling recently means that Synergy may have to pay out millions of dollars in make-up payments to the North West Shelf Venture which is owned by Woodside, Shell, BHP Billiton, BP, Chevron and Japan Australian LNG.
The case relates to Synergy’s take-or-pay contract with the NWSV, which requires Synergy to take a minimum quantity of gas plus 70% of their additional gas requirements, from the NWSV. Synergy did not include gas traded under ‘gas swap’ deals with a third party in their total requirements over the period from 2006 to 2012, reducing their take-or-pay quantity. The NWSV has successfully argued that these gas swap quantities should have been included meaning Synergy did not meet their take-or-pay obligations.

Synergy will likely have to pay tens of millions of dollars in make-up payments to the North West Shelf Venture.

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