What are the implications of the WA Electricity Market Review for your business?

What are the implications of the WA Electricity Market Review for your business?

As the Electricity Market Review moves into its second phase, WA-based businesses need to assess a range of potential impacts such as changes to network regulation and the reserve capacity mechanism, as well as new competition provisions. There are risks that need to be managed when negotiating electricity contracts, and opportunities to engage in the consultation process.

The WA Electricity Market Review (EMR) was launched by the Minister for Energy in March 2014 to examine the structure and competitiveness of the electricity generation, wholesale and retail markets in the South West Interconnected System (SWIS).
The review is in two phases.

- In Phase 1, the EMR published a discussion paper on the strengths and weaknesses of the current market, received and reviewed public submissions and last week published an options paper including 14 specific recommendations for market reforms.

- Phase 2 was launched last week and will involve detailed design of the government’s preferred reforms, followed by implementation. Decisions on which reforms will flow through to final implementation will take place progressively over 2015/16 and 2016/17.

The government’s preferred reforms and potential impacts

The government has reviewed the recommendations provided by the EMR in Phase 1 and has selected its preferred reforms for further development. The reforms to be developed in Phase 2 are split into 4 work streams as summarised in the table below.

Each work stream will progress independently and opportunities for stakeholder participation will be announced as they arise. See www.finance.wa.gov.au for more detailed descriptions and to keep up to date with the progress of each project.

Work stream Summary Potential impacts for business
Network regulation 

Transfer of the regulation of the Western Power network (including pricing, technical matters and metering) from the WA regime (under the Electricity Networks Access Code 2004) to the National Electricity Law and National Electricity Rules.


Transition from the current unconstrained network model to a constrained model.
Transfer of electricity and gas network regulation from the WA Economic Regulation Authority (ERA) to the Australian Energy Regulator (AER).
 

Network tariffs may be altered, which could result in an increase in the network component of electricity bills.
 

A constrained network model would reduce barriers to entry for new generation facilities and may affect dispatch of existing generators.


The availability of advanced metering services is likely to improve as new service providers may be allowed to enter the market.
 

Market competition

Introduction of full retail electricity contestability for residential and small business markets.
Removal of the moratorium that prevents Synergy from retailing gas to the residential market.


Removal of barriers to entry for generation facilities including small-scale generation and battery storage (such as improved network access and land availability).


Facilitating the use of non-network solutions for high cost customers in rural areas.
 

Electricity prices for small sites are likely to drop as new competitors enter the market.


The feasibility of on-site generation including solar PV and battery storage will improve as barriers to entry are reduced.


Opportunities will arise for non-network solutions (such as stand-alone power supply) to be used for electricity access in rural areas.
 

Note that the Minister also stated that an announcement dealing specifically with renewable energy would be made at a later date. This is likely to be targeted at roof top solar.
 

Institutional arrangements

Transfer of System Management from Western Power to the Independent Market Operator (IMO).


Introduction of a market rule change committee separate from the IMO.


Transfer of dispute resolution functions from the WA Electricity Review Board and WA Energy Disputes Arbitrator to other bodies.
 

System management will operate with a stronger commercial focus which should result in improved market outcomes and may have an impact on the way that generation is dispatched.


The current conflict of interest due to the IMO operating the market rules as well as making and approving rule changes will be rectified.
 

Wholesale electricity market improvements

Reforming the method used to determine capacity price and capacity volume with the aim of reducing the amount of surplus generation capacity.
 

Reforming market operations and processes including: introducing facility bidding; reducing the gate closure period; reforming the reliability standard; co-optimising ‘ancillary services’; and reforming the design of the Short Term Energy Market.
 

Significant changes to the capacity mechanism may occur. This will impact generators with capacity credits, facilities participating in demand side programs and energy users paying capacity charges.


Changes to market operations should improve the efficiency of the market and will affect both generators and market customers.
 


What has been ruled out?

1. The government will not split Synergy into multiple generation/retail businesses. However, they have indicated that they are likely to sell some of Synergy’s generation assets over the coming years.
2. The WA Wholesale Energy Market (WEM) will not join the National Electricity Market (NEM). However, the current round of reforms will not rule out making this transition at some point should a future government wish to do so.
 

What should you do now?

Get involved

If your business is likely to be affected by the reforms, you are encouraged to participate in the stakeholder consultation processes that will be run as part of Phase 2.


Think ahead

If you are purchasing electricity on a multi-year contract, these changes might impact the market during the contract period so take this into consideration when choosing the length of the contract.

Plan how to take advantage of upcoming opportunities in advanced metering, on-site generation, battery storage and rural non-network solutions.


Act quickly

With changes coming to the capacity mechanism, this year could be the last chance to take advantage of the current capacity rules. Consider whether your business could receive capacity credits for generation assets or participate in a demand side management program. Applications for certification of reserve capacity for 2016/17 close on 1st of July this year.

Can we help?
 

Energetics’ local Perth based team has been providing independent advice to large energy users in the WA electricity market since 1997 when deregulation of the market down to 50MWh occurred.
Contact us for advice on:

  • Making a submission to the Energy Market Review

  • Procurement of electricity and gas contracts

  • Reducing network and capacity charges

  • Securing capacity payments for generation capacity or demand side programs

  • Interpretation of the market rules

  • Solar PV and battery storage

  • Energy efficiency

  • Electricity and gas data management and bill validation

 


 

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