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WA launches review into unsustainable electricity market

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The Western Australian Energy Minister has launched a long-awaited review into the state’s electricity market, after acknowledging that subsidies are costing the state over $500 million a year and cannot be sustained as is.

Despite increasing electricity prices by 86% since 2008, the WA government is still providing staggering subsidies to electricity consumers, at a rate of more than $400 a household. It’s not the only headwind which is hitting the market however, with surplus capacity and a growing move towards self-generation in households with rooftop solar.

In light of this, the government has launched a review into the electricity market. In announcing the review, Energy Minister Mike Nahan singled out increasing network costs, generation over-capacity and renewable energy as being responsible for the situation in which the government now finds itself.

“The Western Australian electricity industry faces the challenge of stagnating electricity demand as consumers become more self-reliant through the use of private solar energy systems and continue to become more energy efficient, along with excess capacity in the market,” Nahan said in a statement. (See separate story on how the uptake of solar in WA  is dominated by lower income postcodes).

As this graph below (from Western Power) shows, the state’s electricity bills are dominated by network and generation costs. The latter are higher in WA because of the influence and reliance on gas (and despite a reservation policy)

wa electricity

The review launched by the state government will investigate six streams of investigation including fuel types, the wholesale electricity market, competition, market structure and governance.

The review process will be carried about by the WA government’s Finance Department and will be headed by Queensland’s Stanwell Corporation’s Paul Breslin. Stanwell owns and operates coal, gas and some hydro electric assets, and last year blamed rooftop solar as the biggest culprit in causing it to lose money over 2012/13, and the closure of some of its major assets. It has since had to close its major gas base-load plant because of surging gas prices.

The head of WA’s Public Utilities Office Ray Challen and State Development bureaucrat Nicky Cusworth are also on the steering committee.

When challenged about gas peaking plants driving up generation costs, Nahan said that they had been built under the state’s capacity market, which was put in place in 2006 under the previous Labor state government. In an interview with ABC Radio, Nahan said that the much-criticised capacity market had encouraged over investment in capacity.

“There’s been a whole raft of investment in capacity that’s never going to be used in our foreseeable lifetime,” said Nahan. He did not name them, but he might have been referring to recently constructed diesel fired generators such as one that was installed at Merredin.

Asked by the ABC whether the plan behind the inquiry was to facilitate the privatisation of state utility assets, Energy Minister Nahan said that it was not a priority. “When you’re losing that much money, not too many people are going to buy assets.”

The electricity market review comes at a time in which WA has seen significant investment in generation assets, in the form of around 130,000 households having installed solar PV, according to figures from the WA-based Sustainable Energy Association (SEA). With PV households now making up around a quarter of all homes, 53,000 of those installations have occurred after previous generous solar PV FITs were wound up.

At a recent state government oversight hearing, the re-merged utility Synergy said that around 2,000 homes are adding solar per month. Some in the WA solar industry are skeptical as to this figure’s legitimacy, however they do report steady business from the residential sector.

There isn’t full contestability in the WA residential electricity marketplace, with homes paying around $0.25/kWh. In the ABC interview, Nahan acknowledged that given that this price is far from representing the true cost of generation, transportation and retail of electricity.

“When you’re subsidising each unit of electricity purchased by 30 per cent (of its cost), it’s hard to get competition. What are you competing for, a subsidy?”

Only days before Nahan announced the electricity review, Synergy CEO Jason Waters acknowledged that there is around 900 MW of surplus capacity in the South West Interconnected System (SWIS).

“There was a period only three or four years ago during which we saw the need for a new base-load power station on the system for around 2017-18,” Waters told the West Australian newspaper. Synergy now anticipates any new “base-load” coal or gas generation wouldn’t be needed until 2022-23. This is despite plans to retire the 400 MW Kwinana C power plant.

The electricity market review will include a public submission process is set to hand down its findings in October.

 

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  • Chris Fraser

    I don’t get WA’s choice of reviewer. Wouldn’t you rather dismiss Mr Breslin’s view out of hand because of conflicts of interest, at least in QLD coal and gas, if not also for investment opportunities in WA ?

  • juxx0r

    So bottom line is that coal and gas is not sustainable, but solar installation is soaring because it’s cheaper.

  • Martin

    Giles, I wondered if you could check something I wrote earlier:

    “”the gap between consumer bills and the cost of delivery through the grid had blown out to nearly $500 million in the 2013 fiscal year”
    That seems to be only part of the story. These $500 million are more than offset by the almost $1.3 billion that the WA government earns from its public corporations. Or, to give an even completer picture, a total of $937 million of what they call water and electricity tariff “subsidies” against a contribution to the budget through water and electricity bills of $1,267 million. In other words, a net tax of $330 million.”

    Am I interpreting these figures correctly?

    • Jonathan Gifford

      I will check it out with Finance Dept. From what other state gvt. corporations does the $1.3 billion come? Or is it just Water Corp. and Synergy?

  • Stan Hlegeris

    Did someone say “Death Spiral?” Bring it on!

    WA’s electricity system is now non-viable unless prices can be increased dramatically. Consumers can now generate their own electricity at a cost far lower than than the current retail price of grid electricity. Any increase in price will drive more consumers to grow their own.

    Watch for WA to try the same trick they’re using in Queensland: the next desperate step will be to impose a gigantically increased standing charge, so that everyone pays just to be connected. Queensland’s standing charge increased by 92% on 1 July 2013 (from 29.612c/day to 56.826c/day).

    No one made much noise about it, so you can count on more big rises.

  • Diana

    Hi Jonathan
    I’m from WA, and we get this from RenewEconomy from time to time, and ClimateSpectator, which is essentially eastern states commentator fitting machinations here in WA to their mould.
    The “staggering subsidies” you mention are what keeps WA electricity prices relatively affordable and cheaper, I understand, than what the average person can expect to pay in the eastern states.
    To introduce “competition” is to lift the average household electricity bill $400 a year, to then hope they get a discount on what the cost of electricity will be thereafter.
    There is this constant belief – sometimes it almost takes on a “save them, the poor good-hearted private sector just dying to help us have cheaper electricity!” – that the private sector can provide electricity cheaper than public utilities. Clearly WA consumers are being subsidised, but to say that $500m a year is unsustainable, when it helps everyone, as opposed to the $1bn subsidy we pay to provide public transport directly to some, alleviation indirectly to others, is stretching things a bit.
    The “long awaited” review in to the sector isn’t really, but one good thing to come out of the Barnett Govt since they were re-elected is the powerful focus they have put on reducing the costs of the public utilities – and a heck of a lot of savings have since been and are in the process of being achieved.
    Yep, should have occurred before now, but they are underway now.
    Mr Nahan’s views are not currently supported publicly by the Premier. I am unaware of any ideas he has as to how the average mum’n’dad, conservative users of electricity, not necessarily able to have solar = use of it, as opposed to sale of it = are going to be able to afford much higher prices.
    To retire the Kwinana C power plant was to retire old stock.
    The point often made by the solar industry that the panels went to the wealthy but aha! they went to suburbs with lower than average incomes is not a drilled down look at the constituency of those suburbs, and how many people are forced to rent these days, how many are retirees, etc – anything that better portrays how the income averages are obtained.
    Nothing new here, I’m afraid, kiddo.

    • Giles

      Can i just point out that “kiddo” is based in WA. I’d also point out that the purpose of the article is to say that alternatives such as solar and other renewables likely to reduce the costs below that of a fossil fuel grid. And I’m not sure your characterisation of pensioners as somehow irrelevant to average income assessments is right. They need to live too, they face bills, they need to make decisions. that’s why they like solar. And soon there will be a lot more pensioners.

      • Diana

        Normally I don’t reply to your terse interventions, Giles – and I don’t read RenewEconomy because of it. You have twisted issues above, you know what and where they are, and if “kiddo” is from WA, he needs to do more homework. Over to you, but doubt this conversation is worth it.