WA launches review into unsustainable electricity market

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)

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.