40TH PARLIAMENT Economics and Industry Standing Committee Report 8 TAKING CHARGE: WESTERN AUSTRALIA’S TRANSITION TO A DISTRIBUTED ENERGY FUTURE Final Report Presented by Ms J.J. Shaw, MLA February 2020 Committee Members Chair Ms J.J. Shaw, MLA Member for Swan Hills Deputy Chair Hon D.T Redman, MLA Member for Warren-Blackwood Members Dr D.J. Honey, MLA Member for Cottesloe (from 28 November 2019) Mr Y. Mubarakai, MLA Member for Jandakot Mr S.J. Price, MLA Member for Forrestfield Co-opted Member Mr S.K. L’Estrange, MLA Member for Churchlands (Co-opted Member from 28 November 2019) (Deputy Chair until 28 November 2019) Committee Staff Principal Research Officer Ms Suzanne Veletta, LLB (from 19 August 2019) Dr David Worth, PhD, MBA (until 23 August 2019) Research Officer Ms Franchesca Walker, BA (Hons), Dip (MPD) (from 25 March 2019) Mr Lachlan Gregory, BA (until 22 March 2019) Legislative Assembly Tel: (08) 9222 7494 Parliament House Email: [email protected] 4 Harvest Terrace Website: www.parliament.wa.gov.au/eisc WEST PERTH WA 6005 Published by the Parliament of Western Australia, Perth. February 2020. ISBN: 978-1-925724-38-7 (Series: Western Australia. Parliament. Legislative Assembly. Committees. Economics and Industry Standing Committee. Report 8) 328.365 Economics and Industry Standing Committee Taking Charge: Western Australia’s transition to a distributed energy future Inquiry into the emergence and impact of microgrids and associated technologies in Western Australia Final Report Report No. 8 Presented by Ms J.J. Shaw, MLA Laid on the Table of the Legislative Assembly on 20 February 2020 Chair’s Foreword ignificant changes are underway in Western Australia’s energy industry. More than any other State, we have embraced distributed energy technologies — particularly at S the household level — and are now witnessing the most fundamental shift in our energy production model since electrification. Western Australian consumer’s energy supply choices are challenging old industry structures, regulatory frameworks and market mechanisms. The Interim Report for this inquiry noted the extraordinary pace of change, the extent of our world‐leading innovation and the opportunities along the value chain arising from the emergence of microgrids and associated technologies. In the intervening period between the tabling of that document and this Final Report, change has continued unabated and a raft of new projects, policies and initiatives have commenced. The pace of change in the rapidly evolving energy sector has affected the nature and scope of the findings and recommendations in this report. In March 2019, the State Government launched its Energy Transformation Strategy and a number of work streams are now underway, developing initiatives to support Western Australia’s transition to a distributed energy future. In November 2019, the Government also introduced legislation to begin the process of energy market reform. Due to the State Government’s impressive progress on energy reform, this report is necessarily different to one the Committee would have written only a few months ago. For example, the Committee need no longer recommend that the Government develop a whole of system plan, as this initiative has been announced and a plan is being drafted. This Final Report therefore seeks to complement the work underway in the Energy Transformation Strategy. The Committee has found that microgrids offer a range of potential benefits to Western Australia’s power systems. Working in conjunction with traditional generation and network assets, microgrids can act as reliable, dispatchable energy resources; supply essential services to the system; and act as a load‐shed or over‐generation balancing resource. Microgrids and distributed energy resources (DER) can also reduce total system costs by deferring, reducing or entirely removing the need to invest in costly pole and wire replacement programs. Their ability to provide these benefits depends, however, on market and regulatory frameworks. The interplay between the electricity system, market structures and regulatory frameworks is remarkably complex and is increasingly challenged by the emergence of microgrids and associated technologies. Western Australia’s regulatory and market structures no longer reflect the physical realities of our electricity system and are not sending efficient signals for asset development and system operations. This affects total system costs and prices for end i users and, left unaddressed, could have long‐term implications for system security and supply reliability. A number of key themes emerged in the evidence to this inquiry. First, microgrids and associated technologies present a range of technical challenges. DER are having operational impacts on the system, causing traditional assets to operate differently and affecting electricity demand patterns. As penetration increases, system operations and optimisation will become heavily dependent on the operator’s ability to see and control microgrids and DER. The Committee has recommended the introduction of a DER Register for the South West Interconnected System and is aware that this is currently under consideration as part of the Energy Transformation Strategy. Smart meters and the telecommunications infrastructure required to access real‐time data and control assets are also essential to support microgrids and facilitate the successful transition to distributed energy systems. They will be integral to the successful implementation of new retail products and services and can greatly assist consumers to understand and manage their energy requirements. The Committee notes that the Economic Regulation Authority prevented Western Power from recovering the costs of information and communications technology (ICT) associated with smart metering. The Committee considers that Government and regulatory agency support for advanced metering infrastructure is essential to evolve Western Australia’s energy systems, facilitate system security and encourage efficient asset development and utilisation. It is vital that regulatory agencies allow network and system operators to innovate. The industry is no longer in ‘business as usual’ mode and a rigid, ultra‐conservative approach to economic regulation will hinder our ability to harness the benefits offered by microgrids and DER. The technical standards development and system‐wide planning exercises underway as part of the Energy Transformation Strategy will also be vital to its success. The Committee is aware that the Minister for Energy will shortly release a ‘DER Roadmap’ under the auspices of the Strategy. Evidence to the Committee suggested a lack of clarity regarding the roles, functions and accountabilities between the system and network operators. The Committee considers it essential that the Minister for Energy address these concerns, and particularly clarify responsibility for system planning over the long term. In terms of market and regulatory reform, it is important to note that no government has undertaken a significant, meaningful reform process to restructure markets or adapt regulatory frameworks since the Carpenter Government established the Wholesale Electricity Market in 2006. The emergence of microgrids and associated technologies presents the State Government with an opportunity to both facilitate new technologies and commercial models, and also address a range of long‐standing structural issues in the market. The overwhelming weight of evidence to this inquiry supports reform and urges action. There is also a high degree of consistency on the key principles that should underpin any reform process. The Committee observes that the Energy Transformation Strategy’s ii objectives are to maintain a secure and reliable electricity supply, ensure affordable electricity for households and businesses, reduce energy sector emissions, transition affected workers in the Collie region, and promote local jobs and growth. These are important and legitimate objectives. A range of other core principles also emerged from the evidence. Witnesses considered that the policy framework must be flexible and capable of adapting and encouraging technological change over time and that energy policy should provide clear direction and certainty for industry. Energy solutions should also be selected on a technologically neutral, economically efficient and cost effective basis, with the private sector playing a key role in the energy supply chain. There was strong support for wholesale energy pricing and tariff reform, to promote more efficient and cost effective energy supply. Finally, a number of witnesses stressed the importance of appropriate licensing frameworks and consumer protections. The Committee was encouraged to consider approaches that are measured, practical and deliverable. Witnesses stressed the importance of ensuring that the perfect is not the enemy of the good, and suggested that the State Government prioritise its reform program to shore‐up system operations, deliver ‘quick win’ cost savings and then tackle more complex matters (particularly complex regulatory or market reforms) over the longer term. Witnesses also emphasised the universal and essential nature of electricity supply, the many years of investment that Western Australians have made in the electricity system (both through their payment of electricity bills and State subsidies) and the need to ensure that the total benefits to the Western Australian community are considered, particularly when