Electricity Market Review Options Paper
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Electricity Market Review Options Paper Electricity Market Review Steering Committee December 2014 ii Options Paper Disclaimer © State of Western Australia The information, representations and statements contained in this publication have been prepared for the Electricity Market Review. Views and recommendations expressed in this publication are not necessarily the views of the Western Australian Government or Minister for Energy and are not government policy. The State of Western Australia, the Minister for Energy, the members of the Electricity Market Review Project Office and Steering Committee, and their respective officers, employees and agents: (a) make no representation or warranty as to the accuracy, reliability, completeness or currency of the information, representations or statements in this publication (including, but not limited to, information which has been provided by third parties); and (b) shall not be liable, in negligence or otherwise, to any person for any loss, liability or damage arising out of any act or failure to act by any person in using or relying on any information, representation or statement contained in this publication. Electricity Market Review iii Options Paper Disclaimer ----------------------------------------------------------------------------------------------------------------------------------------------- ii 1. Executive summary, findings and recommendations ------------------------------------------------------------------------------- 1 1.1. Introduction and the Review Objectives ------------------------------------------------------------------------------------------ 1 1.2. The problem of increasing costs for electricity services ----------------------------------------------------------------------- 2 1.3. Industry structure ----------------------------------------------------------------------------------------------------------------------- 4 1.4. The wholesale electricity market ---------------------------------------------------------------------------------------------------- 6 1.5. The electricity network ---------------------------------------------------------------------------------------------------------------- 8 1.6. Energy Safety ----------------------------------------------------------------------------------------------------------------------------- 9 1.7. Institutional arrangements --------------------------------------------------------------------------------------------------------- 10 1.8. Implementation and Transition --------------------------------------------------------------------------------------------------- 11 1.9. Recommendations -------------------------------------------------------------------------------------------------------------------- 11 2. The South West Interconnected System – the need for reform --------------------------------------------------------------- 13 2.1. Introduction ----------------------------------------------------------------------------------------------------------------------------- 13 2.2. The South West Interconnected System----------------------------------------------------------------------------------------- 13 2.3. The cost of supplying electricity --------------------------------------------------------------------------------------------------- 17 2.4. Industry structure in the SWIS ----------------------------------------------------------------------------------------------------- 19 2.5. The Wholesale Electricity Market ------------------------------------------------------------------------------------------------- 26 2.6. Findings ---------------------------------------------------------------------------------------------------------------------------------- 33 3. A competitive industry structure -------------------------------------------------------------------------------------------------------- 35 3.1. Introduction ----------------------------------------------------------------------------------------------------------------------------- 35 3.2. Increasing competition in generation -------------------------------------------------------------------------------------------- 35 3.3. Increasing competition in the retail sector ------------------------------------------------------------------------------------- 42 3.4. Restructuring or divesting Synergy’s portfolio--------------------------------------------------------------------------------- 46 3.5. The primary fuels industry and market ------------------------------------------------------------------------------------------ 47 3.6. Findings ---------------------------------------------------------------------------------------------------------------------------------- 50 4. Improving market outcomes - market design options ---------------------------------------------------------------------------- 52 4.1. Introduction ----------------------------------------------------------------------------------------------------------------------------- 52 4.2. The Reformed WEM option --------------------------------------------------------------------------------------------------------- 53 4.3. The NEM energy-only option ------------------------------------------------------------------------------------------------------- 60 4.4. Stakeholder comments: the NEM energy-only option ----------------------------------------------------------------------- 65 4.5. Comparison of options --------------------------------------------------------------------------------------------------------------- 66 4.6. Impact on government -------------------------------------------------------------------------------------------------------------- 76 4.7. Findings ---------------------------------------------------------------------------------------------------------------------------------- 80 5. Network arrangements -------------------------------------------------------------------------------------------------------------------- 83 5.1. Introduction ----------------------------------------------------------------------------------------------------------------------------- 83 5.2. Transmission access and congestion --------------------------------------------------------------------------------------------- 83 5.3. Obligation to connect customers to the network ----------------------------------------------------------------------------- 88 5.4. Cost reflectivity of network tariffs ------------------------------------------------------------------------------------------------ 89 5.5. The need for better metering technology --------------------------------------------------------------------------------------- 90 5.6. Adequacy of access to capital funds --------------------------------------------------------------------------------------------- 91 5.7. Safety regulation ---------------------------------------------------------------------------------------------------------------------- 92 5.8. Adoption of the national framework for network regulation ------------------------------------------------------------- 93 5.9. Findings ---------------------------------------------------------------------------------------------------------------------------------- 93 6. Regulatory and institutional arrangements ------------------------------------------------------------------------------------------ 95 6.1. Overview of current arrangements ----------------------------------------------------------------------------------------------- 95 6.2. Assessment of existing arrangements in the SWIS --------------------------------------------------------------------------- 97 6.3. Institutional arrangements under the NEM energy-only option --------------------------------------------------------- 103 6.4. Findings --------------------------------------------------------------------------------------------------------------------------------- 103 7. Transition, sequencing and implementation costs-------------------------------------------------------------------------------- 105 7.1. Introduction ---------------------------------------------------------------------------------------------------------------------------- 105 7.2. Implementation ----------------------------------------------------------------------------------------------------------------------- 105 7.3. Transitional arrangements -------------------------------------------------------------------------------------------------------- 106 7.4. Changes to industry structure ---------------------------------------------------------------------------------------------------- 107 7.5. Market design reform --------------------------------------------------------------------------------------------------------------- 108 7.6. Regulation and market governance --------------------------------------------------------------------------------------------- 109 7.7. Sequencing ----------------------------------------------------------------------------------------------------------------------------- 110 7.8. Findings --------------------------------------------------------------------------------------------------------------------------------- 111 Appendix 1 – Terms of Reference ------------------------------------------------------------------------------------------------------------- 114 Appendix 2 – Modelling assumptions -------------------------------------------------------------------------------------------------------- 118 Electricity Market Review iv Options Paper A2.1 Energy and demand ---------------------------------------------------------------------------------------------------------------------