FINAL REPORT V2 Prepared For: Western Power 363 Wellington Street Perth, WA 6000 Reinforcement Options for the North Country Region Public Version [Note: Correction to description of Option 10 in Table 6] Prepared By: CRA International Level 31, 570 Bourke Street Melbourne VIC 3000, Australia Date: 30 March 2007 CRA Project No: D10465-00 Authors: Deb Chattopadhyay, John Fazio, Jeremy Hornby Reinforcement Options in the North Country Region 30 March 2007 DISCLAIMER CRA International and its authors make no representation or warranty as to the accuracy or completeness of the material contained in this document and shall have, and accept, no liability for any statements, opinions, information or matters (expressed or implied) arising out of, contained in or derived from this document or any omissions from this document, or any other written or oral communication transmitted or made available to any other party in relation to the subject matter of this document. The views expressed in this report are those of the authors and do not necessarily reflect the views of other CRA staff. Final Report v2 Page i Reinforcement Options in the North Country Region 30 March 2007 TABLE OF CONTENTS EXECUTIVE SUMMARY .................................................................................................. 1 1. INTRODUCTION........................................................................................................ 4 1.1. THE REGULATORY TEST .................................................................................................4 1.2. OUTLINE OF THE REPORT ...............................................................................................5 2. NORTH COUNTRY REGION SUPPLY-DEMAND SITUATION ................................ 6 2.1. OVERVIEW OF THE NORTH COUNTRY REGION NETWORK .................................................6 2.2. CONSTRAINTS ................................................................................................................8 2.3. NEED FOR REINFORCEMENT IN THE NORTH COUNTRY REGION.........................................9 2.3.1. Demand outlook ........................................................................................................... 9 2.3.2. Supply outlook............................................................................................................ 14 2.3.3. Supply-demand situation............................................................................................ 17 3. METHODOLOGY FOR ASSESSING AUGMENTATION OPTIONS ....................... 19 3.1. REGULATORY TEST REQUIREMENTS ..............................................................................19 3.1.1. Net benefits ................................................................................................................ 19 3.1.2. Reasonable alternative options .................................................................................. 20 3.2. HYPOTHESIS TO BE TESTED ..........................................................................................20 3.2.1. Rationale for a rank ordering approach ...................................................................... 20 4. OPTIONS AND SCENARIOS .................................................................................. 22 4.1. OPTIONS......................................................................................................................22 4.1.1. Transmission augmentation options........................................................................... 22 4.1.2. Generation options ..................................................................................................... 24 4.1.3. Demand side management options............................................................................ 25 4.2. SCENARIOS..................................................................................................................28 4.2.1. Demand scenarios ..................................................................................................... 28 4.2.2. Discount rate scenarios.............................................................................................. 28 4.2.3. Modelling period......................................................................................................... 29 5. EVALUATION OF COSTS AND BENEFITS BY SCENARIO .................................. 30 5.1. LOW DEMAND (ORGANIC GROWTH) ................................................................................30 5.1.1. Discount rate of 6.6%................................................................................................. 30 5.1.2. Discount rate of 2.5%................................................................................................. 34 Final Report v2 Page ii Reinforcement Options in the North Country Region 30 March 2007 5.2. HIGH DEMAND ..............................................................................................................35 5.2.1. Discount rate of 6.6%................................................................................................. 35 5.2.2. Discount rate of 2.5%................................................................................................. 39 5.3. CENTRAL DEMAND .......................................................................................................39 5.3.1. Discount rate of 6.6%................................................................................................. 39 5.3.2. Discount rate of 2.5%................................................................................................. 41 5.4. SUMMARY OF SCENARIO ANALYSIS ................................................................................41 6. CONCLUSION ......................................................................................................... 42 APPENDIX A: DOCUMENTS REVIEWED ..................................................................... 43 APPENDIX B: ESTIMATING A SOCIAL DISCOUNT RATE........................................... 44 APPENDIX C: COMPLIANCE WITH THE NEW FACILITIES INVESTMENT TEST (NFIT) .................................................................................... 48 C.1 THE NEW FACILITIES INVESTMENT TEST........................................................................48 C.2 INTERPRETATION OF SECTION 6.52(A)...........................................................................49 C.3 INTERPRETATION OF SECTION 6.52(B) ...........................................................................52 C.3.1 Test (i) – incremental revenue test ............................................................................. 52 C.3.2 Test (ii) – Net benefit justifying higher reference tariff ................................................ 54 C.3.3 Test (iii) – reliability..................................................................................................... 54 C.4 CONCLUSION ...............................................................................................................55 TABLE OF FIGURES Figure 1: Overview of North Country Region ...................................................................................6 Figure 2: Forecasts for peak load in NCR (diversified with N-1 losses and north of Eneabba and Muchea) based on natural load with and without all block loads ...................................................11 Figure 3: Supply-demand situation based on natural load growth 1997/98 to 2015/16.................18 Figure 4: NCR 2% Load Duration Curve (1 Nov 2005 – 31 Oct 2006) ..........................................25 Figure 5: Load Profiles for Five Highest Demand Days in Summer 2005/06 ...............................26 Figure 6: Impact of Temperature on NCR ZS Load (excludes losses) .........................................27 Figure 7: Low demand scenario: Estimated peak capacity and demand up to 2030.....................31 Figure 8: High Demand Scenario: Estimated peak demand and capacity up to 2030...................36 Final Report v2 Page iii Reinforcement Options in the North Country Region 30 March 2007 Figure 9: NCR Load forecast versus Generation - Peak forecast north of Eneabba/Muchea with N-1 losses.......................................................................................................................................38 Figure 10: Central demand scenario: Estimated peak demand and capacity to 2030...................40 Figure 11: Comparison of NFIT demand forecast with Regulatory Test scenarios .......................50 TABLE OF TABLES Table 1: Summary of transmission options considered....................................................................2 Table 2: Summer diversified peak load NCR 2005 ..........................................................................8 Table 3: Potential new block loads.................................................................................................10 Table 4: Potential new generation options .....................................................................................16 Table 5: Transmission options considered.....................................................................................23 Table 6: Generation options considered ........................................................................................24 Table 7: Low growth - NPC of Options 1-7 with discount rate of 6.6% ($m)..................................30 Table 8: Low demand forecast; potential role for DSM ..................................................................34