Western Australia positioned for a post COVID-19 electricity sector boom

On 2 April 2020, the WA Parliament’s Legislative Council passed the Electricity Industry Amendment Act 2019 (Amendment Act) as a part of its urgent COVID-19 legislation.

The WA Government’s decision to prioritise the Amendment Act saw this complex legislation passed following only around one hour of second reading debate in the Legislative Council, the State’s house of review.  Only One Nation’s Robin Scott MLC voted against the Bill, with it being supported by all other parties.  

The Amendment Act provides for two major reforms to Western Australia’s electricity sector, which are important contributions to Western Australia’s post-COVID-19 economic recovery. 

These are:              

  • In respect of the Pilbara, the Amendment Act provides for the establishment of a light-handed third party access regime for electricity networks in the Pilbara, which will give electricity customers choice of retailers.  The Amendment Act also provides for the establishment of an independent system operator to drive greater coordination between the Pilbara networks in terms of forward planning and system operations.
  • In respect of the South West Interconnected System (SWIS), the Amendment Act removes the regulatory barriers to Western Power’s adoption of standalone power systems in preference to traditional poles and wires, as well as the adoption of battery storage infrastructure. 

Pilbara Framework

Increased coordination of electricity networks in the Pilbara has been a priority of successive WA Governments.  The Amendment Act is the first time that this objective has found its way to Parliament.  

The Amendment Act amends the Electricity Industry Act 2004 (WA) to establish a two-step third party access regime, modelled on the National Gas Law.
 
Under the framework, a person may apply to the Minister for Energy for a coverage decision in respect of an electricity network where coverage criteria is satisfied.  Essentially, this three stage test requires the Minister to be satisfied that:

  • access or increased access to the electricity network would promote a material increase in competition;
  • it would be uneconomic to duplicate the electricity network; and 
  • access to the electricity network would not be contrary to the public interest.

Once a coverage decision is made in the affirmative, the next step would be for the Minister to determine whether full coverage or light-handed coverage should apply to the electricity network, which carries the prospect of greater or lesser requirements in terms of access and economic regulation obligations.
 
These obligations are to be contained in the Pilbara Networks Access Code, which will be established under the Electricity Industry Act 2004.
 
Third party access obviously means the prospect of retail competition in the Pilbara and the WA Government considers that this will put downward pressure on electricity prices in the Pilbara, assisting in the establishment of new projects in the Pilbara. 

Contestability is to be accompanied by a contestability threshold of 1,200 MWh per annum and a charge of 10 cents per kilowatt hour, which will have the effect of compensating Horizon Power for a proportion of the effect of competition on its fixed generation costs.  This means that the number of customers eligible for choice of supplier will be limited to 30 to 40 customers.  Over time, as the market matures, the WA Government has flagged that the contestability threshold will be reviewed.
 
The other important aspect of the Pilbara framework is the establishment of an Independent System Operator, which will be responsible for a range of tasks relating to system operations and management.

Changes in the SWIS

The Amendment Act amends the Electricity Corporations Act 2005 (WA), the Energy Operators (Powers) Act 1979 (WA) and the Electricity Industry Act 2004 (WA) to remove regulatory barriers to Western Power adopt battery storage systems as a part of its network operations function. 
 
This reform was described by the WA Government’s lead speaker in the Legislative Council as allowing Western Power to assist in stabilising the electricity network in view of the increased uptake of rooftop solar systems at the consumer and commercial and industrial customer level.
 
The Amendment Act also allows Western Power to replace aging network infrastructure with standalone power systems where economic to do so, allowing Western Power to recover its efficient costs for so doing under its access arrangement.  This is an important reform which will provide incentives for the deployment of low carbon technology and, in many cases, increases in the security and reliability of delivered electricity.
 
These changes gives the green light to Western Power coordinating a major transformation of the SWIS, and an associated ramp up in efficient capital investment.

Next Steps

The Amendment Act has been in the pipeline for some time and work in relation to the Pilbara reforms are well progressed. 

Stay tuned for more developments in this important area of reform.