Capacity could be dropped in WA power struggle
The WA Government has released details of some options to end its reign as the state with the most expensive electricity.
Household bills could be reduced by passing the risk of investing in the market over to producers, in just one suggestion for the WA energy shake-up.
The Government’s review showed a lack of competition in the power market, with high fuel costs and excess generation capacity leaving just a few big players in the game.
Under the system as it stands, consumers are actually taking on a level of risk by paying power companies to hold excess capacity.
This happens because the Government pays to prevent blackouts by having power producers and retailers hold excess capacity, instead of having companies take on the risk of entering a market they assume has enough demand.
The Government pays hundreds of millions of dollars a year to give out capacity credits, which have become a critical part of many generators’ income.
The WA Government review panel said it is a system which does not exist anywhere else in Australia.
Review chairman Paul Breslin said in an interview with the ABC on the weekend that it needs to be changed.
“The capacity market relies upon the independent market operator doing a forecast two years ahead,” he said.
“They're forecasting excess demand and they're forecasting growth.
“This has been a strongly growing market in the past and they've forecast high levels of growth and they've gone out and procured capacity to meet those high levels.
“In fact that growth has not occurred, the market has flattened, partly because of solar on the peaks and also economic activity has declined somewhat.”
Some industry authorities said the so-called ‘capacity market’ was a comparatively minor driver of costs in the system.
But they warned that it is significant enough that radical changes to the system or its removal would send several companies to the wall.
The review panel is now taking submissions from the energy industry, and plans to hand over its final recommendations by the end of October.