In the context of Western Australia, all details provided here refer to the South West Interconnected System (SWIS), which stretches from Kalbarri north of Perth, to Kalgoorlie-Boulder in the Eastern Goldfields and south to Albany. It represents 90% of the WA power market with total expected generation capacity of 5996MW in 2012-13. The estimated current system peak demand is about 4000MW and is forecast to rise by 3% per year over the next 10 years.
Western Power Corporation, the previous integrated State owned utility, was in April 2006 disaggregated into separate generation (Verve Energy), retail (Synergy Energy) and networks (Western Power) businesses supplying the SWIS, and the regional arm (Horizon Power) to manage the small North West Interconnected System and non-interconnected power stations around WA.
Alinta, which was split from Western Power's predecessor the State Energy Commission of WA to supply the gas market, was disaggregated into the transmission business (now Dampier Bunbury Pipeline) and distribution-retail business and privatised in 2002. The latter business, now part of the national Alinta Energy group, is engaged in electricity retail and generation in the SWIS. Synergy, Alinta and Perth Energy make up nearly 100% of the retail electricity market in the SWIS.
The current market arrangements in WA commenced in September 2006. The model differs from the National Electricity Market (NEM) by being a net pool based on separate capacity and energy markets. It is governed by the Wholesale Electricity Market (WEM) Rules 2004 as administered by the WA Independent Market Operator (IMO). WA is not interconnected to the NEM and will not be in the foreseeable future.
The WEM's capacity market is based on a system of capacity credits allocated by the IMO to all generators in the SWIS. Capacity must be certified by the IMO in order to receive the credits, which are a form of guaranteed capacity payment made by either contracted customers or the IMO. If paid by IMO, the price of capacity credits can change year on year in accord with the cost of establishing a new peaking power station and supply and demand conditions in the market. Energy is traded in the Short Term Energy Market (STEM), a net pool arrangement in that it is used mainly for trading uncontracted energy that is generated beyond the bilateral contracts between generators and retailers/loads.
All retailers and independent users must purchase capacity credits to match their peak demand plus a reserve capacity margin set by the IMO. This ensures sufficient capacity will be installed for the system peak demand in future years which the IMO forecasts and publishes annually. This model eliminates the requirement for extreme spot energy prices to signal the need for new capacity entry (as in the NEM). STEM prices are therefore capped at lower levels than in the NEM, at $200-300/MWh for gas fired and $400-700/MWh for liquid fired energy.
The number of contestable customers is approx 15,000, out of a total SWIS customer base of about 1 million. The contestable load demand threshold is 5.7kW, or 50,000kWh per year in consumption, about the size of a suburban deli. This market represents roughly two-thirds of total SWIS demand in volume and value terms, or over $1 billion.
There are 100,000 business (non-residential) loads in the SWIS and Perth Energy believes it is unfair that 85% of them are not deregulated to choose their own electricity supplier. Perth Energy continues to argue the case with the WA Government that the whole market, including residential customers, should be given this choice, which all customers enjoy in the NEM. Full retail contestability must be introduced into the SWIS as soon as practicable.