Tariffs have increased substantially in the last several years due to a number of factors:
- Cost of installing power plant in the SWIS
- Cost of gas as a power generation fuel
- Cost of access to the transmission and distribution networks
- Cost of emission abatement schemes.
Power Plant Costs
The Independent Market Operator (IMO) is charged with ensuring there is sufficient power generation capacity in the SWIS into the future. Each year, the IMO compiles the costs of installing such capacity together with forecasting overall supply of and demand for power in the SWIS to assist market participants make decisions on investing in power supply. Between 2006 and 2011, the cost per MW supplied in the SWIS has doubled. This is the result of rising commodity prices and land and labour costs in WA, but particularly of much higher costs of accessing the transmission and distribution networks and of financing such projects following the GFC.
As we all know, the cost of petrol, diesel and natural gas have increased dramatically over the last half decade. This directly affects the cost of generating electricity. Demand for natural gas around the world has increased exponentially due to Asia’s economic growth and because burning natural gas in a power plant emits 60% less CO2 than burning coal. As demand goes up, so does the price and WA is not immune to these effects. The price of natural gas in the SWIS has risen by about 400% since 2003-04.
The costs of maintaining and augmenting the transmission and distribution networks have risen in the last 10 years for the same reasons. Replacing ageing infrastructure and expanding the networks to meet demand growth in the SWIS have placed mounting pressure on the cost of market participants accessing the networks, from the supply as well as demand side where customers are paying far higher network charges for delivery of electricity to their sites.
Renewable Energy Schemes
Like all other retailers in Australia, Perth Energy has an obligation to incorporate an increasing percentage of renewable power in our total supply of electricity. The Federal Renewable Energy Certificate (REC) scheme, introduced in 2000, has steadily expanded to now covering the large, conventional renewable energy plants such as wind farms and small distributed systems such as roof-top solar panels from residential buildings. As the cost of renewable energy supplies, whether from large plants or small homes, is many times higher than fossil fuel based energy supplies, these schemes have added new costs to power supply.
Given the cost pressures placed on the electricity supply industry in the last decade, electricity reform in WA has brought some relief to consumers in providing competition to the market. Without such reform, there would have been no supplier discipline and all cost increases (and more) would have just been passed through to consumers. Reform has ensured that the higher cost of supply is at least matched by more reliable and cleaner energy supply in the SWIS. There has been a 20-fold increase in renewable energy capacity in the market since 2004, and this will double again in the next year.