Ky Cao, Perth Energy - SWIS market restructure and impact on consumers
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Ky Cao, Perth Energy - SWIS market restructure and impact on consumers

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Ky Cao, Managing Director, Perth Energy delivered this presentation at the 8th Annual WA Power & Gas Conference 2014. ...

Ky Cao, Managing Director, Perth Energy delivered this presentation at the 8th Annual WA Power & Gas Conference 2014.

The conference represents a timely meeting for the industry to hear about the current changes affecting the WA energy and electricity market.

For more information, visit http://www.informa.com.au/wapowerconf14

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Ky Cao, Perth Energy - SWIS market restructure and impact on consumers Ky Cao, Perth Energy - SWIS market restructure and impact on consumers Presentation Transcript

  •   WEM  Review  and   Consumer  Impact     WA  Power  &  Gas  Conference   March  2014      
  • –  Lower  Electricity  Costs   –  Encourage  private  investment   –  Reduce  government  subsidies   •  Verve-­‐Synergy  merger  locks  in  higher  costs,  deters   private  investment  and  raises  subsidies  to  Synergy   •  Merger  shocked  the  market  and  casts  sovereign  risk   shadow  over  WA   •  Merger  puts  the  cart  before  the  horse  and  will  hurt   consumers  unless  WEM  Review  overwhelms  its  negaAve   impact   WEM  review  objecGves  could  already   fail  before  review  starts  
  • SalvaGon  is  in  the  people  working  on   &  contribuGng  to  market  review   •  Minister  is  effecAve   •  New  Synergy  Board  &  Exec  Mgmt  are  quality   •  MIG  and  WEM  Review  Project  Mgmt  are   experienced   •  Market  ParAcipants  have  made  valuable   contribuAon   •  Time  will  tell  if  anything  comes  of  it,  but  hope   that  momentum  will  pick  up  to  crash  through   the  merger  cart  
  • 80.0 100.0 120.0 140.0 160.0 180.0 200.0 Sep-­‐1992   Mar-­‐1993   Sep-­‐1993   Mar-­‐1994   Sep-­‐1994   Mar-­‐1995   Sep-­‐1995   Mar-­‐1996   Sep-­‐1996   Mar-­‐1997   Sep-­‐1997   Mar-­‐1998   Sep-­‐1998   Mar-­‐1999   Sep-­‐1999   Mar-­‐2000   Sep-­‐2000   Mar-­‐2001   Sep-­‐2001   Mar-­‐2002   Sep-­‐2002   Mar-­‐2003   Sep-­‐2003   Mar-­‐2004   Sep-­‐2004   Mar-­‐2005   Sep-­‐2005   Mar-­‐2006   Sep-­‐2006   Mar-­‐2007   Sep-­‐2007   Mar-­‐2008   Sep-­‐2008   Mar-­‐2009   Sep-­‐2009   Mar-­‐2010   Sep-­‐2010   Mar-­‐2011   Sep-­‐2011   Tariff  &  Cost  Indices   SWIS  Business  Electricity  Tariffs  vs  Cost  InflaGon   CPI  All  Group   PPI  Manuf  Input   L1/L3   R3   S1   T1   Electricity  tariffs  have  risen  to  cover  past   cost  inflaGon  and  impact  of  mining  boom  
  • CompeGGon  has  worked   •  SWIS  contestable  market  $2-­‐2.5  billion  (60%  of  total   value),  13k  customers  (>1%  of  total  accounts)   •  Contestable  customers  pay  5-­‐15%  less  than  tariffs  –   $200  million  savings  per  year,  contribuAng  $1  billion   annually  to  WA  GSP   •  CapAve  customers  pay  full  tariff  increases  of  >65%   since  WEM  start   •  WEM  has  brought  in  $3  billion  of  private  sector   investment   •  SWIS  has  adequate  capacity  through  a  once  in  a   generaAon  mining  boom  
  • But  there  is  room  for  improvement  –   Supply  /  demand  in  SWIS  in  2013  SOO  
  • •  Excess  capacity  of  900MW  is  due  to:     –  Over-­‐forecast  of  demand  (due  to  mining  projects   that  did  not  take  off  &  to  subsidised  entry  of  Solar)   –  Over-­‐contracAng  of  base  load  capacity  by  Synergy   –  700-­‐800MW  of  poor  reliability  plants  that  have  gone   well  past  use-­‐by  dates   –  500MW  of  DSM   –  Fall  in  Grid  supplied  consumpAon  due  to  new  techs   •  Excess  capacity  is  not  large  once  poor  reliability   plant  &  DSM  are  taken  out  of  the  supply  bucket   Excess  capacity  
  • WEM  needs  more  efficient  pricing   •  Too  many  distorAonary  policies  and   programs  driving  up  cost  of  supply  to   consumers     •  STCs  and  STP   – MRET  is  an  effecAve  regime  to  lower  emissions   (2nd  best  to  a  full  emissions  market)   – But  early  STCs  and  STP  allow  poliAcal   intervenAon  to  cross  from  State  to  State  to  raise   the  costs  excessively  without  accountability  
  • Efficient  pricing  of  DSM   •  DSM  is  a  30-­‐year  old  concept  that  is  used  today  in  an   inappropriate  manner     –  Once  upon  a  Ame  State  owned  monopoly  uAliAes  could   only  charge  flat  tariffs   –  These  tariffs  could  not  afford  generators  to  supply  peak   energy  and  capacity   –  DSM  was  used  to  avoid  peaking  supply  costs   –  Now  we  have  Time-­‐of-­‐Use  tariffs  that  can  reflect  the   true  cost  of  peak  supply   –  If  peak  demand  persists  it  means  consumers  value  peak   supply  more  than  it  costs  or  peak  tariffs  are  not  cost   reflecAve  –  either  way  DSM  is  not  the  answer  
  • Efficient  pricing  of  DSM   •  If  using  peak  energy  is  a  crime,  DSM  is  like  a  paying  criminals  not   to  commit  crime   •  If  using  peak  energy  is  a  consumer  right,  then  the  market’s   prerogaAve  is  to  charge  cost  reflecAve  price  and  let  consumers   choose   •  Retailers  –  not  IMO  –  should  be  the  ones  buying  DSM  products  to   saAsfy  their  capacity  requirements  and/or  avoid  extreme  capacity   costs  if  they  trust  the  DSM  product   •  DSM  should  not  be  procured  by  IMO  as  IMO  does  not  face   commercial  pressure  to  impose  a  product  on  the  market  at  a   price  the  market  does  not  want   •  Paying  full  RCP  for  DSM  while  not  requiring  DSM  to  be  dispatched   every  day  into  balancing  market  (like  generaAon  capacity)  is   irraAonal;  it’s  forcing  off-­‐peak  users  to  subsidise  peak  users    
  • Efficient  pricing  of  RE  back-­‐up   •  Intermiient  renewable  energy  requires  fossil  fuel  generaAon   back-­‐up     •  On-­‐site  Solar  systems  require  Grid  back-­‐up  of  energy  and  capacity   •  This  stand-­‐by  supply  infrastructure  is  not  priced  adequately  in   Synergy  and  Western  Power  tariffs,  creaAng  large  unseen   subsidies     •  These  subsidies  deter  investment  in  R&D  for  more  reliable   renewable  energy   •  They  are  retrograde  income  transfers  from  those  who  cannot   afford  Solar  to  those  who  can   •  They  result  in  stop-­‐start  Government  policy  in  reacAon  to  poliAcal   and  budget  condiAons    
  • Efficient  pricing  of  new  capacity   •  Current  RCP  methodology  treats  infrastructure  investment  like   commodity  supply,  with  severe  annual  price  volaAlity  raising  the  cost  of   capital     •  IMO  should  publish  capacity  requirement  (RCR)  and  call  for  tender  for   any  shorjall,  bypassing  the  RCP  process   •  The  highest  tendered  capacity  price  (TCP)  is  paid  to  successful  bidders   up  to  RCR   •  This  would  avoid  current  situaAon  of  uncapped  cerAficaAon  of  capacity   based  on  an  administered  price  for  a  perceived  opAmal  peaking  plant   size   •  TCP  should  be  paid  for  5  years,  with  investors  receiving  a  new  TCP  at   end  of  term,  this  term  matching  the  usual  project  finance  debt  tenor   •  ExisAng  capacity  should  receive  the  first  5-­‐year  TCP,  calculated  as   average  of  RCP  up  to  latest  published  RCP,  from  the  year  the  capacity   entered  into  service  
  • Efficient  pricing,  together  with  FRC,  will  meet   WEM  review  objecGves  and  benefit  consumers   •  Efficient  pricing  will  eliminate  Government   subsidies,  encourage  private  sector  entry  and   provide  best  value  price  for  any  given  supply   product   •  This  works  best  in  a  fully  deregulated  market  where   there  is  nowhere  for  any  supplier  to  hide