energy white paper - western power and horizon power

8/13/2019 Energy White Paper - Western Power and Horizon Power

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ENERGY WHITE PAPERSUBMISSION COVER PAGEName: Gavin Forrest, Western Power and Frank Tudor, Horizon Power

Address: Western Power - 363 Wellington Street Perth WA 6000, Horizon Power, 18 Brodie Hall Drive,

Bentley, WA, 6102, Australia

Organisation (if any): Western Power and Horizon Power

Phone number: (08) 9326 4700, (08) 6310 1850

Email address: [email protected] , [email protected]

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Tania ConstablePrincipal AdviserResources and EnergyEnergy White PaperDepartment of Resources, Energy and TourismGPO Box 1564Canberra ACT 2601

June 11, 2009

Dear Tania,

RE: Joint Western Power and Horizon Power White Paper Submission

Western Power and Horizon Power both Western Australian Governmentowned utilities have collaborated to put forward a joint submission to the WhitePaper Secretariat. This joint submission conveys a number of broad themesrelating to Western Australia s energy future and how this could be consideredwithin the framing of a national energy policy to 2030.

Western Power is responsible for the distribution and transmission of electricity inthe south west of Western Australia in what is known as the South WestInterconnected System (SWIS).

Horizon Power is responsible for generating, procuring, distributing and retailingelectricity to regional WA outside of the SWIS. It manages one majorinterconnected system, the North West Interconnected System (NWIS), and overthirty diverse, non-interconnected systems in regional towns and remotecommunities.

Western Power and Horizon Power face a number of unique challenges due totheir relative isolation and the sheer physical distances between population,industry and load centres. Between them, Western Power and Horizon Powerservice the state of WA which occupies the western third of the Australiancontinent. This is a land area of around 2.5 million square kilometres. With aroundtwo million citizens, this equates to just under 10 percent of Australia's populationand includes a large minerals and energy industry in the northwest of the state thatprovides significant export earnings. Subsequently, the role of Western Power andHorizon Power is critical, not only for the state, but for the entire nation.

In this submission, we highlight a number of broad themes that pervade the entireenergy system. At a high level, any successful energy framework should seek tobalance the three imperatives of sustainability, security and prosperity. Thebalance between these three imperatives must always be carefully calibrated. Andwhile policy settings will be put forward in a Western Australian context, they havebroader applicability and are relevant in a national context as well.


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In addition to the detailed responses provided to individual questions found withinthe six discussion papers, we would like to highlight a number of key, thematicissues:

Any n at ional energy pol icy sho uld take in to cons idera t ion the imp act onavai labi l i ty and pr ic ing of energy resources a t the s ta te level .

I t is imp ortant to v iew Western Aust ra l ia separa tely whenever cons ider ingnat ional pol ic ies des igned predom inant ly for the NEM.

Any lo ng- term nat ional pol icy w hich con siders in ternat ional energy and gasmarkets sho uld take in to account l inks t o dom est ic use , especia lly as c l imatechange po l ic ies s tar t to favour the use of g as .

One of the key fu ture chal lenges in m ainta in ing c om pet i t ive markets wi l l bethe process of m arket and s t ructu ra l t rans i t ion tow ards a low-carboneconom y fol lowing tw o decades of deregula t ion and pr ivat isat ion ofelectricit y assets.

For regula ted bus inesses , there needs to b e appro pr ia te incent ives toincor pora te new techno logies and, mor e important ly, encou rage the uptakeof new technolog ies .

Concer ted effor t must be made to ensure tha t Austra l ia adopts the mo stsui table technical s tandards tha t govern th e research, development , anddeploym ent of new technologies .

While Western Power and Horizon Power share common interests in nationalenergy policy, there remain areas of difference. In providing this joint submission itshould be noted that each entity faces its own challenges and has flagged anumber of issues specific to its area of operations.

We thank you for the ability to participate in your regional consultations and theopportunity to provide a formal submission to the Secretariat. In addition, we

appreciate the extension given by Marie Illman to June 12, 2009.Yours Sincerely,

Gavin Forrest Frank TudorManager, Strategy GM, Strategy & BusinessDevelopment


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Map of Western Powers Electricity Network

The South West Interconnected System (SWIS) network consists of nearly 88,000kilometres of powerlines stretching from Kalbarri in the north, to Kalgoorlie in theeast and south to Albany. It is the largest interconnected network in Western

Australia and is one of the largest islanded electricity systems in the world.

Figure 1 Western Powers Electricity Network


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Map of Horizon Power s Service Area

Horizon Power s service area is 2.3 million square kilometres and covers theKimberley, Pilbara, Gascoyne, Mid West and southern Goldfields (Esperance)regions. Horizon Power is a vertically integrated organisation that manages onemajor interconnected system, the North West Interconnected System (NWIS), andover thirty diverse, non-interconnected systems in regional towns and remotecommunities. Its portfolio includes LNG, CNG, diesel, wind, solar, andhydroelectric power.

Figure 2 Horizon Power s Service Area


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The North West Interconnected System (NWIS) is the interconnected transmission network in thePilbara owned by Rio Tinto, Horizon Power, BHP and Alinta (Babcock and Brown). Electricity loadsin the Pilbara are expected to rise significantly over the coming years.

Figure 3 North West Interconnected System

There is currently no framework that facilitates investment in common user infrastructure, resultingin inefficient investment decisions, no open access for users, duplication of development, and theinability of asset owners to earn return from all users of their assets. Horizon Power supports the

urgent development of a framework that would facilitate equitable returns to asset owners andinvestors by way of a shared infrastructure approach.

Studies have suggested that an improved governance framework, coupled with appropriateinvestment in transmission infrastructure, would deliver the following results:

Ensure system security : System reliability and security will increase following the completionof a ring main and the implementation of a governance framework.

Reduce energy requirements : Desktop studies indicate that when compared to a gas pipelinewith isolated generation, an integrated transmission system with large-scale efficientgeneration would reduce daily gas consumption in the Pilbara by 186-573 TJ (for medium- tohigh-case scenarios, respectively) as of 2019. This equates to annual greenhouse gasemissions reductions of 1.3-3.1 million tonnes and a net economic benefit of $675 million to$2.2 billion.

Encourage resource development : The construction of the East Pilbara Link would enablesmall to medium-sized mining projects that could not economically justify isolated powergeneration, particularly in a capital-constrained environment.

Support regional development : The development of the Pilbara into an industrial hub thatcan sustain energy intensive industry (e.g., downstream processing) and the establishment of aPilbara city both require a reliable, cost-effective electricity solution that networked transmissionoffers.

Facilitate large-scale generation : Develop more efficient generation, including combinedcycle and solar thermal generation, which maximises the utility of the region s natural resources(piped gas, on-site dirty gas, solar, coastal water).


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commercial scale is now limited to pumping water into dams. The introduction of new storagedevices, facilitated by a smart network, would address many of the problems associated with theintegration of renewables into networks and could facilitate the majority of energy actually producedfrom renewable sources within a few decades.

The Pilbara, Mid West, and even the south coast of Western Australia could become renewableenergy centres, exporting energy over large distances. At present, the key issue for exploration isthe ability to commercialise any prospective discoveries. As such, the planning methodology fortransmission and distribution systems, which focuses on proximity to large fossil fuel reserves, willneed to be reconsidered.

The Pilbara is unique in that it is close to wind, wave and geothermal resources and to 90 percent of Australia s known oil and gas resources, has coastal access that could facilitate large-scalecombined cycle power generation and, importantly, has a world-class solar resource. As the cost ofcarbon increases and the cost of large-scale solar technology decreases, the Pilbara could becomea net energy exporter by 2030.

Question 3. What pre-competitive data is required to contribute to better energy resourcesexploration and development outcomes for renewable resources and non-renewable resources andcarbon storage in the period to 2030?

Response: An underlying policy committed to a comprehensive understanding of the nation'sresource potential should form the backdrop of strategies aimed at exploration and development ofthose resources. Data needed for exploration of geothermal resources, for example, is incompleteor unavailable, and projects such as Geothermal Energy under Geosciences Australia are neededto "access to targeted geoscience information [which] will lower the risk to explorers and investorsas well as facilitate the exploitation of this low-emission energy source". 2 Barriers to entry in bothexploration and development of renewable energy resources and deployment of related

technologies are high, especially to small players, and measures that lower risk and increasecertainty would address these issues.

Question 4. How can Australia encourage exploration in relatively under-explored frontier areas?

Response : The implementation of an extensive energy grid in the Pilbara, coupled with agovernance regime that allows for third-party access, could have a positive impact on thedevelopment of new projects in this resource-rich region, with a ripple effect on the explorationsector and the region s economy at large . The provision of a cheap, integrated power solution willremove the need for the large capital costs associated with isolated generation, thus lifting a majorbarrier to entry for small to mid-tier players. As mentioned earlier in this section, generation parks,otherwise referred to as connection hubs, could play a critical role in state development to promotenew energy centres throughout WA.

Question 6. What regulatory frameworks will be required for Australia s energy resources sectorthrough to 2030?

Response : It has been highlighted in a number of other forums that there is a convergence of gasand electricity markets. In WA, there are also the impacts of the convergence of the domestic andinternational gas markets, leading to debates over reserves of domestic gas. For businesscertainty, there must be a coherent state and federal approach to regulation of the exploitation of

Australia s abundant natural gas reserves. Fundamentally, this will require an agreed vision of howthe state and nation can best benefit from this natural resource.

2 http://www.ga.gov.au/minerals/research/national/geothermal/index.jsp


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There must also be careful consideration of unintended consequences of government policies. Forexample, as a result of the Carbon Pollution Reduction Scheme (CPRS), expanded RenewableEnergy Target (RET) and market incentives, it is expected that up to 2,000 MW of wind farms willseek connection to the SWIS, although not all of these applications will proceed to build stage. Thiswill have a pronounced impact on the system's operation, and the market framework may need tobe adapted to successfully accommodate this energy source. Furthermore, the implementation ofclimate change legislation will probably lead to an increase in the price of gas at the very time it isrequired for load-following purposes as the SWIS 3 experiences an increase in intermittentrenewables.

Energy is required to extract resources, and for this reason efficient power networks should bepromoted. Provision of energy across remote and off-grid areas, which are prevalent in Western

Australia, should not impede resource exploration and development, making an awareness of localconditions important to policy considerations. Slow approvals processes both at the state andfederal level have a flow-on effect in the energy industry where it converges with resource

development, making alignment of state and federal policy key to preventing the overlap andconflict that obfuscate intelligent and efficient resource development.

3 In order to maintain system frequency, within the prescribed limits, aggregate generation and load must bekept in balance in real time. Consequently, instantaneous changes in highly variable sources of generation,such as wind, must be balanced as they occur. The isolated nature of the SWIS means it is not able to altertie-line import levels to assist with frequency control.Baseload generation plant is slow-acting and therefore only partially able to carry out load-following duty.Load following is generally achieved by maintaining additional gas turbines in reserve to provide sufficientfast-response capability to accommodate the positive and negative changes in wind generator production.Given the spasmodic operational requirements of the load-following plant, it runs at very low efficiency, andhence high cost, compared to more regular use. Based on data from wind farms in the SWIS, Western

Power estimates that for current levels of almost 200 MW of wind capacity, around 60 MW of gas turbinecapacity would be required for load-following purposes.


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Governance institutional legal regulatory frameworks and

community engagement

Overal l Respo nse: Western Australia is home to two main electricity grids, theSWIS and NWIS, as well as a number of other smaller isolated power systemslocated throughout regional and remote parts of the state. None of these grids isconnected to the national energy market (NEM). For this reason, the WA electricitymarket (or, more accurately, sub-markets) is as much affected by internationalenergy prices as it is by events in the NEM, and any national institutional, legal orregulatory frameworks should reflect this.

As Western Australia faces a number of unique market and institutionalarrangements, it is important to view the state separately whenever consideringapplying national policies designed predominantly for the NEM. This will beimportant in any evolution of the current regulatory structures.

For new zones of industry, mineral exploitation and settlement, there needs to beappropriately framed regulatory boundaries and guidance. In the case of thePilbara and the organic evolution of the NWIS, as well as yet to be developedregions in the South West, this remains critical.

Question 1. Could institutional arrangements be further developed to assist in the transformational

task to 2030?Response : There are a number of reviews looking at the integration and expansion of renewablesinto the SWIS. As the levels of renewables increase, institutional structures will need to adapt toaccelerate their integration, rather than the current approach of reacting to issues after newrenewable energy sources are connected to the system. In this sense, a greater internal researchand coordination capacity of the Ministerial Council on Energy would help align national policyobjectives with the legacy of state-based systems.

There is currently no framework in the NWIS to facilitate investment in common user infrastructure.This has led to inefficient investment decisions, a lack of open access for users, duplication ofdevelopment, and the inability of asset owners to earn a return from all users of their assets. Aframework that would facilitate equitable returns to asset owners and investors using sharedinfrastructure therefore has obvious merits.

Question 2 : What regulatory, governance and rules frameworks best ensure an efficient investmentmix across a range of technology types, consistent with the needs of the energy market?

Response : Institutional and regulatory frameworks that favour market-driven decision making willby and large deliver the most efficient investment mix across a range of technologies. Policies andframeworks that narrowly pick winners, by contrast, can skew the energy mix to technologies thatdon't suit existing systems and therebore cannot deliver energy in the most reliable, secure, andeconomically-efficient fashion. Where government is involved in setting policy and makinginvestments, it should be very predictable, follow a long-term plan and not seek to distort marketprices and signals. An understanding of the nature of the energy industry, characterised by largeand lumpy investments with long lead time, is fundamental to rational regulatory systems. This will

be particularly important as newer renewable energy sources become commercialised.


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Recently enacted climate change policy has seen the accommodation of the current level ofintermittent generation in the SWIS without any major problems. At present, the dominantrenewable technology is wind. However, the potential for storage devices and base-loadrenewables may make some of these issues redundant in the medium to long term. While problemsassociated with wind are being addressed, the chief challenge remains the amount of windpenetration while it is the dominant technology and the time frame in which other renewables, withmore desirable system management characteristics, can be encouraged to connect to the grid.

The next stage of installed intermittent capacity in the SWIS will impose a much higher quantum ofcosts than has previously been the case. Thus costs and issues surrounding reliability issues areexpected to grow, as well.

Load-following and additional spinning reserve impose indirect costs on all participants in themarket, which reduces overall market efficiency. Capturing the cost of individual intermittentrenewable proposals may make the market processes more transparent and would provide greatervisibility for renewables with the lowest total cost, as compared to those renewables with the lowestdirect cost. This may be important for ensuring that existing solutions do not become entrenched asrenewable generation, such as geothermal, biomass and perhaps wave power, evolve..

Question 4 : Is there scope for further convergence of governance for electricity, gas, offshore andonshore energy resources?

Response : In Western Australia, the high penetration of gas generation on the SWIS and singlepipeline has meant a de facto convergence of gas and electricity issues. This was highlighted withthe Veranus incident. While complete convergence of governance may not be necessary, anychanges for either area should be considered in a broad context as there could be a number ofunintended consequences. There are also a number of energy security issues associated with theconvergence of previously separate systems.

Question 5 : Can government ownership of assets be reconciled with transparent decision-makingon regulation?

Response: The tension between government ownership of assets and transparency in regulatorydecision-making is acknowledged. These can be addressed through separations of functions (viadisaggregation or ring fencing ) that ensure conflicts of interest are avoided , or through anenhanced regulatory framework. Each option has associated costs and benefits, which need to beassessed with the particular market in mind. A one-size-fits-all approach will fail to address theunique characteristics of the WA markets.


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International Energy

Overal l Respon se: While Horizon Power and Western Power are both focusedon the electricity supply within Western Australia, a large number of their activitiesare influenced by the international trade in energy and the export of minerals.

As the international price of LNG has increased and the investment decisions oflarge LNG projects remain undecided, the proxy debate over servicing internationalor domestic markets has manifested in Domgas discussions over reservations fordomestic use. This issue is made less transparent by the lack of publicly availableinformation in the pricing of natural gas. This is mainly due to the lack of a deep,fluid spot market and the dominance of bilateral, commercial-in-confidence, long-term contracts.

While the issue of international energy is outside of the scope of both HorizonPower and Western Powers business focus, the provision of gas supplies to theSWIS from the North West Shelf and other offshore areas, and their link toelectricity supply, was made very evident in the June 2009 Varanus Island gasexplosion and subsequent gas shortages.

As illustrated by Varanus Island and the general convergence of gas and electricitymarkets, international issues are starting to have domestic impacts.

Any long-term national policy that considers international energy and gas markets

should take into account this link to domestic use, especially as climate change policies start to favour the use of gas.


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Investment Competitive Markets and Structural Reform

Overal l Respon se: One of the key future challenges in maintaining competitivemarkets will be the market and structural transition towards a low-carbon economyfollowing two decades of deregulation and privatisation of electricity assets.

Climate change policies will have impacts on physical energy flows, as well as onthe functioning of existing markets.

While a number of state and national studies are now focusing on the transitionalissues associated with climate change policies, there need to be mechanisms thatconsider the medium- and long-term impacts of such policies, especially astheoretical models are surpassed by practical experience.

Question 1: What are the key factors likely to affect domestic energy sector (for electricity, gas,transport) development to 2030? Consideration should be given to:

Energy security implications

Supply and demand growth

Direct and indirect impacts for the energy sector from carbon pollution reduction response

The role of financial markets

Response : In the SWIS, which is predominantly driven by household consumption patterns,population, load and peak growth remain the chief concerns for the domestic energy sector. Overall,the SWIS is indirectly affected by mining booms through population settlement, as compared to thedirect impact experienced by the NWIS. At a grid level, the rapid evolution of the penetration ofsmall scale renewables, distributed generation (DG) more broadly, and electric cars will shape theenergy sector in the coming decade. Smart grids, along with other technologies, will improvenetwork security, but the design and functioning of future networks remain very uncertain.

WA mining and industrial energy loads are greatly affected by macroeconomic factors such asglobal demand for iron ore, commodity prices, and foreign exchange. In the North West, theexpansion and development of mining projects in the Pilbara are directly linked to these factors andas such add complexity to electricity providers as long-term demand is highly volatile.

Western Australia is the most energy and gas-dependent economy in Australia. Naturalgas supplies half of the States primary energy requirements and fuels 60% of the Stateselectricity generation. In contrast, natural gas supplies 19% of the primary energy needs of

Australia as a whole. 4

WA's energy market is unique in its dependence on gas for generation. Domestic gas pricing hasquadrupled over the past decade although, until recently, electricity tariffs remained unchanged.The fact that the input costs have been variable while the output charge has been fixed has grosslydistorted the economic operation of the market. The introduction of the CPRS could exacerbate thisas will add another variable input, which is unlikely to be passed through on a variable basis. WA'senergy market would benefit from increased diversity of gas supply sources, along with shorterdevelopment times.

Question 4: What are the main impediments to long term investment in energy generation?

4 DomGas Alliance, Western Australia s Domestic Gas Security, 2009 Report


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Consideration should be given to:

Measures which might encourage generation investment in the future Management of the costs and risks associated with intermittent generation

Technology neutrality

Response: One of the major impediments to long-term investment in energy generation is lack ofbusiness certainty (such as is now being seen in the development and timing of CPRS legislation),which is closely tied to the availability of capital. There are also a number of existing regulatoryframeworks that do not allow new generation sources to connect quickly to the grid. The skewtowards larger generators, as opposed to aggregated smaller generators (or storage devices), maydeter smaller investments and actually encourage traditional types of investment, which are typicallylarge fossil-fuel plants.

In the NWIS, the private nature of some infrastructure has impeded development of a true network

in the Pilbara, which has serious ramifications for resource and regional development.

Question 6: What international and domestic factors will influence the competitiveness of thedownstream petroleum industry to 2030? Consideration should be given to:

The ongoing viability of the domestic refining industry

Competition in the wholesale market

Any barriers to investment in alternative transport fuels?

E nergy security implications

Response: Reliance on few sources of gas supply in Western Australia, along with the tyranny ofdistance, mean disruptions to domestic refining and processing have severe knock-on effects forthe entire state.

The explosion in 2008 at the Varanus Island gas processing plant, for example, cut the state'sdomestic gas supply by 30 per cent and cost the State billions of dollars 5. The remote regions ofthe state also rely heavily on liquid fuels (mostly diesel), which bear high transport costs, for bothprimary and backup generation. Investment in alternative liquid fuels for generation (such asbiofuels, or alternatives to liquid fuels altogether), as well as for transport, could also be consideredin the investment policy context.

Question 8: What are the benefits of common market arrangements across connected and nonconnected systems to 2030? Consideration should be given to:

Market design over the long term? Barriers to entry created by further integration and aggregatio n?

Integrated gas and electricity investment and operation?

Competition arrangements

Risks to competition, transparency and the consequential price effects associated with thechanging market structure?

Response : National policies should be adopted provided they are of benefit to all parts of thenation. Generally, national policies attract investment and lower transaction costs. However,consistency doesn't always mean better outcomes for Western Australia, where neither the SWIS

5 Source: http://www.dmp.wa.gov.au/7202.aspx ; sourcehttp://www.theaustralian.news.com.au/business/story/0,28124,25553215-36418,00.html]
http://www.dmp.wa.gov.au/7202.aspxhttp://www.dmp.wa.gov.au/7202.aspxhttp://www.dmp.wa.gov.au/7202.aspxhttp://www.dmp.wa.gov.au/7202.aspx


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nor the NWIS is connected to the NEM. Where national common market arrangements will benefitWA, they should be encouraged, so that in the absence of a physically connected market there aresimilar market instruments that would allow for greater use of secondary financial instruments as ameans of risk management, which is not possible in Western Australia now.

Question 9: What is the role of smart networks to 2030?

Response : A smart network that allows bi-directional flow of electricity and is able to manage,amongst other matters, small-scale distributed intermittent generation could address some of thecurrent reliability problems. Initially, a smart network may be able to handle a greater level of DGsolutions without disrupting the broader system.

Advanced metering infrastructure is also an essential component of a smart networks and helpstransform the customer's experience. The use of smart meters in houses, commerce and industrywill change demand and patterns of energy use, leading to valuable opportunities for customers andnetworks alike. Technologies are being developed to better manage network systems and reliabilityof supply, as more diversified forms of energy are connected to networks.

Cost, lead time, and technological integration are challenges that will temper unbridled enthusiasmfor smart networks.

Smart networks provide the following benefits to consumers and the community:

Reduce the impact and duration of system faults.

Offer consumers services such as remote billing, remote connection and disconnection andthe provision of real-time energy consumption data.

Excess telecommunications capacity can be used for regional and remote communityservices.

Smart networks offer these benefits to energy providers:

Enable remote monitoring and control of switching and metering devices in regionalsystems, giving real-time control of networks from a central location.

Reduce costs of servicing remote areas (through reduction in travel and related costs)

Demand side management (the ability to introduce peak- and off-peak tariffs and to managepeak load through load-shedding)

Question 11. What factors are likely to impact on the efficient operation of the electricity, gas andtransport retail sectors? Consideration should be given to:

Current arrangements and how to adapt to challenges to 2030 Those factors which might enhance or reduc e competition

Impact of gas and electricity market arrangements which may limit the emergence of demand -sideparticipation

The factors likely to shape the liquid transport fuel retail market in the period to 2030?

What are they and will they enhance or reduce competition?

The role of end use.

Response : At a high level, consideration should be given to the benefits nationally of all jurisdictions moving to cost-reflective pricing at all levels of electricity sales and removingimpediments to passing costs through the system. Furthermore, time-of-use and fully variablepricing will be possible as smart networks become commonplace and as new metering supports this


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kind of pricing mechanism. Bundling of services to remote communities will also be made possibleby such increased efficiencies.

Question 12 : How should demand side arrangements be most effectively structured acrosselectricity, gas and liquid fuel markets to reduce energy use to 2030? Consideration should be givento:

Demand side participation

Impact on fuel demand and domestic refining capacity

Impact of vehicle technology developments on fuel demand and the fuel mix

Future energy use patterns, such as electric vehicles, combined heat and power and micro -turbinetechnology

Response : The WA Wholesale Electricity Market (WEM) currently provides market-basedincentives for DSM services. These are chiefly focused on large users that can turn off whenrequired. The emergence of aggregators at the small industrial, commercial and household levelmay make the functioning of DSM services much different in the future.

Smart grids, electric vehicles, and other potential energy storage systems will be successful if theycan integrate into existing infrastructure and systems. How electric vehicles are regulated, alongwith the standards for charging, discharging and potentially ancillary or frequency-keeping roles,could determine the rate of adoption.

While the adoption rate of electric cars, and whether they will become a meaningful component ofthe total car fleet, are unclear, a very small, but concentrated adoption, may soon have an impact atthe feeder and sub-station level, with potentially large liability issues arising, especially if levels offunctionality and service have to be curtailed.


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Maximising the value of technology in the energy sector

Overal l Respo nse: While the electricity system has not changed greatly over thecourse of the past century, there could be radical changes over the period to 2030.

Perhaps more than any part of the energy sector, electricity systems will benefitfrom adoption of a range of new technologies which are likely to emerge. While

picking winners can result in disastrous outcomes, it should be recognised thatthere is an important balance between the optimal mix of market forces and central

planning for assets which have a life span of up to five decades.

In terms of new technologies such as electric cars, Smart Grids, Smart Meters,distributed generation, storage devices, the key issues include:

Regulated Assets : One of the big issues with new technologies, especiallydisruptive technologies, is the creative destruction of existing businessmodels and the need for all businesses to respond.

For regulated businesses, there needs to be appropriate incentives toincorporate new technologies and, more importantly, encourage newtechnologies to be utilised.

The regulation and treatment of new technologies of a range of items suchelectric cars and distributed renewable generation should be consideredwell before they start to become common consumer items.

Standards : Australia and Western Australia will never set global technicalstandards for new technologies. Accordingly, there needs to be a concerted effortto ensure that both the nation and WA adopt the most suitable technical standardsand there do not become internal competing standards, especially forinfrastructure.

Question 1 : What does the Australian community want the energy technology mix to deliver in2030? Consideration could be given to the following:

Conventional technologies New and emerging technologies Energy storage systems Demand reduction and energy efficiency Synergies between technologies The cost of maturating each technology and their timing.

Response: The energy needs of the future will keep on rising. We live in a society that isincreasingly dependent on electronic technology for every facet of daily living, but whoseenvironmental awareness is also increasing. The result of this tension will probably yield asignificant rise in energy demand over the coming decades coupled with a change in the fuel mixthat supplies that energy. At present, intermittent renewable penetration is generally limited to 15-20percent of an interconnected system. Until this technological barrier is broken (through advances instorage technologies and high-penetration renewable-hybrid systems), combined cycle gas turbines


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will serve as an interim solution that provides reliable base-load generation with relatively lowemissions. The alternatives to gas would be coal-fired power stations with carbon capture andstorage, nuclear power stations or geothermal energy. It is improbably these will be more attractiveto Western Australia in the near term than gas. If, along with technological advances, renewablegeneration offers reliability and cost that are close to those of gas, it will dominate the fuel mix.

Consumers will want more control over their energy consumption in order to minimise their costs(assuming a time-of-use tariff is introduced) and carbon footprint. Energy efficiency and other DSMsolutions reduce or delay capital expenditure and may also reduce greenhouse gas emissions.Western Australia is strongly affected by its summer peak, which is most prevalent in the Pilbara.Demand-side response, electric vehicles and energy storage would reduce the need for capitalexpenditure that addresses peak load.

Government should facilitate these initiatives by rolling out a smart grid throughout Australia; byenforcing common energy standards and communication protocols in all energy-intensiveappliances (such as air-conditioners, refrigerators, boilers and heaters); by subsidising energy-efficient appliances (with energy ratings) and building products (insulation) or incentives (audits);and by offering attractive interruptible supply arrangements to households, as well as to industry.These measures would largely shift demand, rather than reduce it. Demand can only be reduced bya larger change in consumer behaviour. It is too early to tell whether consumers will adapt tochange or prefer to pay more for status quo demand levels.

Question 3 : What key global energy technology initiatives strategically fit Australia's interests andwhat part will Australia need to play in these (if any) to ensure access to emerging technologies?

Response: Western Australia has significant solar, wave, wind and geothermal resources. Whilethere are few areas where large-scale generators are needed, it will be the scaled-down versions offuture renewable generators that are of most interest to the State. Given the large distances and

significant network costs for relatively small loads, it is the application and scalability that is of moststrategic importance to Australia.

Australia has one of the best solar resources on earth. However, solar power generation is stillsignificantly uneconomic (even after factoring in RECs and CPRS). Government should encourageinvestment in technologies and manufacturing processes that reduce the costs of solar-thermal andphotovoltaic installations. Additionally, investment in storage technologies, including the facilitationof plug-in electric vehicles (whose batteries can be used for distributed storage), would allow for ahigher penetration of intermittent renewable generation onto the grid.


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energy white paper - western power and horizon power

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