❓ The Minister for Energy provides an update on the electricity market review, highlighting past issues, current reforms including the Synergy/Verve merger, and future plans for full retail contestability and integration with the national energy market.
AnsweredQoN 209Legislative Assembly
QuestionView source ↗
ELECTRICITY
MARKET REVIEW
209. Mr P.T. MILES to the
Minister for Energy:
Could the minister please update the
house on the progress of the electricity market review?
MARKET REVIEW
209. Mr P.T. MILES to the
Minister for Energy:
Could the minister please update the
house on the progress of the electricity market review?
AnswerView source ↗
I thank the member for Wanneroo for
the question. When we came into government in 2008, the electricity system was
in a complete mess. A reform agenda was attempted by the previous government,
with the objective—quite a good objective—of taking the
pressure off prices. That was the whole objective. When we came to government,
the previous government of course had identified that it was going to increase
electricity prices by 10 per cent a year for a long period of time. There was a
huge increase in prices, and the subsidies paid to Synergy and Verve were
escalating. At that time, Verve was nearly on a path to bankruptcy. We
undertook some changes. We changed the vesting contract for Verve. We made
another change—we merged Synergy and Verve, which the opposition resisted
strongly. That is paying off. In the midyear review, we booked over $500 million
in terms of savings that in large part are coming from the merger of Synergy
and Verve.
But more needed to be done, so I
announced in March 2014 a review into the market structure to address the
issues and move forward. The review issued a briefing paper in July, and I now
table the report. The key thing it indicates is that from the time of the
disaggregation until 2013–14, the underlying cost of energy increased
by nearly 62 per cent. That is why electricity prices have gone up, and that is
why the subsidies to Synergy and Verve escalated from about $60 million to $70 million
at the time of disaggregation, peaking at $1.8 billion over a four-year period.
The report makes a large number of recommendations and indicates that there are
fundamental problems with that. I have set up a steering committee to direct
it. It recommends a couple of things. The first is that we move towards full
retail contestability—that is, remove the subsidy, not by large
increases in prices, but by decreasing costs. We are confident we can do that
through Synergy. We are confident that the reforms to the market will do that.
We have instructed the panel to advise us how to move to eliminate, in terms of
the forward estimates, the subsidies to Synergy and to move towards full retail
contestability.
That is a monumental change to the whole approach, and we
will achieve that by doing a number of things. Firstly, the system put in place
by the previous government pays people to build capacity and then sit on it and
do nothing. We have 20 per cent excess capacity in the market, with very
expensive generating units doing nothing, and the taxpayers and the government
and electricity users are paying for that. We are going to change that. We are
also going to move Western Power over to the national energy market. We are
doing that for a number of reasons. Primarily, it is because the electricity
poles and wires network is facing a technological revolution from the
introduction of solar power and batteries. We need to work with our colleagues
in the eastern states and learn how best to adjust that. Western Power also
inherited from the previous government a huge backlog in capital requirements—huge.
We have spent record amounts on Western Power, but more needs to be spent going
forward. We need to be able to have a regulatory system that provides that in
the most efficient manner.
So, we expect and look forward in
the not too distant future—because of the actions taken by this
government; resisted in full by everybody else—to move so that
consumers and small business will have a choice of suppliers.
the question. When we came into government in 2008, the electricity system was
in a complete mess. A reform agenda was attempted by the previous government,
with the objective—quite a good objective—of taking the
pressure off prices. That was the whole objective. When we came to government,
the previous government of course had identified that it was going to increase
electricity prices by 10 per cent a year for a long period of time. There was a
huge increase in prices, and the subsidies paid to Synergy and Verve were
escalating. At that time, Verve was nearly on a path to bankruptcy. We
undertook some changes. We changed the vesting contract for Verve. We made
another change—we merged Synergy and Verve, which the opposition resisted
strongly. That is paying off. In the midyear review, we booked over $500 million
in terms of savings that in large part are coming from the merger of Synergy
and Verve.
But more needed to be done, so I
announced in March 2014 a review into the market structure to address the
issues and move forward. The review issued a briefing paper in July, and I now
table the report. The key thing it indicates is that from the time of the
disaggregation until 2013–14, the underlying cost of energy increased
by nearly 62 per cent. That is why electricity prices have gone up, and that is
why the subsidies to Synergy and Verve escalated from about $60 million to $70 million
at the time of disaggregation, peaking at $1.8 billion over a four-year period.
The report makes a large number of recommendations and indicates that there are
fundamental problems with that. I have set up a steering committee to direct
it. It recommends a couple of things. The first is that we move towards full
retail contestability—that is, remove the subsidy, not by large
increases in prices, but by decreasing costs. We are confident we can do that
through Synergy. We are confident that the reforms to the market will do that.
We have instructed the panel to advise us how to move to eliminate, in terms of
the forward estimates, the subsidies to Synergy and to move towards full retail
contestability.
That is a monumental change to the whole approach, and we
will achieve that by doing a number of things. Firstly, the system put in place
by the previous government pays people to build capacity and then sit on it and
do nothing. We have 20 per cent excess capacity in the market, with very
expensive generating units doing nothing, and the taxpayers and the government
and electricity users are paying for that. We are going to change that. We are
also going to move Western Power over to the national energy market. We are
doing that for a number of reasons. Primarily, it is because the electricity
poles and wires network is facing a technological revolution from the
introduction of solar power and batteries. We need to work with our colleagues
in the eastern states and learn how best to adjust that. Western Power also
inherited from the previous government a huge backlog in capital requirements—huge.
We have spent record amounts on Western Power, but more needs to be spent going
forward. We need to be able to have a regulatory system that provides that in
the most efficient manner.
So, we expect and look forward in
the not too distant future—because of the actions taken by this
government; resisted in full by everybody else—to move so that
consumers and small business will have a choice of suppliers.
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