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energy reporter Daniel Mercer

Eastern states' energy ministers urged to look to WA for solutions to energy crisis

Fair winds have been blowing across WA's energy landscape for the past 15 years. (ABC News: Gian De Poloni)

For energy consumers in Australia's eastern states, the grim news and warnings of price pain have been flying thick and fast in recent times. 

First, it was a decision by the energy regulator to jack up benchmark electricity tariffs to 18 per cent from July.

Quickly following the announcement were revelations of chaos in the gas market, where authorities were forced to intervene to stop prices reaching stratospheric levels.

And finally came the exit of smaller electricity retailers in the face of the wholesale market turmoil, fuelling fears that household bills would soar as competition evaporated.

It's a bleak picture and experts are warning consumers not to expect any short-term relief.

But it's not the same everywhere in Australia.

In Western Australia, in fact, experts say consumers are enjoying some of the most stable and low-priced energy in the developed world.

Jeff Dimery is the chief executive of Alinta, a major energy company with generation and retail operations and 1.2 million customers across the country.

Mr Dimery said the contrast between the energy markets on the west and east coasts could not be starker.

Alinta chief executive Jeff Dimery says WA's energy system is a better market. (AAP: Darren England)

"There's a lot more stability on the west coast," Mr Dimery said.

"Firstly, [it has a] fundamentally different market design.

"There's a lot less volatility, the need for capacity is signalled well in advance.

'A lot more gas available'

New federal Energy Minister Chris Bowen is meeting his state and territory counterparts today to discuss ways of dealing with the east coast energy crisis, and Mr Dimery's advice is that he should look west for pointers.

At the heart of WA's industry is a domestic reservation policy for gas, which accounts for more than half of the state's energy needs, including about 40 per cent of its electricity generation.

Mr Dimery acknowledged that Alinta, which also has a major gas retailing arm, was a beneficiary of the reservation policy.

But he argued that the importance of gas to WA's economy – and to a lesser degree Australia's – meant it was imperative to have affordable supplies.

He contrasted that with the eastern states, where a lack of domestic obligations for gas producers had helped lead to shortages and prices that some claim could send manufacturers to the wall.

"And … you've had various east coast state governments put moratoria on gas exploration and production to varying degrees.

Unlike the eastern states, a domestic gas reservation policy applies in WA. (Supplied: Chevron)

"What we have is an absolute shortage of supply, whereas in the west there's been a number of new projects both onshore and offshore."

Stability is key: Minister

WA Energy Minister Bill Johnston said despite fierce resistance to the reservation policy from the gas industry, it was now uncontroversial.

Mr Johnston also noted that it removed conflict between producers and users because a share of project reserves — 15 per cent in WA's case — were set aside for the domestic market.

As well as the reservation policy, he said WA also benefitted from cheap coal supplies, which were not linked to international markets that have been trading at record highs.

"Coal is about 40 per cent of the market here in Western Australia compared with over 60 per cent of the market on the east coast," Mr Johnston said.

WA Energy Minister Bill Johnston says the state is reaping the benefits of hard decisions. (ABC News: Tom Edwards)

According to Mr Johnston, another way in which WA was able to keep a lid on prices was through state ownership and control of much of the electricity market and its separation from the rest of the country.

Mr Johnston said this allowed the state to move relatively quickly with policies that would help keep the system stable, such as building new transmission lines, more efficiently accommodating soaring amounts of rooftop solar or underwriting investment in large-scale generation.

"Obviously, it's very disappointing to see the difficulties unfolding on the east coast," he said.

"I don't envy Chris Bowen for inheriting this difficult set of circumstances."

Ensuring the lights stay on

Luke O'Callaghan, a partner at Perth-based law firm Lavan specialising in energy, said the final part of WA's energy success was its market design.

Unlike the eastern states, where generators are only paid for the power they produce, in WA they are also paid for being available when they are needed via what's known as a capacity market.

Mr O'Callaghan said the market amounted to a large insurance scheme that ensured there was always enough generation available to meet demand.

And to ensure consumers did not pay too much for their energy, he said there were also tighter price caps imposed on WA's wholesale market.

"In Western Australia, because we've got a capacity and energy mechanism, there's payment that recognises the value of capacity," Mr O'Callaghan said.

"That is the promise to deliver and the availability to deliver and payments that recognise the value of the delivery.

Commercial lawyer Luke O'Callaghan says policy uncertainty has crippled the east coast market. (Supplied: Lavan Legal)

"If people deliver on the promise, they get to keep that payment and they get revenue as well on a spot-price basis for energy that's actually provided.

Look west, Dimery urges

Mr Dimery said there was a lot the eastern states could learn from WA's decisions, which had often come out of the state's own crises.

Mr Dimery said efficiency had originally been the hallmark of the national electricity market (NEM), which services more than 10 million business and household customers across the eastern states.

But he said the market was no longer functioning as it was intended to — due to factors including a lack of policy certainty, a rapidly changing mix of generation, and states often wanting to go their own way.

As a result, he said the NEM could no longer claim to be an efficient market and the industry should look at WA for pointers.

"Absolute credit to the WA state government for the foresight that they've had and the policies that they've introduced," Mr Dimery said.

"There's been some that have criticised and said the market is not always efficient, but it is definitely more manageable.

From its own crises in the 2000s, WA's energy system has become more stable. (ABC News: Andrew O'Connor)
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