Wholesale Electricity Market
WHOLESALE ELECTRICITY MARKET
Electricity market opportunities
Wholesale Electricity Market (WEM) participants in Western Australia interact to supply and purchase electricity. The average electricity price on the WEM has increased significantly during the past 12 months, with “peak” periods progressively lasting longer and attracting higher prices, as can be seen in the heat map of the average power price for each half hour increment for each month since January 2021.
The heat map shows intervals coloured white (ie < $40/MWh) and light orange (ie < $60/MWh) have almost disappeared recently, and two daily peak periods of increasing duration and price levels have appeared.
Hourly WEM electricity prices by month Jan 2021 – Sep 2023; source: AEMO
Will WEM prices continue to be supported?
In August 2023 AEMO, which is responsible for managing the electricity and gas systems and markets across Australia, released its annual Electricity Statement of Opportunities (ESOO or Report).
This Report plays an important role in the Reserve Capacity Mechanism process on the WEM as it includes the 10-year Long Term Projected Assessment of System Adequacy for the SWIS. The primary purpose of the Report is to identify the investment in capacity from generation, storage, and demand side management needed to ensure a secure and reliable electricity supply for the SWIS over the coming decade.
The Report highlighted the urgency of advancing generation, storage, demand side management, and transmission projects to bolster reliability and support a rapid and orderly energy transition. Its findings emphasise the need for additional capacity procurement and expedited progress of capacity projects in the SWIS.
2023 WEM ESOO Reserve Capacity Target (RCT) and forecast capacity, illustrating the forecast gap
While there are several factors highlighted in the Report affecting both supply and demand, the key drivers are:
- Increased business, industrial and electrification (Demand) – Forecast demand has increased significantly due to growth in business electrification, along with growth in cooling load (air-conditioning), electric vehicles, and the expansion of industrial loads. Operational consumption is forecast to grow at an average annual rate of 5.6% and reach 30.3TWh per annum in 2032-33, a 72% increase compared to the 2022/23 estimate.
- Renewable Energy Transition (Supply) – the transition to deploy renewable energy has been accelerated significantly over the past 12 months. In September 2022 the Australian Federal Government legislated to lower emissions by 43% by 2030 and achieve net zero emissions by 2050. In WA, the State Government targets are to reduce government emissions by 80% below the 2020 level by 2030, and to meet net zero by 2050. This has seen the State Government announce the closure of coal fired power generation in WA by 2029. These factors have significantly accelerated the forecast reduction in supply compared to the 2022 WEM ESOO.
Reserve Capacity Credits – Reserve Capacity Credit payments are payments made by the Energy Market Operator to electricity generators to ensure there is sufficient generation capacity in the SWIS to satisfy demand at peak times. The Economic Regulation Authority of WA in December 2023 released its benchmark Reserve Capacity Payment (RCP) for 2026/27 of $230,000/MW. This is an increase of 19% over the 2025/26 RCP of $193,400/MW. This can be secured for five years. As solar energy is intermittent, it is probable a factor of around 10% would be applied to solar generation capacity, while a battery or a peaking power plant would have no such factor, as these would be able to provide power at peak demand times.
Large-Scale Generation Certificates – renewable energy producers in Australia with accredited power plants may create LGCs. This is effectively a government backed carbon credit. One LGC can be created per MWh of eligible electricity generated. The price of an LGC is currently around A$55 per unit and ranged between A$40 and A$68 over the past 12 months.