I OVERVIEW

The South West Interconnected System (SWIS) and the North West Interconnected System (NWIS) are the electricity grids that service large portions of Western Australia (WA). However, WA's extreme geographical spread coupled with its relatively small population necessitates the use of off-grid stand-alone generation power supplies to isolated customers.

Similarly, the remainder of Australia is serviced by large-scale electricity grids (including a very large interconnected electricity grid across the eastern seaboard of Australia connecting Queensland, New South Wales, Victoria, Tasmania and South Australia, known as the National Electricity Market or the NEM) and supported by off-grid power supplies. The regulation of these grids is not the subject of this chapter.

Within WA, the 'on-grid' energy market has three main regulators, which seek to ensure the energy market operates in a competitive, efficient, fair and commercial manner. These regulators are: the Independent Market Operator (IMO), which is performed by the Australian Energy Market Operator (AEMO); the Economic Regulation Authority (ERA); and the Clean Energy Regulator (CER).

Stand-alone generation facilities that provide electricity directly to customers, rather than through the NWIS or SWIS, are exempt from some regulatory measures (particularly those relating to market regulation) but are still subject to certain licensing regulations overseen by the ERA.

While it is the state government that sets the retail price of electricity, it is the ERA that plays a major role in the electricity supply chain in WA, including:

    1. approving access arrangements for the SWIS, which set out the price, terms and conditions on which Western Power (as network owner) can charge generators and customers to access the SWIS transmission and distribution services;
    2. administering the licensing regime, which involves issuing licences to entities generating, transmitting, distributing or retailing electricity, monitoring and enforcing compliance with licence conditions and approving customer protection measures; and
    3. monitoring the effectiveness of the market and reporting to the Minister for Energy about the behaviour of participants in the wholesale energy market (WEM) (the market where retailers buy electricity from generators) to make sure that they are complying with market rules.2

In 2014, the Minister for Energy oversaw the Electricity Market Review (the 2014 Review), which was designed to assess the current industry structure, regulatory arrangements and options for reform. The overarching objectives of the 2014 Review were to reduce the cost of production and supply of electricity (without compromising safe and reliable supply) as well as to reduce government exposure to energy market risks. Following the outcome of the 2014 Review, the government has set out to facilitate long-term stability in the electricity industry and encourage continued investment from large private-sector participants.3

Natural gas and coal-fired power stations remain the major source of electricity generation capacity in WA; however, the abundance of solar and wind energy throughout WA, and the continued improvement in the technological efficiency of renewable energy as well as the increase in providers of battery storage to support the reliability of renewable energy, provides the perfect platform for expanding the utilisation of alternative forms of energy. In fact, by 2016, WA had over 200,000 solar arrays installed, the sheer volume of which means that solar power already comprises the state's de facto largest power station.4 WA's rooftop solar capacity is only set to increase, with predictions from Energy Networks Australia stating that up to 44 per cent of WA's energy could come from renewable energy sources by 2030.5 As such, this chapter will focus on the energy regulation of renewable electricity generation facilities including solar, wind and battery storage.

II REGULATION

i The regulators

The AEMO is an industry-funded organisation that oversees the functioning of the WEM and was created by the Council of Australian Governments and governed by the National Electricity Rules. It monitors participant compliance with the WEM rules, investigates potential breaches and initiates enforcement action where appropriate pursuant to the National Electricity Rules. The AEMO also sets the capacity price that uncontracted generators will receive for making their capacity available to the market.6

The ERA is established under the Economic Regulation Authority Act 2003 (WA) as an independent statutory authority designed to oversee the energy industry in WA and ensure that all parties abide by the relevant regulations. It issues licences to providers of various sources of energy, including electricity. In addition, the ERA monitors and publicly reports on industry performance, including the WEM; taking enforcement action when required. It also has authority through various codes7 to approve contracts and service standards that protect residential and small business electricity, gas and water customers and assess the performance of utilities in relation to the treatment of customers experiencing financial hardship.

The Clean Energy Regulator Act 2011 (Cth) established the CER, a non-corporate Commonwealth entity for the purposes of the Public Governance, Performance and Accountability Act 2013 (Cth). As an independent statutory authority, the CER is comprised of the chair and members, who set the 'strategic direction'8 for the agency's administration of its regulatory schemes. The role of the CER is to administer climate change law legislated by the Australian government to measure, manage, reduce or offset Australia's carbon emissions.9 Accordingly, the CER has administrative responsibilities for the National Greenhouse and Energy Reporting Scheme (NGERS) under the National Greenhouse and Energy Reporting Act 2007, the Emissions Reduction Fund (ERF) under the Carbon Credits (Carbon Farming Initiative) Act 2011, the Renewable Energy Target (RET) under the Renewable Energy (Electricity) Act 2000, and the Australian National Registry of Emissions Units under the Australian National Registry of Emissions Units Act 2011.10

ii Regulated activities

Pursuant to the Electricity Industry Act 2004 (WA) (the EI Act), there is a legal requirement to obtain different classifications of electricity licences from the ERA where you intend to:

    1. construct or operate generating works;
    2. construct or operate a transmission system of a voltage of 66kV or higher;
    3. construct or operate a distribution system of a voltage of less than 66kV;
    4. sell electricity to customers; or
    5. construct or operate any combination of generation, transmission, distribution and retail activities for the purpose of supplying electricity to customers other than through the SWIS.11

However, there are also certain activities in the electricity industry that fall outside the scope of the licensing requirements under the EI Act and do not require a licence; these include:

      1. self-supply: where the generating works, transmission system or distribution system is to be used solely for the supply of electricity for consumption by the person who owns, controls or operates the works or system or a related body corporate of that person; and
      2. where the sale of electricity is to a person who is not the end-use customer; for example, a generator who sells electricity solely to retailers is not required to hold an electricity retail licence.

Where a licence application is made to the ERA in the form prescribed by the EI Act, the ERA must, within 90 days, grant or renew the licence or approve the transfer of a licence if it is satisfied that the applicant has, and is likely to retain, the financial and technical resources to undertake the activities authorised by the licence. When exercising this power, the ERA is required to consider the overall public interest, including but not limited to considerations involving the environment, social welfare and equity, economic and regional development, and the interests of customers generally.12

iii Ownership and market access restrictions

The Electricity Networks Access Code 2004 (the Access Code) is established under the EI Act and provides the framework for the independent regulation of certain electricity networks in WA.13 The objective of the Access Code is to promote efficient investment in, and operation and use of, networks and services of networks in WA and to promote competition in electricity retail and wholesale markets.14 The Access Code allows a 'coverage application' to be made to the Minister for Energy requesting that the whole or any part of an electricity network be covered. If a network is covered, it is deemed to be regulated and must have an approved access arrangement in place that sets out the terms of access to the network, including the conditions and prices that apply to the covered services of the network.

Service providers of a regulated network must submit their own access arrangement information to the ERA, which allows:

    1. the ERA, users and applicants to understand how the service provider established the proposed arrangement; and
    2. the ERA to form an opinion as to whether the proposed access arrangement complies with the Access Code.15

Currently, the SWIS is the only regulated network in WA and Western Power is the service provider.

iv Transfers of control and assignments

Where a proposed acquisition may have the actual or likely effect of substantially lessening competition in the market, approval of the proposed transaction may be required under the Competition and Consumer Act 2010 (Cth) from the Australian Competition and Consumer Commission (ACCC). The ACCC may provide either formal or informal clearance, with clearance typically taking up to three months. Alternatively, the Australian Competition Tribunal may grant authorisation based on a 'net public benefit test' where satisfied that the proposal is likely to result in such a benefit to the public that it should be allowed to occur, even if it is likely to substantially lessen competition in the market.

The ACCC has previously expressed concerns about the accumulation of market power through merger activity in the electricity sector, as well as the potential for anticompetitive conduct to ensue from vertically integrated structures.16

Those investors who are either based overseas or owned by a foreign entity must apply to the Foreign Investment Review Board (FIRB) for approval from the Federal Treasurer where they are seeking to acquire a 'substantial interest' in an Australian company (i.e., 20 per cent or more), assets of an Australian business or Australian land. The acquisition of electricity generation or distribution assets in WA by foreign persons and companies is likely to trigger a requirement for FIRB approval. Once FIRB is notified, the board will consider the proposed transaction and assess whether it is against the 'national interest'. New requirements introduced in 2016 allow FIRB to consult with other government departments to determine whether the proposed transaction is within the national interest. The Australian Taxation Office and the ACCC are among the departments that have been actively assessing foreign investment proposals.17

On the recommendation of FIRB, the federal Treasury may then issue a notice of no objection or, where the transaction is against the national interest, disallow the proposed transaction, or impose conditions on how it may be conducted.18 The FIRB approval process generally takes 40 days from the time the application is made; however, FIRB may extend this period for complex applications.

III TRANSMISSION/TRANSPORTATION AND DISTRIBUTION SERVICES

i Vertical integration and unbundling

There is a significant degree of vertical integration in WA with Synergy, a state-owned corporation, owning or controlling the majority of generating plants on the SWIS while also supplying over half of the state's consumable load.19 Western Power, as another state-owned entity, then owns and operates the distribution network.

Similarly, the NWIS operates though a vertically integrated model, with Horizon Power (also a state-owned entity) being responsible for the generation, procurement, distribution and retail of electricity to customers in the NWIS. The NWIS is owned by significant users of the electricity network: Horizon Power, Alinta Energy, BHP Billiton, Pilbara Iron (Rio Tinto) and ATCO Australia.

ii Transmission/transportation and distribution access

Pursuant to Chapter 12 of the Access Code, Western Power sets the technical rules for the SWIS in terms of transmission and distribution. These rules establish various performance and technical requirements relating to the power transmission and distribution systems.20 As a network provider, Western Power is responsible for approving the connection of new 'embedded' generation systems to the SWIS. A system can only be connected once all of the applicable connection eligibility criteria have been met, as a means of ensuring that the quality and reliability of supply is of an appropriate standard. The connection of new generation systems may also be subject to the completion of overall network upgrades or the installation of new infrastructure to ensure network capacity is large enough to service the additional generation capacity and community and industrial demand. Therefore, the approval process depends on the size of the system to be embedded and the capacity of the network in the region where it will be installed.21 In 2016, Western Power amended its technical rules, making it easier for commercial solar photovoltaic systems to be installed both onto rooftops and into its network by removing the requirement for a technical review where certain criteria are met. These changes are expected to significantly reduce the cost of commercial-scale rooftop solar installations and are intended to enable the next phase of the solar revolution.

Similarly, Horizon Power sets the technical rules for the NWIS and non-interconnected systems in the north of WA. Renewable electricity generators seeking to distribute their electricity through the NWIS are required to complete a Renewable Energy Electrical System Connection Application Form. This application allows Horizon Power to assess whether the facilities meet the technical requirements and provides an opportunity for electricity generators to participate in Horizon Power's Renewable Energy Buyback Offer (discussed below). If the application is accepted, it forms the basis of the contractual relationship between Horizon Power and the generator.22

iii Rates

Pursuant to the Electricity Industry (Licensing Conditions) 2005 (the Electricity Licensing Conditions), WA government-owned retailers must offer eligible customers a buy-back scheme. This ensures that residents, schools and non-profit organisations with renewable energy systems can sell their excess energy to Synergy (a state-owned enterprise that sells electricity to retail customers in the SWIS) and Horizon Power. Subject to specific requirements, the retailers establish their own terms and conditions (including rates) for buying excess energy and are responsible for running the Renewable Energy Buyback Scheme (REBS). The objective of the REBS is to provide eligible customers who own renewable 'systems' with a framework to sell the energy that their systems export and to ensure owners receive 'fair and reasonable' terms, conditions and rates for exported energy.23

The Electricity Licensing Conditions define an eligible customer as:

    1. a residential customer who consumes not more than 50MWh of electricity per annum;
    2. a customer that is a school, university or other educational institution; or
    3. a customer that is a non-profit-making organisation.

Retailers may also, at their discretion, choose to accept customers into the REBS who do not ordinarily meet the minimum requirements of the regulations. For example, Horizon Power offers REBS to its commercial customers.

The terms and conditions, as well as buy-back rates, vary between retailers and are subject to change as a consequence of ordinary market pressures. Accordingly, the Public Utilities Office is required to conduct reviews of all terms and conditions to ensure that all contracts, including the buy-back rates, are 'fair and reasonable', by weighing up:

    1. the wholesale cost of electricity for the retailer;
    2. line-loss reductions provided by distributed renewable energy;
    3. peak reductions provided by distributed renewable energy;
    4. capacity benefits provided by renewable energy; and
    5. the costs to retailers in running REBS.24

Ultimately, this formalised process is designed to protect customers who are dealing with retailers that operate in a traditionally monopolised market. That said, the general consensus among the public is that the buy-back price is very low and does not incentivise the installation of larger-scale private renewable energy systems. The challenge going forward is to improve the desirability of renewable energy when considering the factors noted above so that the network providers are driven to seek out and support renewable energy generation to meet their capacity requirements and thus increase the buy-back price they are willing to offer.

iv Security and technology restrictions

As a general principle, all primary equipment on the transmission and distribution system must be protected so that if an equipment fault occurs, the faulted item is automatically removed from service by circuit breakers or fuses. Protection systems must be designed so that, if there is a fault, unnecessary equipment damage is avoided and any reduction in terms of power transfer capability or level of service to users is minimised.25

The scale and changing nature of electricity networks now dictates that security is of greater significance. The roles of key electricity sector stakeholders are changing with a gradual shift toward a shared responsibility for network security, with customers becoming generators that use distributed generation technologies, and vendors assuming new responsibilities to provide advanced technologies as well as their own security mechanisms. With these changes, all stakeholders are becoming responsible for ensuring the continued overall security and resilience of the broader grid, including through:

    1. facilitating public–private partnerships to accelerate cybersecurity initiatives for the grid of the 21st century;
    2. funding research and development of advanced technology to create a secure and resilient electricity infrastructure;
    3. supporting the development of cybersecurity standards to protect against vulnerabilities;
    4. facilitating timely sharing of actionable and relevant threat information;
    5. advancing risk management strategies to improve decision-making;
    6. supporting sector incident management and response; and
    7. enhancing and augmenting the cybersecurity workforce within the electric sector.26

With the growth of renewable technologies, the AEMO will be undertaking further studies designed to investigate how the integration of such technologies is likely to affect market operation in the future.

IV ENERGY MARKETS

i Development of energy markets

The WEM is a capacity market, with each retailer required to acquire capacity credits from the AEMO, or generators directly, to match their individual capacity requirements. These capacity requirements are based on estimates made by the AEMO in relation to the overall capacity requirement of the SWIS for the next 10 years, in accordance with provisions specified in the Western Australian Market Rules. As well as supplying capacity credits to retailers, the AEMO is also responsible for assigning capacity credits to generation facilities.27

After determining the amount of reserve capacity required, the AEMO places obligations on market customers (i.e., retailers) to purchase capacity credits equivalent to their forecast contribution to peak demand. Those supplying electricity into the network earn 'capacity credits' by providing capacity to the system and, where that generation arises from renewable sources, can also earn Renewable Energy Certificates (RECs), which is the general term used to cover small-scale technology certificates and large-scale generation certificates. These are created in the CER's REC Registry to be bought, sold, traded or surrendered. Commonly referred to as 'green products', they can be bought by customers along with the electricity as part of a bundled power purchase arrangement so that customers can use them to meet their own obligations to surrender RECs or sell to the AEMO through a capacity auction.28

In the WEM, only the electricity volume that is not already covered by bilateral contracts is traded. For example, market customers (typically electricity retailers) may need to purchase additional electricity over and above their contracted position because of fluctuations in the weather or unanticipated increases in demand. In this scenario, the market customer bids into the market for the volume of electricity required to balance its contract position and pays market price for that balancing amount of electricity. The WEM's bilateral net settlement system for uncontracted energy is overseen and facilitated by the AEMO.

ii Energy market rules and regulation

The structure and processes that constitute the WEM in WA are established through the WEM Rules. The WEM Rules were developed by the Office of Energy (which has since become the Public Utilities Office), with substantial support from a number of expert teams comprising representatives from industry and government. The WEM Rules detail the roles and functions of the AEMO (in its role as the IMO), System Management and other governance bodies, and guide the operation of the market including the trading and dispatch of energy and settlement.29 The WEM Rules are administrated and interpreted by the independent Rule Change Panel, which commenced operations in April 2017.30

The WEM Rules establish the broader objectives of the WEM, which are to:

    1. promote the economically efficient, safe and reliable production and supply of electricity-related services in the SWIS;
    2. encourage competition among generators and retailers;
    3. avoid market discrimination against particular energy options and technologies;
    4. minimise the long-term cost of electricity supplied to customers from the SWIS; and
    5. encourage the taking of measures to manage the amount of electricity used and when it is used.31

iii Contracts for sale of energy

Bilateral trades of energy and capacity occur between market participants, with the AEMO taking no interest in the formation of these trades. However, market participants are subsequently required to submit bilateral schedule data relating to the energy transactions to the AEMO each day so that the transactions can be scheduled.

Bilateral contracts are agreements formed between wholesale market suppliers and wholesale market consumers (i.e., retailers and directly connected loads) for the provision of energy and serve to provide the holders with certainty over their settlement position with respect to that transaction. Once a bilateral contract submission is accepted, the energy is 'scheduled' and the ensuing demand forecast. The AEMO report allows market participants to revise their bilateral contract positions.32

To the extent that one of the parties cannot meet their contractual requirements, whether that be because of (1) an outage of a generator, (2) transmission or network security constraints, (3) maintenance operations on the generator or (4) some other situation, then those parties will be individually liable to settle their deviations from the contract position. This places discipline on the market to only form contracts that reflect a reasonable expectation of the ability of the network to facilitate the delivery of that energy.

iv Market developments

A number of market developments are currently being considered and implemented via the Electricity Market Review, which was launched by the former Minister for Energy on 24 March 2015.

The key proposed reforms include:

    1. Network regulation: this will look at transferring regulation of the Western Power network, including: price, connection and access, from the WA regime to be regulated under the National Electricity Law and National Electricity Rules. This will mean that WA operates under the same rules and regulations as the NEM. The proposed time frame to transfer regulation has not been achieved and, as a result, Western Power continues to be subject to the state-based regulatory framework and further implementation of the transfer time frame is unclear at this time.
    2. Institutional arrangements: this involves seven broad projects including investigating the merits of replacing the five Market Objectives with the singular National Electricity Objective, replacing the Western Australian Energy Disputes Arbitrator and Western Australian Energy Disputes Board with more cost-efficient dispute resolution bodies and procedures, and establishing a WA reliability panel, which is expected to formally commence in 2018. System management functions and market operation functions have already been transferred to the Australian Energy Market Operator and the independent Rule Change Committee has been established, with the appointment of the first initial panel members in January 2017.
    3. Market competition: this will include reforms to enhance market competitive outcomes through full retail contestability and the removal of barriers to entry in the retail and wholesale market.
    4. Wholesale electricity market improvements: this involves two broad projects: reform to the Reserve Capacity Mechanism to address the manner in which the capacity price and volume is determined; and reforms to existing energy market operations and processes, which were announced in July 2016. The reforms to energy market operations and processes include introducing security-constrained dispatch, a later gate closure period and a shorter dispatch cycle, facility bidding and the development of co-optimised energy ancillary services.33

The long-term success of these reforms, measured by their ability to reduce energy prices, as well as the viability of these reforms long-term, is something that will be closely scrutinised in the years to come.

In April 2016, the former state government also announced further changes to WA's electricity market, pursuant to the Electricity Market Review. These changes are expected to reduce the cost of supplying electricity by up to A$130 million every year.

The reforms included:

    1. transitional arrangements to reduce capacity payments to power stations and demand-side management (DSM) providers because of current levels of excess capacity;
    2. the introduction of an 'auction' by 2021, at the latest, to achieve efficient levels of electricity capacity in the market;
    3. updated requirements for DSM providers so that services are more readily able to be called upon, and therefore more effective for the market; and
    4. improved incentives to maintain power stations to ensure they are ready to supply electricity immediately, as required.

The reforms that will be implemented, together with significant reductions in costs of the electricity businesses over the coming years, will go towards fixing the problem of surplus energy within the SWIS going to waste. Accordingly, in the interests of removing excess capacity, it is proposed that Synergy will also reduce its plant generation capacity by 380MW by 1 October 2018.34

In the lead-up to the most recent Western Australian state government election in March 2017, the privatisation of Western Power was a key election issue, with the Liberal Party advocating its partial sale as a means of reducing government debt. The coalition government, a combination of the Liberal Party and the National Party, were firmly beaten in the election, and the Labor Party campaigned heavily against the full or partial privatisation of Western Power. As such, it seems that any privatisation of Western Power is unlikely to happen in the foreseeable future.

V RENEWABLE ENERGY AND CONSERVATION

i Development of renewable energy

Western Australia has some of the best solar energy resources in Australia, particularly in the Pilbara and North West regions, which are home to Australia's first large grid-connected, photovoltaic 20kW tracking system, which was commissioned in 1995. This trend has continued with two recent proposals to build large-scale solar farms in WA's regional areas. In March 2017, Carnegie Clean Energy announced plans to develop a 10MW solar farm in Northam. This solar farm, which has been 100 per cent privately funded to date, is strategically located to enable it to deliver electricity to the WA grid when it is most needed. It has also been designed with the capacity to accommodate battery storage when the costs of energy storage decline. Sun Brilliance Group has also announced plans to build a 100MW solar farm in the middle of the state's wheat belt. This project will be the largest solar farm in WA and is expected to be the largest energy producing solar farm in Australia.

Given the geographic isolation of certain areas of the state, there is demand for small-scale solar power in remote communities where transport and fuel costs make diesel power generators more expensive. Consequently, in 2010, Marble Bar and Nullagine in WA became the first towns in the world to use solar-hybrid generation technology, which combines photovoltaic technology and diesel. This trend has continued with around half of the current major pastoral stations in WA utilising solar power to contribute to their power generation; with solar technology also being used in remote telecommunications infrastructure and water pumping stations. In 2015, a leading French renewable energy firm Neoen began construction on the DeGrussa solar hybrid project. This 10.6MW solar photovoltaic farm, which is coupled with a 6MW battery facility, will be the world's largest integrated off-grid solar power system in use by the mining industry. This project, which combines solar and battery storage, offers the opportunity to reduce the reliance on diesel-powered energy for mining in remote areas and demonstrates the significant potential for off-grid renewables in regional and remote Australia.

The RET is overseen by the CER and mandates that 20 per cent of Australian electricity should come from accredited renewable sources by 2020.35 Subsequent reforms, agreed to by Parliament in 2015, were designed to have the effect of:

    1. protecting Australian jobs and helping industries remain competitive by increasing assistance for all emissions-intensive trade-exposed industries to 100 per cent exemptions from all RET costs; and
    2. removing the requirement for biennial reviews of the scheme and replacing them with regular status updates by the CER to provide more certainty to industry and transparency to consumers.36

The government will also work to progress reforms to improve the scientific understanding of wind turbine noise and the monitoring and transparency of information relating to the operation of wind turbines. The government is also considering options to enhance the uptake of large-scale solar technology, other renewable energy technologies and energy efficiency.

The RET has already been largely responsible for a growth in large-scale wind and solar photovoltaic projects. Similarly, the Australian Renewable Energy Agency (ARENA), established by the federal government in 2012, and the Clean Energy Finance Corporation (CEFC), function to improve the competitiveness of renewable energy technologies and increase the supply of renewable energy in Australia.

ARENA is fully funded from an initial A$2 billion funding pool provided in 2012 to invest in supporting renewable energy projects until the year 2022 to:

    1. fund renewable energy projects;
    2. support research and development activities; and
    3. support activities that facilitate the capture and sharing of knowledge.

In September 2016, ARENA announced funding to construct 12 new large-scale solar photovoltaic plants across Australia. Similarly, the CEFC intends to mobilise capital investment in renewable energy in Australia by investing in organisations and projects using clean energy technologies. In 2015, CEFC committed up to A$15 million in finance to the DeGrussa solar-hybrid project in WA. ARENA continues to support projects that advance renewable energy technologies from early research to later stage demonstration projects in the field.

ii Energy efficiency and conservation

As part of the implementation of an alternative climate change policy, the ERF was enacted as a voluntary scheme with three components relating to crediting, purchasing and safeguarding emissions reductions. The ERF aims to provide incentives for a range of organisations and individuals to adopt new practices and technologies to reduce their emissions. Eligible participants are able to earn Australian carbon credit units (ACCUs) for emissions reductions (with one ACCU being equivalent to one tonne of carbon dioxide equivalent stored or avoided by a project). ACCUs can be sold to generate income, either to the government through a carbon abatement contract, or in the secondary market to emitters who fall under the safeguard mechanism and have exceeded their emissions cap.37 While the crediting and purchasing elements provide incentives for businesses to reduce their emissions, the safeguard mechanism, which came into effect on 1 July 2016, is designed to ensure that emissions reductions purchased by the government are not offset by a significant rise in emissions elsewhere in the economy.38 This mechanism allows the CER to create a baseline under which businesses that already report under the NGERS, and have direct emissions of more than 100,000 tonnes of carbon dioxide per year, are required to keep their emissions.

iii Technological developments

Owing to rising electricity costs, environmental awareness and emerging technology, consumers are demanding a more reliable, sustainable and economically efficient electricity network.39 In March 2015, ARENA contributed A$3.3 million to a four-year trial of a Synergy pilot project that combines rooftop solar photovoltaic with battery storage at a new housing development north of Perth. This trial, which is currently under way, includes a new tariff option for consumers and has the potential to be replicated in future residential developments across Australia because of its centralised lithium ion battery storage capabilities. Western Australia is also set to construct its first thermal energy to waste facility and Australia's largest distributed energy resource microgrid. The A$400 million energy-to-waste project aims to reduce the amount of landfill by using revolutionary thermal technology to incinerate waste and convert it into energy. The facility will aim to generate approximately 35MW of electricity, which is the equivalent of powering around 35,000 homes.40

The former state government also announced the development of Australia's largest energy resource microgrid, which combines traditional energy sources with wind and solar power and battery storage. It is expected to deliver more than 50 per cent of Onslow's electricity needs with renewable energy and will be closely monitored to assess the viability of replicating the project across WA.41 Similar pioneer projects are also under way throughout the state, including those utilising wave energy technologies that convert ocean swell into zero-emission renewable power and desalinated fresh water.42 In 2013, the WA government approved plans to build a 40MW tidal power station in the west Kimberly, which would be the state's first utility-scale ocean energy plant. These projects are indicative of the demand for alternative sources of energy, as well as the need for energy storage to become more cost-effective so as to promote more renewables being included in local electricity grids. They also demonstrate a gradual psychological shift towards prioritising the use of renewable energy.43

The SWIS uses a conventional electricity network consisting of ageing infrastructure that is struggling to meet the changing demands of a growing population and is due for upgrading. This provides an opportunity to take advantage of new and emerging smart grid technologies.44 Building a smarter electricity grid system in WA is integral to meeting consumers' needs and has become the core architectural component of the energy network, enabling distributed low-carbon systems, advanced metering infrastructure and meters, renewable energy and even electric vehicles to be integrated with the grid. Western Power has likened the smart grid to the internet of today's electricity system; allowing for a two-way flow of information and electricity. Smart grids use electronic sensors to monitor its performance and feed information back to consumers and network operators, allowing consumers to monitor their energy consumption and make better-informed choices. It also gives providers real-time information on network performance and consumption, which can be used to make sustainable and commercial decisions on infrastructure development, thereby enhancing reliability and power quality.45

If appropriately implemented, smart grids will better utilise low-emission sources of energy, such as that generated by wind and solar projects. In addition, increased flexibility and control means it will be able to account for the intermittency of renewable generation. The integration of communications infrastructure and intelligent control systems will also enable detection and mitigation of threats and support a wide variety of generation options in case of an incident at any one point on the network.

VI THE YEAR IN REVIEW

Throughout 2016 and 2017, the Western Australian government intended to introduce a set of key reforms and implementation arrangements pursuant to the Electricity Market Review launched in March 2014. Notable developments of this review included the completion of the transfer of system management functions and market operation functions to the Australian Energy Market Operator and the creation of a new market rule-change committee. One of the central aims of the reforms was the introduction of a choice of electricity retailers for households and small business customers, with the gas services industry providing an example of how a competitive market could benefit consumers (this is known as full retail contestability). The government had also intended to transfer the regulation of the Western Power electricity network to the national regulator; however, the expected time frame for this transfer to the AER was not achieved. As a result, Western Power will continue to be subject to the current state-based regulatory framework in accordance with the Access Code for the immediate future. A transition to the AER will provide the benchmarks and incentives for Western Power to meet national best-practice standards in operations, efficiency and cost. However, at the same time, the former government announced that it would not split the state-owned electricity business Synergy and that WA would not join the national electricity market.46 Accordingly, further reform implementation is seemingly on hold in WA.

Western Australia continues to meet major milestones regarding the 2020 renewable energy target set by the RET. The CER announced on 23 January 2018 that record levels of investment in renewable energy throughout 2017 meant that WA is well on the way to meeting its renewable targets.47 The growth of renewable energy production in WA, coupled with positive news that every greenhouse gas emitter under the National Greenhouse and Energy Reporting scheme in WA met its compliance target in 2017,48 is evidence of a genuine shift in the industry on behalf of producers and consumers to greener, cleaner energy production.

In October 2017, the Australian government announced a new energy policy that proposed to implement a National Energy Guarantee (NEG) designed to ensure power supply meets consumer demands and reduce the likelihood of power outages in the NEM system.49 The NEG comprises an electricity reliability guarantee, requiring retailers to maintain certain load requirements, and incorporates an emissions guarantee. Notably, the NEG policy indicates an exception from the shift towards renewable energy, as base-level power guarantees are expected to stifle the growth of renewable energy markets that cannot, at this stage, offer the same reliability of energy production as traditional power sources. The Australian government is intending to roll out a comprehensive set of reforms to implement the NEG in the eastern seaboard's NEM over the coming years.

One of the most publicised recent developments in the renewable energy industry in Australia was the deal struck between the South Australian government and technology company Tesla to deliver up to 50,000 solar power systems for domestic use, utilising Tesla's domestic lithium-ion batteries.50 This project is in addition to the Tesla Powerpack battery system, coined the 'world's largest lithium-ion battery', a 100MW battery that is connected to the Hornsdale wind farm.51 The development of lithium ion battery systems is expected to increase the viability of renewable energy power generation on a commercial and domestic scale in the coming years.

VII CONCLUSIONS AND OUTLOOK

The continued transformation of Australia's electricity market in recent years has, along with the growth of the renewables sector, brought about considerable policy and regulatory changes. Notwithstanding these changes, the energy market in WA still faces major challenges, the first of which being the geographical isolation that restricts certain areas from being serviced by the existing electricity network. The second is the status of the existing grids' current regulations and technology, which do not support the optimisation of renewable energy generation. Wind and solar electricity generation offers a clean, green and, potentially, cost-effective means of meeting the peak electricity demand of WA's growing metropolitan population and can also service WA's remote off-grid communities through stand-alone facilities. Therefore, it is imperative that WA invest in the technological research and development, infrastructure upgrades and legislative reforms required to ensure WA builds on this natural advantage to reduce the cost of electricity for families and businesses while also securing efficient and reliable electricity supplies for future generations.


Footnotes

1 Simon Rear is a partner, Samantha Smart is of counsel, Fiona Meaton is a senior associate and Connor McClymont is an associate at Squire Patton Boggs.

2 Economic Regulation Authority, Electricity (13 March 2018), www.erawa.com.au/electricity.

3 Department of Finance, Electricity Market Review (1 July 2017), www.treasury.wa.gov.au/Public-Utilities-Office/Industry-reform/Electricity-Market-Review/.

4 Ian Clover, 'Western Australia's rooftop solar now state's “biggest power station”', PV Magazine (7 January 2016) available at http://reneweconomy.com.au/2016/western-australias-rooftop-solar-now-
states-biggest-power-station-27206.

5 Energy Networks Australia, Electricity Network Transformation Roadmap: Final Report (April 2017), Figure 29.

6 The Australian Energy Market Operator, http://aemo.com.au/About-AEMO.

7 Economic Regulation Authority, Electricity (13 March 2018), https://www.erawa.com.au/about-us/legislation; Code of Conduct (for the Supply of Electricity to Small Use Customers); Electricity Industry Customer Transfer Code 2016; Electricity Networks Access Code 2004; Electricity Industry Metering Code 2012; Electricity Industry (Network Reliability and Quality of Supply Code) 2005; Wholesale Electricity Market Rules and Energy Industry (Rule Change Panel) Regulations 2016.

9 Note 8, above.

11 Electricity Industry Act 2004 (WA) Section 4; Economic Regulation Authority, Licence Application Guidelines and Form (November 2016), 2.

12 Ibid. Section 8(5).

13 Economic Regulation Authority, Guidelines for Access Arrangement Information (06 December 2010), 1.

14 Electricity Networks Access Code 2004 (WA) Section 2.1.

15 Electricity Networks Access Code 2004 (WA) Section 4.1, Section 4.48.

16 Australian Competition & Consumer Commission, Merger Reviews, https://www.accc.gov.au/business/mergers/merger-reviews.

17 Australian Financial Review, 'ATO to test national interest' (1 April 2016).

18 Foreign Acquisitions and Takeovers Act 1975 (Cth) Section 17.

19 Alinta Energy, Public Submission to Assistant Director of Electricity, Economic Regulation Authority (21 December 2015) available at: https://www.erawa.com.au/cproot/14016/2/Alinta%20Energy%20-%
20Public%20Submission%202015.pdf.

22 Horizon Power, Renewable Energy System - Electricity System Connection (1 May 2017), https://horizonpower.com.au/media/1588/hp_3_17672-reb-application-update-interactive-may-2017.pdf.

23 Department of Treasury, Renewable Energy Buyback Scheme, www.treasury.wa.gov.au/Public-Utilities-Office/Solar-PV/Renewable-Energy-Buyback-Scheme/.

24 Ibid.

25 Note 21, above, at 2.9.1.

26 Jason Lazar and Mark McKenzie, 'Australian Standards for Smart Grids – Standards Roadmap' (Standards Australia 2012), 23.

27 Australian Energy Market Operator Western Australia, The Wholesale Electricity Market (WEM), https://www.aemo.com.au/Electricity/Wholesale-Electricity-Market-WEM.

29 Economic Regulation Authority, Wholesale Electricity Market Rules https://www.erawa.com.au/rule-change-panel/wholesale-electricity-market-rules.

30 Economic Regulation Authority, Rule Change Panel (13 March 2018) https://www.erawa.com.au/rule-change-panel.

31 Australian Energy Market Operator, Wholesale Electricity Market Fact Sheet (13 March 2018) https://www.aemo.com.au/-/media/Files/Electricity/WEM/Wholesale-Electricity-Market-Fact-Sheet.pdf.

32 Independent Market Operator, Wholesale Electricity Market Design Summary (24 October 2012), https://www.aemo.com.au/-/media/Files/PDF/wem-design-summary-v1-4-24-october-2012.pdf.

34 Government of Western Australia, Electricity reforms ensure fairer system for all (7 April 2016), https://www.mediastatements.wa.gov.au/Pages/Barnett/2016/04/Electricity-reforms-ensure-fairer-system-for-all.aspx.

35 Department of the Environment, The Renewable Energy Target (RET) scheme, https://www.environment.gov.au/climate-change/renewable-energy-target-scheme.

36 Ibid.

37 Clean Energy Regulator, About the Emissions Reduction Fund (15 February 2016), www.cleanenergyregulator.gov.au/ERF/About-the-Emissions-Reduction-Fund.

39 Western Power, Building a Network with Options for West Australians (available at www.westernpower.com.au/network-projects-your-community-smart-grid.html).

40 Contract inked for A$400 million Kwinana thermal waste facility in WA (16 February 2016), www.abc.net.au/news/2015-10-15/was-first-thermal-waste-to-energy-facility-contract-inked/6855510.

42 Australian Renewable Energy Agency, Projects, http://arena.gov.au/projects/.

43 Australian Renewable Energy Agency, Residential rooftop solar with battery storage a step closer (17 March 2015), http://arena.gov.au/media/residential-rooftop-solar-with-battery-storage-a-step-closer/; RenewEconomy, 'Lend Lease to pioneer large scale battery storage for new Perth suburb' (18 March 2015), http://reneweconomy.com.au/2015/lend-lease-to-pioneer-large-scale-battery-storage-for-new-perth-
suburb-17584.

44 Note 40, above.

45 Note 40, above.

46 Government of Western Australia, Government energised for electricity reform (24 March 2015), https://www.mediastatements.wa.gov.au/Pages/Barnett/2015/03/Government-energised-for-electricity-reform.aspx.

47 Clean Energy Regulator, Record year of investment means Australia's 2020 Renewable Energy Target will be met (23 January 2018), www.cleanenergyregulator.gov.au/Infohub/Media-Centre/Pages/Media%
20updates/NewsItem.aspx?ListId=19b4efbb-6f5d-4637-94c4-121c1f96fcfe&ItemId=468.

48 Clean Energy Regulator, Data released for first year of the safeguard mechanism (14 March 2018),
www.cleanenergyregulator.gov.au/Infohub/Media-Centre/Pages/Media%20updates/NewsItem.aspx?ListId=
19b4efbb-6f5d-4637-94c4-121c1f96fcfe&ItemId=485.

49 Government of Australia, Powering Forward, a better energy future for Australia (October 2017), https://www.energy.gov.au/sites/g/files/net3411/f/enr032-1017-powering-forward-brochure_faweb.pdf.

50 Nick Harmsen, Elon Musk's Tesla and SA Labor reach deal to give solar panels and batteries to 50,000 homes (4 February 2018), www.abc.net.au/news/2018-02-04/elon-musk-tesla-to-give-solar-panels-
batteries-to-sa-homes/9394352.

51 Nick Harmsen, Elon Musk's giant lithium ion battery completed by Tesla in SA's Mid North (24 Nov 2017), www.abc.net.au/news/2017-11-23/worlds-most-powerful-lithium-ion-battery-finished-in-sa/9183868.