Steve Edwell is chairman of the board of ERA, which released its draft figures last week, proposing a 36 per cent increase on the benchmark price used to model wholesale energy prices in WA in coming years.
The ERA proposed a reserve capacity benchmark of $491,700 per megawatt-hour of energy generation in the 2028-2029 capacity year, up from $360,700/MWh in the previous twelve months.
The design was modeled based on the expected costs of a hypothetical 200 MW/1,200 MWh battery energy storage system with a six-hour runtime and a fifteen-year runtime.
The benchmark is used to guide the Australian energy market operator in setting the prices paid to energy suppliers supplying the South West Interconnected System.
It also provides certainty to project proponents as they try to cover the high upfront costs of building a renewable operation.
Speak with Business newsMr Edwell said that the size of the battery used in the ERA’s modeling had increased year on year – compared to a four-hour 200MW/800MWh model that formed the basis for the designs a year earlier – but that project costs across the sector were also broadly rising.
While the cost of the batteries themselves has fallen, rising costs of construction, thermal management, fire suppression, control equipment, air conditioning and steel were among factors driving up price assumptions.
Mr Edwell said the ERA has chosen to completely remove contingency costs – which amounted to $58.8 million in 2027-2028 – from its model.
“We were aware that we had to reduce costs here as much as possible,” he said.
“Where we as a supervisor had discretionary power, we did excise a number of costs.
“There were major unforeseen circumstances, we removed them. We adjusted the battery technology to the absolute minimum.
“But despite this, these costs have increased.”
That does not mean that all industrial energy costs will increase with the proposed increase.
Mr Edwell noted that the majority of energy suppliers in the South West Interconnected System are subject to a transitional pricing arrangement signed in 2021, subjecting them to lower prices until 2031.
“Certainly, as coal leaves the industry, we need renewables to replace it,” Mr Edwell said.
“We expect 1.5 to 1.8 gigawatts of new capacity coming in, all renewable with very low marginal energy costs.
“So what you would expect is that real-time energy costs would decrease and that this would have a mitigating effect on the capacity impact in addition to the transition mechanism.
“There are swings and roundabouts – we don’t deny there is a significant increase.”
Despite the proposed price increase, Mr Edwell said he was buoyed by recent progress in the SWIS – which reached renewable records in the December quarter.
Mr Edwell headed the State Government’s Transformation Taskforce before taking on the role of the ERA and said the real-time energy market was beginning to behave as we imagined when we carried out the transformation process.
“I think there are good signs here in Washington, but people need to realize that it’s not always three steps forward.
“It can be two steps forward and one step back.
“But as long as you’re on the right track and we have the right mechanisms in place, we’ll get there at some point.”
The consultation on the draft ERA benchmark closes tomorrow.
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