A new report prepared for the Australian Energy Council has identified key bottlenecks preventing renewable energy projects from proceeding in Western Australia.
In February 2024, the Australian Energy Council (AEC) released a report titled, Bottlenecks affecting generation development in WA. The purpose of the report was to identify and assess the challenges and roadblocks that were likely to prevent investment in and uptake of new energy generation in Western Australia, particularly renewable energy. The report considered the state’s goal of net zero by 2050, as well as the likelihood of increased energy demand, to qualitatively assess the efficacy of current processes of energy transmission in the state.
Western Australia is in the midst of an energy transformation. The Western Australia State Government has committed to an economy-wide goal of net zero emissions by 2050, and is working towards this goal with the rollout of wide-scale renewable energy projects.
However, to meet these goals will require significant investment in renewable energy infrastructure, including generation, transmission and storage. While there are many projects in the works, there is still uncertainty as to how these projects will proceed and whether they will be able to sufficiently meet the needs of the state’s emissions targets and likely increasing population.
State government-owned Synergy plans to close down all its coal-fired power plants by 2030 and build no new gas-fired power plants after that time. It also plans to invest in 800MW of wind energy generation and 4,400MWh of energy storage. Western Power, also owned by the state government, plans to roll out a network of connected batteries and standalone power systems.
These projects require substantial investment and infrastructure to come to fruition. The AEC’s report sought to provide a qualitative assessment of the bottlenecks preventing investment and uptake of new generation projects in the wholesale energy market (WEM), as well as identifying potential consequences should these bottlenecks not be resolved.
Connecting to the transmission network
The first stage of reporting looked at connecting to the transmission network. According to Western Power, a general process for connection consists of the phases: enquiry, initiation, scoping, planning, construction and commissioning, and closeout. Western Power said that the number of connection enquiries, as well as the size of projects, has been increasing significantly and attributed this primarily to an increase in generator enquiries. Western Power also noted that this process can be quite long, taking at times up to five years to fulfill the phases to completion.
Western Power’s processing of transmission connection enquiries is currently done on a first come, first served basis, meaning that enquiries are processed according to the date of submission. While this manner of handling enquiries is consistent with the Electricity Networks Access Code, Western Power has also noted that this method does not account for critical projects to be fast-tracked in accordance with state or consumer needs. To help address this, Western Power said it is developing a framework for assessing and identifying a critical project based on principles and criteria. Projects identified as critical projects will then be fast-tracked for connection.
The AEC report noted this process improvement – however, the report also recommended a significant shortening of timeframes for processing such enquiries. The report found that reducing these timeframes would likely result in a reduced opportunity cost to applicants, increased investor certainty and risk reduction, and would be more likely to meet the forecast energy capacity shortfall in the state, which it forecast to be approximately 4,000MW by 2032–33.
The report also found that significant changes are required to improve the strike rate of connections, as Western Power statistics indicate that only five per cent of applications are currently making it through to the end of the process. The report noted that this could be caused by several factors, including “tyre kickers” entering the process without a genuine intention of project completion, the process itself being so frustrating that many genuine applicants give up, and/or that offer arrangements are not commercially acceptable.
Transmission planning
Transmission planning refers to the location, timing and size of transmission assets, and needs to account for the time required to identify, acquire and permit easements, as well as construction time and costs. As Western Australia’s energy grid undergoes transformation, transmission planning is becoming more complex. There is a shift away from the traditional incremental, developer-led approach, where individual developers sought connection, to a more centralised, plan-led approach.
Planning is a forward looking activity and is dependent on a willingness to invest, as well as on forecast costs and charges for related network facilities being accurate. However, forecasting naturally involves a level of uncertainty, which can result in higher costs or lower reliability than expected. Transmission planning therefore involves multiple and often coexisting trade-offs, and thorough transmission planning requires expertise in engineering, economics, finance, socio-economics and environmental impact.
The report found that a logical (and traditional) approach to network planning is to start with data on:
- Expectations for demand and generation including options for customer self-supply
- Uncertainty around timing of requirements/future developments
- The existing network, which naturally forms a sunk cost starting point for any expansion
- Objectives relating to cost effectiveness and reliability of supply
- Policy guide rails, such as environmental impact statements, emissions capital and operating cost of new developments
While this data is not exhaustive, it provides a thorough way to assess options for how to meet demand, accommodate connections and integrate new energy generation formats in the most efficient manner.
Key recommendations
The report recommended four key areas of improvement for the processing and procedure of transmission connection enquiries:
- Pricing arrangements to better balance supply and demand for connection services to allocate them to their highest value use
- Arrangements that incentivise Western Power to deliver efficient levels of service and to act commercially
- Arrangements that are likely to improve the strike rate of applicants progressing through to an Access Contract
- Ensuring alignment with the development of the shared transmission network
The report recommended allowing applicants to pay a premium for a streamlined and theoretically quicker service. The report said that Western Power should implement pricing arrangements that are more likely to “better balance supply and demand for connection services, such that those services are allocated to their highest value use.”
The report also noted that such a service “would need to be supported by prescribed (and transparent) levels of service, penalties for nonperformance against those levels of service, and would be complemented by the publishing of data around base levels of service (to allow a prospective connecting customer to assess their marginal willingness to pay for the incremental increase in the level of service that they expect to receive as a result of purchasing the premium service, as compared to the base level of service).”
The AEC also recommended that prices for the different stages of the connection process should be reviewed by Energy Resources of Australia (ERA) to confirm that they are reflective of the forecast economic costs of providing the base level of that service. The report noted, “If demand is expected to exceed supply for those services, the price should reflect the costs at the margin of either ramping up resourcing to accommodate that level of service, including the impact on systems, resources, training etc, or the opportunity cost to the connecting customer not being able to access that service. This will ensure that there is both a funding base for baseline connection applications at the margin, and that connecting customers face the right (economically efficient) price signals.”
The report also noted that a credible transmission development plan, and planner, are needed in Western Australia. A factor in commissioning the report into the challenges affecting generation in the state was that there was a significant difference between two plans that investors had looked to to forecast the needs of transmission development in Western Australia.
Those two plans were the South West Interconnected System Demand Assessment (SWISDA), produced by the Western Australian Government’s Energy Policy department in May 2023, and the Whole of System Plan (WOSP), last published in August 2020. The SWISDA reported that 4000km of new network would be needed by 2042, whereas the WOSP forecast almost no new transmission would be required – a big difference between the two plans in what was a relatively short time period. The AEC said that the difference between the two forecasts left “the observation that these were so different that it would be surprising if the outcome for network requirements in the SWISDA was not significantly greater than in the WOSP.”
Ultimately, the AEC report recommends that there should be one singular authoritative source of network planning. The report noted that “to do otherwise creates uncertainty in the planning arrangements, which increases the risk to parties contemplating making investments in the SWIS. In our opinion, Western Power, the asset owner, is the logical body to continue in this role. Government may, however, be minded to consider the creation of a new and independent planning body as is the case in a number of other jurisdictions.”
The report did note that governments should still have some part in the planning process, and said that governments and their agencies have a legitimate and vital role to play in developing and implementing policy. However, assessing the implications for network development due to demand and generation projections should remain the responsibility of the appointed network planner.
Another key recommendation was for clarity of approach to network planning within regulatory instruments. The SWIS is facing a fundamental change in how transmission is planned, moving from a developer-led to a plan-led approach. Current processes are struggling to keep pace with the rapid transition to high levels of renewables in the grid. Centralised processes need to be explicitly acknowledged and central to transmission planning in order to provide greater clarity to investors and applicants.
The report also stated that the transmission development plan needs to be informed by a set of credible inputs. While some uncertainties are inevitable when planning and forecasting, the greater that uncertainty is, the greater the risk of project failure. Mechanisms that reduce the level of uncertainty are often included in market designs, including in the WEM. These mechanisms include queuing for connection, the New Facilities Investment Test, LTPASA, the Reserve Capacity Mechanism, the WOSP, the ESOO, Access Applications and Western
Power’s Transmission System Plan. These mechanisms inform how various changes in the transmission and generation fleet and the level and location of demand are handled, with further mechanisms under development.
