Perth Energy
Frequently Asked Questions
What is the structure of the Western Australian energy industry?
In the context of Western Australia, all details provided here refer to the South West Interconnected System (SWIS) which covers the main population centre of the state. The SWIS stretches from Kalbarri north of Perth, to Kalgoorlie-Boulder in the Eastern Goldfields and south to Albany. It represents 90 per cent of the WA power market with total expected generation capacity of 4115MW in 2007-08. The estimated system peak demand is just over 4000MW and is forecast to rise by 3-3.5% per year over the next 10 years.Western Power Corporation, the previous integrated state owned utility, was in April 2006 disaggregated into separate generation (Verve Energy), retail (Synergy Energy) and networks (Western Power) businesses supplying the SWIS. A fourth entity from the split, Horizon Power, looks after the more isolated, non-interconnected systems around the state.
The largest retailers in the State are Synergy (with over 80% of the market), Alinta and Perth Energy. Verve's generation cpacity is capped at 3000MW and private sector generation accounts for approximately one-third of total SWIS generation capacity.Alinta, which was split from Western Power's predecessor the State Energy Commission of WA to supply the gas market, was privatised in 2002 and is engaged in electricity retail and generation. It owns gas-fired generation capacity in the SWIS and 20 per cent of the Dampier to banbury Natural Gas Pipeline. Alinta is the dominant incumbent gas retailer in the SWIS, where full retial contestibility has been in force since 2002. While little competitve impact has been visible in the gas retial market, due to Alinta;'s ownership of the gas distribution network in conjunction with its monolpoly retail status at privitisation, the current separate ownership sturcture of this network from Alinta retail means there is some prospect of neutrality in networks services for new entrant retailers. Perth Energy's recent acquistion of a GAs Retail Licence will test this prospective neutrality.
What is the market design?
The new market arrangements in WA commenced in 2006. The model differs from the eastern states' National Electrcity Market (NEM) by being a net pool with separate capacity and energy markets. It is governed by the Wholesale Electricity Market (WEM) Rules 2004 as administered by the WA Independent Market Operator (IMO). WA is not interconnected to the NEM and will not be in the foreseeable future.
The WEM's capacity market is based on a system of Reserve Capacity Credits allocated by the IMO to all generators in the SWIS. Capacity must be certified by the IMO in order to receive the Credits, which are a form of guaranteed capacity payment made by either contracted customers or the IMO. The Reserve Capacity Price (the price received by all generators in any year) is determined by the IMO two years ahead through a process of estimating the cost of entry of a Greenfield gas fired mid-size power station.
Energy is traded in the Short Term Energy Market (STEM), a day ahead bid and offer process to trade uncontracted energy that is generated beyond the bilateral contract arrangements bwtween generators and retailers/loads. Real time "over and unders" are then scooped up in the balancing market, termed Marginal Cost Adminsitered Price (MCAP) mechanism, with prices derived from the STEM bid and offer curves.
All retailers and large users must purchase Capacity Credits to match their portfolio peak demand plus a Reserve Capacity Margin set by the IMO. This ensures sufficient capacity will be installed for the forecast peak demand in future years which the IMO issues annually. This model eliminates the requirement for extreme spot energy prices to signal the need for new capacity entry (as in the NEM). STEM prices are therefore capped at lower levels than in the NEM, around $150/MWh for gas fired and $400-600/MWh for liquid fired energy.
For further details see www.energy.wa.gov.au and www.imowa.com.au.
What are the retailing opportunities for Perth Energy?
The total number of contestable customers is approx 13,500, out of a total SWIS customer base of nearly one million. The contestable load demand threshold is 50MWh per year consumption (average 5.7kW demand), about the size of a suburban deli. This market represents roughly two-thirds of total SWIS demand in volume and value terms, or over one billion dollars.
Perth Energy currently has long term off-take arrangements with private landfill gas based generators and with Verve Energy, the state's largest generator. The company supplies power to hundreds of buisiness and government customers. Perth Energy also buys power from STEM and MCAP to supplement its contracted purcahse portfolio and the addition of Kwinana Swift Power Station will enable the company to expand its wholesale market supplies to grow its cusotmer base without further contracted purchases.
When full retail contestability is expected to be introduced Perth Energy will be well placed to take full advantage utiltising Infratil's experience in the Eastern states.
What generation opportunities are there for Perth Energy?
The WA Government has placed a cap on Verve Energy's total capacity at 3000MW to facilitate private sector entry, which means Verve has had to decommission some of its oldest plant as it nominally holds around 3400MW. Verve is allowed to rejuvenate its assets by refurbishing old plant and it may go beyond the cap temporarily due to lumpy re-investment at the margin. Verve can also build renewable energy generation capacity as the cap applies only to its fossil fuel capacity portfolio.
The better known private sector projects are Alinta’s cogeneration plant at Alcoa Australia’s sites, ERM Power (the previous Wambo Power Venture with Babcock and Brown) combined cycle and open cycle gas turbine plant at Kwinana and Neerabup, and Griffin Energy’s coal fired Bluewaters 1 and 2 at Collie. Alinta's gas plant are installed on Alcoa sites to supply Alcoa with process steam with most of the electricity generation being sold in the SWIS. ERM Power’s plant are contracted to Synergy and Griffin Energy’s plant are also contracted to Synergy and the Boddington Gold Mine. Due to rapidly successive entry of CCGT, cogeneration and coal plant in the SWIS in the last several years, there is excess baseload capacity in the SWIS at present, especially when set against an abrupt reduction in demand on the back of the global financial crisis in 2009. IMO forecast shows supply and demand rebalancing towards 2013-14.
Perth Energy has avoided developing baseload capacity in the short term and focused instead on installing dual-fuel, fast response peaking capacity in the form of Kwinana Swift. As a retailer, Perth Energy sees opportunities in buying baseload energy from the market while the need for hedging top-up energy cost at the peak is always present and requires coverage. Peaking capacity is a valuable component of a retailer in any competitive market.
Perth Energy’s Kwinana Swift also provides other potentially valuable services to the system. Due to its speed in controlling its own output – it can ramp up from standstill to full load in minutes, the fastest response in the system – it can offer balancing services to renewable energy plant to smooth out the latter’s impact on the Grid. Perth Energy already has a contract to provide black start services to Western Power’s System Management. As Perth Energy’s retail business grows, further peaking capacity will be required and it is natural for the company to install further such capacity.
The output flexibility of peaking capacity also serves Perth Energy in developing its gas trading business. Due to the extent of fixed costs associated with gas wholesaling and retailing, in the form of fixed term take-or-pay pipeline capacity and gas commodity purchases, the stranded asset risk of not being able to sell gas, and thus suffering carrying cost is high, prevents effective competition in this market. Having Kwinana Swift is akin to having a gas sink whereby unsold gas could be tolled through the plant to fuel electricity sales in STEM or MCAP, thereby reducing the stranded risk. This ability to minimise the cost of wholesale and retail entry will offer significant competitive value to energy consumers in the SWIS.
In the near term therefore opportunities exist for Perth Energy to build further peaking capacity. In the longer term, opportunities for baseload capacity will depend on whether Perth Energy could access low cost baseload energy in the market to support its retail expansion.Who are Perth Energy's management?
Ky Cao has been the Managing Director/Chief Executive since 2000. Prior to Perth Energy, Ky held senior management positions at Western Power Corporation (WPC) in energy trading and business marketing.
Ky has been intimately involved in the transformation of WA's electricity industry as a member of the Electricity Reform Task Force (ERFT) Market Design Working Group and the Electricity Industry Reference Group, established by the Government to provide it with advice on reform strategy. He was also on the Electricity Reform Implementation Unit's Market Rules Development Group and a number of subsequent technical committees and remains a member of the newly formed Transitional Market Advisory Committee chaired by the IMO.
In 2001, Ky established and chaired the Independent Power Advisory Group (IPAG), which comprised most major companies with interests in WA's energy market. IPAG played a significant role in assisting the WA Government achieve its reform objective and program, mainly through educational campaigns targeted at stakeholders in government and industry and the energy consuming public.
Ky has built a substantial management team backed up by a layer of well trained industry professionals.
Michael Crevola
Chief Financial Officer
Michael is CFO and Company Secretary at Perth Energy. A respected finance executive who had been CFO at Carnegie Corporation and Treasury manager at Alinta Limited. Michael’s strategic skills were gained involvement with a range of from acquisitions, IPO’s and business development activities. With a 15 year professional career in the energy and financial services sectors, he has been responsible for the development and implementation of new accounting standards, financial reporting, Treasury and financial corporate governance policies for corporate risk management.
Geoff Gaston
General Manager Commercial
Geoff has over 12 years experience in deregulated energy markets and had been responsible for managing a billion dollar energy portfolio as well as providing high level expert advice on energy purchases to large end users in Toronto, Canada. Geoff joined Perth Energy in 2006 following a short stint at ARC Energy as financial analyst. His experience has helped build Perth Energy’s interests in both the electricity and gas retail sectors. Geoff has an Honours Bachelor of Arts Degree in Economics with specialisation in finance and accounting.
Patrick Peake
General Manager Western Energy
Patrick is responsible for management and operations of the Kwinana power station and development of further facilities. He had been Manager Corporate Strategy at Western Power Corporation and was inaugural Manager Capacity Market at the Independent Market Operator before joining Perth Energy. He has extensive experience in power system planning, market structure rules development and power generation project management. Patrick has an honours degree in Mechanical Engineering.
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