Why energy is central to WA’s COVID-19 recovery
A wary sigh of relief was collectively felt across WA recently with the Government of Western Australia making its first move to relax COVID-19 restrictions, bringing the post-COVID horizon slowly into view.
To brighten this horizon, the government has been working tirelessly to develop a range of measures and initiatives to jump-start the economy into a ‘V-shape recovery’. To this end, the McGowan Government to date has implemented a comprehensive relief package totalling more than $1.8 billion, providing much needed support to many sectors of the economy, and expediting up to $140 million of transport projects.
As the government is acutely aware, this economic resuscitation cannot rely on cash injections alone. In support of fiscal stimulus, innovative and effective policy responses must also be implemented to remove barriers and provide incentives across the board. It’s less about silver bullets and more about adding strands to the proverbial line of rope being thrown to the economy.
To my mind, there is one central policy fibre to this lifeline – energy.
Impacting almost every business across the economy to varying extents, energy sector reforms can be an effective tool for policy makers to help relieve pressure for businesses and generate vital economic activity. The recent short-term injections, such as the freeze of household electricity levy expenses and the doubling of the energy assistance payment in WA, are testament to the sector’s far reaching economic impacts. But these measures must be supported by broader medium-term solutions.
In this regard, one potentially vital relief policy still lies untouched.
Currently, only those electricity customers in the South West Interconnected System (SWIS) who consume more than 50MWh per annum can choose their power provider. This mostly encompasses the larger, more energy intensive businesses such as supermarkets, shopping centres and industrial consumers. As such, most small businesses are left to purchase electricity from the State-owned utility, Synergy.
The lowering of the threshold set by government in 2005 above which electricity consumers can choose their supplier in a competitive process, could be a crucial recovery lever for the government.
By lowering the contestability threshold to 20MWh per annum, small businesses would be able to reap the benefits of electricity providers vying for their custom with competitive prices, creating significant relief in overhead expenses. If actioned, this change is estimated to allow more than 25,000 small businesses to save up to 20 per cent on their electricity bills – welcome relief for those who have borne the brunt of the COVID crisis.
Equally, for private electricity retailers, reducing the contestability threshold would significantly increase their prospective market, presenting a valuable opportunity to increase their customer base. For many providers, this would also come as a timely stimulus as they too have suffered the fallout from a number of industries slowing down or grinding to a halt all together, driving electricity demand down.
Creating a positive shift in demand would also likely send encouraging signals to the wider electricity market, stimulating private investment in developing sustainable, lowest-cost generation projects (renewable technology) and other synergetic distributed energy resources, such as battery technology.
Private investment in new renewable energy projects would also be incentivised by enabling developers to sign commercially viable Power Purchase Agreements with private energy retailers. From renewed private investment and project development, job creation and increased economic activity would likely flow.
For Synergy, this would see a significant impact on its current business and customer base as a result of new market competition. However, this may be a needed push encouraging it to shift its focus towards its most efficient operation and to move away from its former model of trying to be everything to everyone. This would most likely see Synergy concentrate on supplying households, where it operates as a monopoly, as well as a smaller base of business customers.
A more streamlined and efficient Synergy would also see less taxpayer revenue being pumped into subsidising the generation giant. This would provide an opportunity for Synergy to retire some of its inefficient and aging generation plant in the SWIS, removing that liability from the government’s books. In exchange, this would again encourage the development of cleaner and more sustainable generation in the network to fill the supply gap. However, clear and transparent timelines must be communicated to enable effective preparedness and response for both Synergy and the broader market.
Lowering the contestability threshold is not a policy idea out of left field. In fact, it was the long-held plan to incrementally reduce the threshold beyond the current level under successive energy Ministers – Colin Barnett during his tenure as Minister for Energy in the Court Government, then Labor’s Eric Ripper and more recently Liberal Minister Mike Nahan. For some time, Synergy was poised and ready for the significant shift in its business model – a reform which never came.
Treasurer Ben Wyatt – as former Energy Minister – also pursued the economic opportunity to expand the contestable market before mothballing the move in 2018, reportedly due to internal union pressure. Consumers, generators, retailers and peak industry bodies alike have advocated to see this reform come to fruition.
With the unprecedented agility of the public service and its dedicated coronavirus response team – the development and implementation of this significant market reform is arguably now more than ever within the government’s capacity.
Effectively aligning bi-partisan support (albeit at various times in recent memory), industry appetite, consumer relief, government spending cuts, carbon consciousness, market incentives and economic recovery – it’s hard to think of a more complete medium-term relief for the post-COVID economy.
The only question left to ask is: what are we waiting for?
Richard Harris is a Special Counsel at Cannings Purple, specialising in energy and resources and government relations, the chairperson of the Independent Power Association and the spokesperson for the DomGas Alliance. Contact Richard.
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