The announcement went largely unreported, but it is one of the most important policy decisions of recent years which, if done properly, can guide WA through a major transition in our energy use and supply while keeping our economy strong.
Our energy systems have served us well over the last two decades. The gas reservation policy and the western electricity market stand out in stark contrast to the shambles on the east coast.
However, times have changed, and both policies now require significant reform to navigate the dual challenge of retiring Synergy’s ageing coal-fired generators and accommodating a large-scale rollout of renewable energy. The investment needed in new power generation, plus battery storage, as well as the infrastructure required to enable those new projects to connect to the grid, or supply gas to new industrial users will require investment in the tens of billions of dollars, over a relatively short period of time.
If we are going to make deep inroads to decarbonising our industry, then we need to look closely at carbon capture and sequestration as a serious option, especially for high emitting industries that can’t easily substitute use of gas.
Investors require certainty to commit hundreds of millions of dollars to each project, as they rely on stable conditions to recover their capital over a 15 to 20-year horizon. It’s not just those in the energy industry, it’s the large manufacturing firms, mines, chemical facilities and mineral processing plants that employ hundreds of thousands of Australian workers, who need certainty over energy supply.
So, it is important to get the policy settings right.
Up until recently, those policy settings have served Western Australia well, specifically designed to suit our position as an isolated State, resource rich, with abundant gas reserves. The policies have provided certainty to investors both in the energy industry and to those who use the energy for manufacturing and to mine and process minerals.
The transition to cleaner energy needs to continue giving investors certainty.
One of the main reasons these policies have succeeded is the rare alignment between the business community and both sides of politics, creating a stable environment that gives investors the confidence they need.
That’s why Amber-Jade Sanderson’s announcement is so significant: it opens the door for business leaders to speak up and urge the government to maintain strong, investment-ready policy settings as the energy transition accelerates.
Both the electricity market and the gas reservation policy need reform to manage the transition.
The gas reservation policy was found by a recent Parliamentary Inquiry to be no longer “fit for purpose”, citing that it needed reform to ensure it continued to work as intended into the future, especially as we require additional gas so we can retire our coal fired generation and introduce more renewable energy into the grid.
Gas-fired generation plays a vital role in backing up renewable energy, especially when the sun isn’t shining or the wind isn’t blowing, and it does so with roughly half the emissions of coal. There also aren’t any other commercially viable alternatives for those companies that use gas as industrial feedstock, at least for the foreseeable future.
The reforms to the WA domestic gas policy are underway, supported by the major gas users, and again, with largely bipartisan agreement.
In electricity too, WA’s own market design, which has a “capacity mechanism” that underpins new investment in power generation, has worked well since the mid-2000s to encourage new investment.
The electricity market is not perfect, most notably, the continued presence of government-owned generator Synergy, which can deter private investment due to ongoing concerns about market power and competition.
The market will need further reform to ensure it sends the right investment signals for developers to build the type of energy we will need into the future, mainly renewable, with large-scale battery storage.
The two markets work well together, and it’s fair to say that the electricity market would not work nearly as well if it weren’t for the secure supply of gas from our reservation policy.
This feature is clearly missing from the east coast energy policy settings. Most players in the energy market in WA, producers and users, look at the east coast with horror. “A complete shambles” is the description I hear most often.
Good policy is grounded in evidence, and Western Australia’s approach to energy policy is a strong example of that in action.
I welcome the consultation process proposed by Minister Sanderson and encourage all stakeholders; energy users, producers, infrastructure owners, and investors to contribute their insights and ideas.
This is a valuable opportunity to refine our policy settings and identify the infrastructure needed to support a successful transition. If we get this right, WA can position itself as a global leader in achieving a cleaner energy future without compromising our competitiveness.
