Is time running out for new generation in WA?

As Western Australia edges towards its next State Election in March, the energy sector continues to be a hot button topic. Already this year, the South West Interconnected System (SWIS) has been forced to navigate record peak demand and highest demand days, a massive test for operators and market participants who successfully dealt with the challenge.  

Despite this resilience, the timely delivery of new generation will be critical to address the forecast capacity shortfall by the end of the decade and ensure a reliable and affordable system for industry and consumers. Removing the bottlenecks preventing new generation from connecting to the grid in a timely manner will be crucial.  

Here we take a look at the challenges of delivering new projects in WA and cast a spotlight on some of the issues that still need to be addressed. 

The future SWIS: high demand and low capacity 

Each year, the Australian Energy Market Operator (AEMO) releases the Wholesale Electricity Market (WEM) Electricity Statement of Opportunities (ESOO). The WEM ESOO is important in setting the Reserve Capacity Requirement (RCR) and it also offers valuable insights into the future shape of the WEM as well as the challenges it will need to deal with. 

A key issue identified in the most recent WEM ESOO is the growing capacity shortfall over the next ten years. As the below figure shows, supply and demand are expected to be largely balanced over the next few years due to the additional capacity procured through NCESS and Synergy’s BESS project in Collie. But as we approach the end of the decade, a forecast of strong demand growth and reduced supply due to the anticipated retirements of coal-fired generation creates a significant capacity shortfall. AEMO concludes that “substantial and sustained investment in new capacity will be required beyond existing and committed capacity, with 391 MW required in 2027-28 increasing to 2,880 MW by 2033-34.” 

Source: Page 7  2024-wem-electricity-statement-of-opportunities.pdf 

The SWIS Demand Assessment 2023 to 2042 (SWISDA), published in 2023, paints an even more challenging picture. The SWISDA was an assessment of potential electricity demand over the next 20 years to meet industry and Government commitments of achieving net zero greenhouse gas emissions by 2050. The aim of the SWISDA was to model the optimal mix of renewable generation and storage required to meet the anticipated demand, and to identify the network augmentations necessary to get the electricity to end users. 

Using a middle path ‘future ready’ scenario, the SWISDA forecasts that generation capacity will increase from 5.9GW in 2022 to more than 50GW by 2042. The majority of this new generation capacity is large-scale wind and solar, rising from 1.2GW in 2022 to reach 41.8GW in 2042. 

A transmission plan for the future 

The required growth in generation capacity foreshadowed in both the WEM ESOO and the SWISDA raises a question: how can the new generation connect to the grid when all of the existing transmission lines in the SWIS are approaching full capacity?  

Stakeholders in WA had been calling out for transmission investment for years and the SWISDA was the first sign of a transmission plan. The SWISDA proposed a raft of upgrades and more than 4,000 km of new high-capacity transmission lines to unlock three renewable generation hubs flagged for the north, east and south, with the first stage to be completed by 2027. But the SWISDA quickly changed from a ‘plan’ to a ‘vision’, and it was soon abandoned and replaced by Western Power’s more conservative SWIS Transmission Planning Update in May 2024. 

Source: Page 7 https://www.westernpower.com.au/siteassets/documents/nom/transmission-system-plan-24v2.pdf 

The SWIS Transmission Planning Update identifies a number of potential transmission augmentations called clean energy links. The Clean Energy Link - North is the first cab off the rank. It involves upgrading the current mix of 132 kV and 330 kV lines between the northern terminal in suburban Malaga and Three Springs in the State’s mid-west region to unlock approximately 1GW of renewable projects. This transmission upgrade is fully funded, and construction will commence soon. However, new renewable projects are already lining up to fill the capacity and it’s understood that the line will be constrained almost immediately. The SWIS Transmission Planning Update also allows for some further augmentations in the north, around Moora, and in the south, to locations outside of Collie. These lines are still in the planning phase and no construction start date has been published. There was no room in the SWIS Transmission Planning Update for an upgrade to the 220kV transmission line that runs east towards Kalgoorlie.  

The investment in the Clean Energy Link – North line is welcomed after years without any transmission planning or investment. For developers with projects in other regions, there is far less certainty about when new transmission will be delivered, who will pay for it, and even when they can start the grid connection process. Most renewable projects are now taking at least seven years to develop and construct1 and any delays in transmission planning and investment threatens to further exacerbate the forecast capacity shortfall and put reliability at risk. In this environment, it’s timely for the State Government to work with stakeholders and consider alternative and innovative ways to fast-track new investment in transmission. 

Releasing the grid connection bottleneck 

The other major bottleneck in the SWIS is the slow and opaque grid connection process with Western Power. The grid connection process has long been a challenge for investors and it came into sharp focus when Western Power’s fifth access arrangement (AA5) was considered across 2022 and 2023. While many stakeholders advocated for binding timeframes and more transparency in the grid connection process, Western Power argued against ‘hard coding’ timeframes and instead sought to continue with non-binding approximate timeframes.  

Western Power did undertake an internal review of the grid connection process to improve communication and reduce the grid connection timeframe, and have established the critical project framework in an effort to prioritise projects that have more prospect of proceeding. The AEC conditionally supported the critical project framework as an avenue to expedite the grid connection process for projects. Western Power assessed the first tranche of projects in 2024 and changed approach during the process to only consider projects on existing transmission lines, while all the other projects were put back in the ‘normal’ queue.   

The critical project framework has merit in an energy sector that is undergoing a rapid transition. But all projects – not just ‘critical’ projects – need improved levels of support if the required capacity is to enter the grid. The first annual progress report prepared by the Economic Regulation Authority on Western Power shows that the average time to receive a grid connection for a project has ballooned from almost 47 months in July 2023 to over 60 months in March 2024. These figures don’t include the impact of the critical project framework, but with projects not on existing lines excluded and given lower priority, the overall impact on grid connection times are likely to be muted .  

The energy sector is constantly evolving and the amount of new projects under development in the SWIS has escalated over the last decade. Western Power is buckling under this weight, with the result being a lengthy grid connection process that has led to unnecessary delays and greater difficulty in allowing the required generation to enter the grid. The AEC has previously suggested measures to expedite the grid connection process for all projects including:   

• Allowing applications to self-select and pay for a premium service that is quicker and more streamlined; 
• Applying some form of service incentive scheme to the treatment of connection applications; and 
• Maximising the amount of technical, commercial and procedural information that is published and made available to proponents upfront to improve the quality of applications and prevent proponents from making speculative connection applications.  

A quicker screening of projects in the enquiry stage and more regular reporting of progress to applicants with expected dates for each stage of the process would also be useful measures to adopt.  

Facing the challenges 

The energy sector is undergoing rapid change as coal generation comes offline in the next few years and the SWIS transitions towards more renewable and gas generation. Getting enough of this new generation online before the expected capacity shortfall is a huge undertaking requiring leadership from the State Government, a flexible and innovative approach from Western Power and continued drive from investors.  

Capital will always flow to where there is certainty. The next State election in WA is scheduled for March 8, and the incoming government needs to give investors enough confidence to proceed with their developments and quickly address the challenges preventing new generation from coming online. A robust transmission plan giving investors certainty about when and where new transmission will be built is long overdue. Such a plan will likely need to consider new and flexible financing models to facilitate the build out of the transmission pipeline. Substantial reform to the grid connection process is also called for.  

The capacity shortfall forecast by AEMO is only a short time away. Any further delays will put at risk the reliability and affordability of our energy system.