SWIS Demand Assessment

The SWIS Demand Assessment is a fast-tracked assessment of future low-emissions electricity demand and an analysis of the network, generation and storage infrastructure that would be required to support it. The SWIS Demand Assessment was announced on 24 August 2022 with the results publicly released on 9 May 2023.

The Assessment was delivered by a Treasury-led Taskforce, comprised of membership from the Department of Treasury, Energy Policy WA, Western Power, the Department of Premier and Cabinet, the Department of Jobs, Tourism, Science and Innovation, and the Department of Water and Environmental Regulation.

The SWIS Demand Assessment has provided a vision of a possible future for the State’s main grid, the South West Interconnected System (SWIS). Least cost network augmentations, generation and storage augmentations and additions have been identified for increased SWIS demand. The assessment found that the SWIS may need around an additional 4,000km of new transmission lines and around 50GW of new renewable electricity and storage infrastructure to support increased demand over the next 20 years.

 The public report of the SWIS Demand Assessment can be found below.

The modelling suggests significant investments in the SWIS transmission network are required in all directions (North, South, East and Central). The potential network augmentation is broken into three stages over the 20 year modelling horizon.

Western Australia’s industry and government will need to use renewable energy to decarbonise and, fortunately, the South West has some of the world’s best renewable energy resources. However, transmission network is required to ensure the electricity generated from these resources can get to where it is consumed.

Expanding the SWIS transmission infrastructure will provide access to high quality and diverse renewable energy resources in areas where the network is currently constrained and/or new areas outside the current SWIS.

The focus of the fast-tracked SWIS Demand Assessment was to understand industrial demand growth and to identify the potential transmission network, generation and storage requirements to support this. Assessment of the distribution network was not captured.

The McGowan Government has committed $126 million of funding to progress planning and scoping for Stage 1 network augmentations, and some long-lead items, as well as some network upgrades and internodal works. This funding will also support the development of business cases for further augmentations to be progressed by Western Power. In addition, $1.25m has been allocated to Energy Policy WA to:

• consider possible structures for a new specialised facilitation body to coordinate this work;
• further investigate the regulatory, commercial and legal requirements to establish renewable generation hubs connected to the SWIS; and
• progress amendments to the regulatory framework in order to enhance flexibility for network investment decisions.

The scale of investment outlined in the SWIS Demand Assessment is large and the establishment of a facilitation body is envisaged which will expedite delivery of new network and network augmentation. The timelines indicated in the report act as a guide to when a particular stage might be complete, noting that this is subject to many things including approval of business cases, stakeholder engagement, detailed engineering, and environmental approvals.

The SWIS Demand Assessment was completed over a short time-frame in recognition of the need to gain early insights into the impact accelerated decarbonisation ambitions may have on infrastructure requirements. As a consequence, the number of permutations that could be considered for detailed analysis was restricted. While four scenarios were developed for the SWIS Demand Assessment, only the Future Ready was subject to detailed analysis.

While specific industry stakeholder engagement informed the demand forecast, the projected demand growth could represent any project and is not necessarily reflective of a specific project or projects.

An emissions constraint was not applied to the model. However, the previously announced closures of Synergy-owned, coal-fired generators in the SWIS are reflected.

The least cost mix of wind, solar, battery storage, long duration storage and flexible gas capacity needed to meet electricity demand in this modelling has resulted in over 80% of energy consumed from 2030 coming from renewable generation, expanding to 96% by 2042.

A mixture of energy storage, renewable energy resource diversification, and additional gas firming generation acts to maintain reliability when wind and solar generation output is low. Increasing the diversity of renewable energy resources and energy storage also reduces the likelihood of long or frequent periods where the majority of generation is inactive at the same time.

A Renewable Generation Hub is a designated area where renewable generation facilities are co-located. This modelling has indicated that these hubs would form part of a least cost solution to meet large increases in energy demand in the SWIS by opening up access to areas with strong or diverse renewable energy resources previously outside of the SWIS.

The model considered a range of possible renewable hub locations and included consideration of land constraints, renewable energy resources and diversity of renewable resources. Government has asked that Energy Policy WA further investigate the regulatory, commercial and legal requirements to establish renewable generation hubs connected to the SWIS.

The development of any particular network addition or augmentation will be supported by detailed business cases developed by Western Power. The costs and funding details of each proposal will be determined through this process. Ongoing consultation with industry will shape how network additions or augmentations are funded and how costs might be allocated.

From 2030, a long duration energy storage technology with a 10 hr duration is assumed to be available and allowed to be built by the model. The long duration energy storage technology is based on compressed air energy storage and pumped hydro energy storage operational characteristics and costs. If this, or a substitute technology is unavailable by 2030, additional battery energy storage capacity with a shorter duration, additional gas capacity, or increased Demand Side Management participation may be required.

The Future Ready scenario anticipates additional gas generation will be required to provide firming to the energy system, noting significant increases in electricity demand over the modelling horizon. Other low-emissions technologies like energy storage or hydrogen fuelled gas generation may supplant the flexible gas generation modelled.

Offshore wind generation was an option available to the model, however these resources were not utilised in the Future Ready scenario. If, in reality, there are challenges in building substantial onshore wind and/or offshore wind becomes more commercially viable then it is likely offshore wind will be built. The State Government is supportive of the development of the offshore wind industry and is open to it being a part of the future generation mix.

The uptake of electric vehicles and rooftop solar form part of the underlying demand projection produced by the Australian Energy Market Operator for the Wholesale Electricity Market Electricity Statement of Opportunities. These demand projections were extrapolated for the increased study period of 20 years. Rooftop solar is seen to continue to provide a material contribution to supply in the SWIS. Household participation though Virtual Power Plants or Vehicle to Grid was not explored in this work.

The SWIS Demand Assessment used the same modelling framework as the 2020 Whole of System Plan and builds on its findings. The next Whole of System Plan was due to be delivered at the end of 2023, but it was requested that modelling be brought forward through the SWIS Demand Assessment in recognition of the urgent need to understand industry decarbonisation ambitions that rely on additional renewable electricity. The development of a Whole of System Plan has particular requirements under the Wholesale Electricity Market Rules.

With the SWIS Demand Assessment complete, consultation with existing and new industrial users will now progress to inform a network investment strategy, including mechanisms for industry contributions and third-party investments. Concurrently, Energy Policy WA will progress the regulatory reforms and further work on Renewable Generation Hubs and facilitation vehicle.

The Future Ready scenario was developed using data and input from industry that will remain commercial in confidence. However, the modelling framework, including the methodology, reflects that which was used to deliver the Whole of System Plan 2020. Information on this is publicly available. This includes using inputs and assumptions largely taken from publicly available sources such as the latest GenCost Report produced by the CSIRO and the Australian Energy Market Operator and used in the development of the Integrated System Plan for the National Electricity Market.

The WA Government is considering a package of further Wholesale Electricity Market reform initiatives aimed at enhancing investment certainty for renewable and storage proponents in the SWIS. They include: 

• Changing the reserve capacity price curve so it is sending a sharper signal for investment when demand for new capacity is stronger.
• Introducing a 10 year reserve capacity price guarantee for new technologies, such as long-duration storage.
• Introducing a wholesale energy price guarantee for renewable generators, to effectively top up their energy revenues as Wholesale Electricity Market prices start to decline, in return for them firming up their capacity (for example, by signing bilateral contracts with storage facilities).
• Introducing emission thresholds for existing and new technologies in the Wholesale Electricity Market so that, progressively, only resources with emissions below these thresholds receive reserve capacity credits/revenues.

To ensure orderly transition and maintain reliability, a 10 year exemption from the emission thresholds will be introduced for existing flexible gas plant that qualifies to provide the new flexible capacity product developed under the Reserve Capacity Mechanism Review.

The Government is delivering on the outcomes of a number of Wholesale Electricity Market evolution reviews, the most significant of which is the review of the Reserve Capacity Mechanism. The outcomes of Stage 1 of the RCM review were released on 3 May 2023.

The Reserve Capacity Mechanism Review will result in more incentives for investment in the type of capacity needed by the Wholesale Electricity Market. The proposed flexibility product, which will top up capacity revenues for flexible capacity such as storage and flexible gas plant, is one example of the kind of incentives proposed in the Reserve Capacity Mechanism review.

The review also assessed options to implement penalties for high emissions technologies, and has highlighted a number of issues related to certainty for investment in reserve capacity. While not directly part of the review, these require attention.

As a result, Government is considering a package of further Wholesale Electricity Market reform initiatives aimed at enhancing investment certainty for renewable and storage proponents. Better certainty for investors in new flexible energy technologies will help meet emission reduction objectives while maintaining reliability and in the SWIS.

The current reserve capacity price curve was established in the Wholesale Electricity Market Rules at the time when there was significant excess of reserve capacity in the Wholesale Electricity Market. Recent changes, including fuel supply limitations and increases in forecast demand, have resulted in capacity margins being tighter than the Wholesale Electricity Market has typically experienced.

While there are existing mechanisms in the Wholesale Electricity Market designed to address such circumstances, the objective of this initiative would be to change the reserve capacity price curve so it is steeper if capacity is short but flatter if capacity is oversupplied. This would provide stronger incentives for investment in reserve capacity by increasing the reserve capacity price faster when a “shortage” is projected by Australian Energy Market Operator.

The objective of this initiative is to allow proponents of new flexible technologies, such as long-duration storage, to request to fix their Reserve Capacity Price for 10 years, instead of five as is currently allowed for in the Rules.

This will provide longer price certainty for long-duration storage and additional incentive for investment in these technologies, and allow more variable renewable generation to connect without compromising reliability.

The Reserve Capacity Mechanism Review modelling has indicated that the profitability of wind and solar decreases in the later part of the decade, resulting in insufficient Wholesale Electricity Market revenues past 2030. This is driven by a decrease in average wholesale electricity prices. As renewable generators have very low variable cost, the Wholesale Electricity Market energy prices are likely to rapidly decline once fossil fuel plant exits the Wholesale Electricity Market.

The objective of this initiative would be to top up the energy revenues for renewable generators so they equal the revenues of renewable generators before Wholesale Electricity Market prices started to decline. This will create revenue certainty to renewable generators, while not increasing energy prices. These top-up revenues will be available to renewable generators which can demonstrate in the Reserve Capacity Mechanism certification that they have firmed up their capacity by, for example, contracting with a storage facility.

Emission thresholds would be introduced in the Wholesale Electricity Market (WEM) Rules for both existing and new generators, and these will be reduced gradually for existing facilities. Existing generators with emissions above these thresholds would lose their ability to receive Capacity Credits in the Reserve Capacity Mechanism.

Signalling the emissions thresholds years in advance would reduce the need for the Australian Energy Market Operator to second guess the ongoing viability of existing thermal generators as there will be clear cut exit dates in place. This would also create opportunity for low emission technologies, such as renewable generators, to enter the market once fossil fuel plan loses its capacity credits.

The objective of this initiative would be to ensure orderly transition and maintain reliability, by providing a 10 year exemption from the emission thresholds for existing flexible gas plant.

This is to ensure that flexible gas plant, required to maintain reliability, does not prematurely exit the market. Together with the penalties regime, this would allow the exit of high emission generators from the Reserve Capacity Mechanism, while maintaining the presence of efficient gas generation and reliability in the Wholesale Electricity Market.