ENERGY WHITE PAPER

SUBMISSION COVER PAGE

Name: Gavin Forrest, Western Power and Frank Tudor, Horizon Power Address: Western Power - 363 Wellington Street Perth WA 6000, Horizon Power, 18 Brodie Hall Drive, Bentley, WA, 6102, Australia Organisation (if any): Western Power and Horizon Power Phone number: (08) 9326 4700, (08) 6310 1850 Email address: gavin.forrest@westernpower.com.au, frank.tudor@horizonpower.com.au

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Tania Constable Principal Adviser Resources and Energy Energy White Paper Department of Resources, Energy and Tourism GPO Box 1564 Canberra ACT 2601 June 11, 2009 Dear Tania, RE: Joint Western Power and Horizon Power White Paper Submission Western Power and Horizon Power both Western Australian Government owned utilities have collaborated to put forward a joint submission to the White Paper Secretariat. This joint submission conveys a number of broad themes relating to Western Australias energy future and how this could be considered within the framing of a national energy policy to 2030. Western Power is responsible for the distribution and transmission of electricity in the south west of Western Australia in what is known as the South West Interconnected System (SWIS). Horizon Power is responsible for generating, procuring, distributing and retailing electricity to regional WA outside of the SWIS. It manages one major interconnected system, the North West Interconnected System (NWIS), and over thirty diverse, non-interconnected systems in regional towns and remote communities. Western Power and Horizon Power face a number of unique challenges due to their relative isolation and the sheer physical distances between population, industry and load centres. Between them, Western Power and Horizon Power service the state of WA which occupies the western third of the Australian continent. This is a land area of around 2.5 million square kilometres. With around two million citizens, this equates to just under 10 percent of Australia's population and includes a large minerals and energy industry in the northwest of the state that provides significant export earnings. Subsequently, the role of Western Power and Horizon Power is critical, not only for the state, but for the entire nation. In this submission, we highlight a number of broad themes that pervade the entire energy system. At a high level, any successful energy framework should seek to balance the three imperatives of sustainability, security and prosperity. The balance between these three imperatives must always be carefully calibrated. And while policy settings will be put forward in a Western Australian context, they have broader applicability and are relevant in a national context as well.
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In addition to the detailed responses provided to individual questions found within the six discussion papers, we would like to highlight a number of key, thematic issues:
Any national energy policy should take into consideration the impact on availability and pricing of energy resources at the state level. It is important to view Western Australia separately whenever considering national policies designed predominantly for the NEM. Any long-term national policy which considers international energy and gas markets should take into account links to domestic use, especially as climate change policies start to favour the use of gas. One of the key future challenges in maintaining competitive markets will be the process of market and structural transition towards a low-carbon economy following two decades of deregulation and privatisation of electricity assets. For regulated businesses, there needs to be appropriate incentives to incorporate new technologies and, more importantly, encourage the uptake of new technologies. Concerted effort must be made to ensure that Australia adopts the most suitable technical standards that govern the research, development, and deployment of new technologies.

While Western Power and Horizon Power share common interests in national energy policy, there remain areas of difference. In providing this joint submission it should be noted that each entity faces its own challenges and has flagged a number of issues specific to its area of operations. We thank you for the ability to participate in your regional consultations and the opportunity to provide a formal submission to the Secretariat. In addition, we appreciate the extension given by Marie Illman to June 12, 2009. Yours Sincerely, Gavin Forrest Manager, Strategy Development Frank Tudor GM, Strategy & Business

Map of Western Powers Electricity Network

The South West Interconnected System (SWIS) network consists of nearly 88,000 kilometres of powerlines stretching from Kalbarri in the north, to Kalgoorlie in the east and south to Albany. It is the largest interconnected network in Western Australia and is one of the largest islanded electricity systems in the world. Figure 1 Western Powers Electricity Network

Map of Horizon Powers Service Area

Horizon Powers service area is 2.3 million square kilometres and covers the Kimberley, Pilbara, Gascoyne, Mid West and southern Goldfields (Esperance) regions. Horizon Power is a vertically integrated organisation that manages one major interconnected system, the North West Interconnected System (NWIS), and over thirty diverse, non-interconnected systems in regional towns and remote communities. Its portfolio includes LNG, CNG, diesel, wind, solar, and hydroelectric power.

Figure 2 Horizon Powers Service Area

The North West Interconnected System (NWIS) is the interconnected transmission network in the Pilbara owned by Rio Tinto, Horizon Power, BHP and Alinta (Babcock and Brown). Electricity loads in the Pilbara are expected to rise significantly over the coming years.

Figure 3 North West Interconnected System There is currently no framework that facilitates investment in common user infrastructure, resulting in inefficient investment decisions, no open access for users, duplication of development, and the inability of asset owners to earn return from all users of their assets. Horizon Power supports the urgent development of a framework that would facilitate equitable returns to asset owners and investors by way of a shared infrastructure approach. Studies have suggested that an improved governance framework, coupled with appropriate investment in transmission infrastructure, would deliver the following results: Ensure system security: System reliability and security will increase following the completion of a ring main and the implementation of a governance framework. Reduce energy requirements: Desktop studies indicate that when compared to a gas pipeline with isolated generation, an integrated transmission system with large-scale efficient generation would reduce daily gas consumption in the Pilbara by 186-573 TJ (for medium- to high-case scenarios, respectively) as of 2019. This equates to annual greenhouse gas emissions reductions of 1.3-3.1 million tonnes and a net economic benefit of $675 million to $2.2 billion. Encourage resource development: The construction of the East Pilbara Link would enable small to medium-sized mining projects that could not economically justify isolated power generation, particularly in a capital-constrained environment. Support regional development: The development of the Pilbara into an industrial hub that can sustain energy intensive industry (e.g., downstream processing) and the establishment of a Pilbara city both require a reliable, cost-effective electricity solution that networked transmission offers. Facilitate large-scale generation: Develop more efficient generation, including combined cycle and solar thermal generation, which maximises the utility of the regions natural resources (piped gas, on-site dirty gas, solar, coastal water).

Realising Australia's Energy Resource Potential

Overall Response: Western Australia has significant fossil and renewable resources. These resources are often located long distances from population centres and demand loads. Any national energy policy should take into consideration the impact on availability and pricing of energy resources that will have impacts at the state level. The impact of national policies on states is particularly relevant in WA with the export and domestic use of natural gas. As the electricity system embarks on a decarbonisation process, it will be important that investment in supporting infrastructure, especially electricity and gas networks, be prioritised. This will help facilitate the uptake of transition fuels such as gas and new sources of renewable power. In the long term, there are greater opportunities for government policies to facilitate private investment in better utilising energy resources through planned infrastructure development. The Pilbara and Mid West regions have great development potential, and the availability and pricing of energy remains a key factor in their development.
Question 1. What are the key factors likely to affect the international competitiveness and investment in Australia's energy resources sector? Consideration should be given to: Australian competitiveness as an investment destination Future demand for Australian energy resources and services and investment required in Australia to meet that demand Investment in necessary infrastructure Development of Australia's resources potential for export. Response: At present, the SWIS is predominantly residentially focused. However, as new mineral and energy zones begin to open up, especially in the Mid West, there will be a growing component of resource extraction and refinement-related load growth. There will also be considerable development in the NWIS, which is reviewed later in this section. To ensure greater certainty, which will stimulate private investment, there needs to be stability in policy settings. This need not pick winners, but rather give private investors confidence in predictable returns. One way of achieving this is through concepts such as generation parks or connection hubs, which are value-neutral in their relationship to specific technology and form of generation, but which provide very clear market signals through investment in supporting infrastructure. This kind of policy setting will be needed to prevent industry from continually recalibrating its investment strategies.. Another important policy setting concerns the need to make transparent the true costs of electricity . This does not necessarily mean a full-cost pass-through to consumers, but where there are direct and indirect subsidies, there should be full disclosure. This is also important for R&D funding, so that there are clear mechanisms which explain the rationale for allocation of research dollars in a particular direction. While public monies have a role in early R&D, it is critical that they favour the most promising technologies, which are constantly changing.

As commodity markets recover, there needs to be appropriate coordination of development options so that infrastructure, especially the provision of electricity and gas networks, facilitate further expansion rather than impede it. In addition, it should be recognised the various permit and approvals required for major new infrastructure works have extended the time required to get from concept to final build. Any changes to funding or planning of local infrastructure should harmonise with local regulations in order to reduce delays and allow new projects to be started in a timely manner. Pilbara Characteristics The Pilbara region is a world-class energy (fossil and renewable) and mineral resources region and contributes considerably to the state and national economies. Energy demand in the region has increased substantially over the past few years as iron ore producers have shifted from hematite to magnetite, which requires over ten times as much energy than hematite to produce export-quality product. Over the coming decade, energy demand is expected to increase between two- and fourfold depending on commodity prices and macroeconomic factors. The current infrastructure is inadequate to serve this load and will require major investment in gas pipelines, electricity transmission and generation. Transmission in the Pilbara is largely serviced by the NWIS, though much generation in the region is isolated. The NWIS is the only sizeable system in Australia to function in an uncoordinated manner. At this scale, the continued lack of coordination could lead to further ad hoc development, inefficiency and lack of system security. These problems were identified in various studies 1 commissioned by the Department of Industry and Resources (DoIR), with a recent study concluding that: The lack of proper interconnection and integration of the NWIS is a key issue for the sustainability of power supply to the region, and the resulting problems and risks from this lack of integration are expected to increase over time with system growth . The recommended solution to resolve the energy supply issues in the NWIS is investment in an integrated transmission network together with the creation of an effective governance framework. Government has a role to play in ensuring the development of an effective network of gas pipelines and electricity transmission in the region to ensure maximum efficient generation of gas and full exploitation of renewable resources. This can be achieved through support for an intefrated grid and co-investment in common-user infrastructure and through the facilitation of some form of regulation in the region. The flow-on effects could include reduced energy costs, the facilitation of investment in energy infrastructure, the development of downstream processing, and a positive impact on the regional community. Question 2. What are the key exploration and development challenges facing Australias emerging energy technologiesfor example, solar, wind, biomass, geothermal, marine (wave and tidal)? Response: While Australia is blessed with rich renewable resources, it is vexed by the tyranny of distance, often resulting in large distances between population and renewable sources. The key issue with solar, geothermal and wind resources may not necessarily be their technological limitations, but rather transmission difficulties over long distances. Appropriate incentives should be put in place to deal with these large, up-front network requirements. These challenges will need to take into account legacy assets and the appropriate regulatory frameworks (both at a state and national level) so that there is transparency in costs and incentives and so that regulation favours the cheapest, cleanest technologies. One of the key limiting factors in the further expansion of renewables is the mismatch between when energy is needed by the consumer and when it is produced. Storage of this energy on a
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Allens Consulting, Power for the Pilbara Region: Report to Horizon Power and the Department of Industry and Resources, December 2008

commercial scale is now limited to pumping water into dams. The introduction of new storage devices, facilitated by a smart network, would address many of the problems associated with the integration of renewables into networks and could facilitate the majority of energy actually produced from renewable sources within a few decades. The Pilbara, Mid West, and even the south coast of Western Australia could become renewable energy centres, exporting energy over large distances. At present, the key issue for exploration is the ability to commercialise any prospective discoveries. As such, the planning methodology for transmission and distribution systems, which focuses on proximity to large fossil fuel reserves, will need to be reconsidered. The Pilbara is unique in that it is close to wind, wave and geothermal resources and to 90 percent of Australias known oil and gas resources, has coastal access that could facilitate large-scale combined cycle power generation and, importantly, has a world-class solar resource. As the cost of carbon increases and the cost of large-scale solar technology decreases, the Pilbara could become a net energy exporter by 2030.

Question 3. What pre-competitive data is required to contribute to better energy resources exploration and development outcomes for renewable resources and non-renewable resources and carbon storage in the period to 2030? Response: An underlying policy committed to a comprehensive understanding of the nation's resource potential should form the backdrop of strategies aimed at exploration and development of those resources. Data needed for exploration of geothermal resources, for example, is incomplete or unavailable, and projects such as Geothermal Energy under Geosciences Australia are needed to "access to targeted geoscience information [which] will lower the risk to explorers and investors 2 as well as facilitate the exploitation of this low-emission energy source". Barriers to entry in both exploration and development of renewable energy resources and deployment of related technologies are high, especially to small players, and measures that lower risk and increase certainty would address these issues.

Question 4. How can Australia encourage exploration in relatively under-explored frontier areas? Response: The implementation of an extensive energy grid in the Pilbara, coupled with a governance regime that allows for third-party access, could have a positive impact on the development of new projects in this resource-rich region, with a ripple effect on the exploration sector and the regions economy at large. The provision of a cheap, integrated power solution will remove the need for the large capital costs associated with isolated generation, thus lifting a major barrier to entry for small to mid-tier players. As mentioned earlier in this section, generation parks, otherwise referred to as connection hubs, could play a critical role in state development to promote new energy centres throughout WA. Question 6. What regulatory frameworks will be required for Australias energy resources sector through to 2030? Response: It has been highlighted in a number of other forums that there is a convergence of gas and electricity markets. In WA, there are also the impacts of the convergence of the domestic and international gas markets, leading to debates over reserves of domestic gas. For business certainty, there must be a coherent state and federal approach to regulation of the exploitation of Australias abundant natural gas reserves. Fundamentally, this will require an agreed vision of how the state and nation can best benefit from this natural resource.

http://www.ga.gov.au/minerals/research/national/geothermal/index.jsp

There must also be careful consideration of unintended consequences of government policies. For example, as a result of the Carbon Pollution Reduction Scheme (CPRS), expanded Renewable Energy Target (RET) and market incentives, it is expected that up to 2,000 MW of wind farms will seek connection to the SWIS, although not all of these applications will proceed to build stage. This will have a pronounced impact on the system's operation, and the market framework may need to be adapted to successfully accommodate this energy source. Furthermore, the implementation of climate change legislation will probably lead to an increase in the price of gas at the very time it is 3 required for load-following purposes as the SWIS experiences an increase in intermittent renewables. Energy is required to extract resources, and for this reason efficient power networks should be promoted. Provision of energy across remote and off-grid areas, which are prevalent in Western Australia, should not impede resource exploration and development, making an awareness of local conditions important to policy considerations. Slow approvals processes both at the state and federal level have a flow-on effect in the energy industry where it converges with resource development, making alignment of state and federal policy key to preventing the overlap and conflict that obfuscate intelligent and efficient resource development.

In order to maintain system frequency, within the prescribed limits, aggregate generation and load must be kept in balance in real time. Consequently, instantaneous changes in highly variable sources of generation, such as wind, must be balanced as they occur. The isolated nature of the SWIS means it is not able to alter tie-line import levels to assist with frequency control. Baseload generation plant is slow-acting and therefore only partially able to carry out load-following duty. Load following is generally achieved by maintaining additional gas turbines in reserve to provide sufficient fast-response capability to accommodate the positive and negative changes in wind generator production. Given the spasmodic operational requirements of the load-following plant, it runs at very low efficiency, and hence high cost, compared to more regular use. Based on data from wind farms in the SWIS, Western Power estimates that for current levels of almost 200 MW of wind capacity, around 60 MW of gas turbine capacity would be required for load-following purposes.

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Governance institutional legal regulatory frameworks and community engagement

Overall Response: Western Australia is home to two main electricity grids, the SWIS and NWIS, as well as a number of other smaller isolated power systems located throughout regional and remote parts of the state. None of these grids is connected to the national energy market (NEM). For this reason, the WA electricity market (or, more accurately, sub-markets) is as much affected by international energy prices as it is by events in the NEM, and any national institutional, legal or regulatory frameworks should reflect this. As Western Australia faces a number of unique market and institutional arrangements, it is important to view the state separately whenever considering applying national policies designed predominantly for the NEM. This will be important in any evolution of the current regulatory structures. For new zones of industry, mineral exploitation and settlement, there needs to be appropriately framed regulatory boundaries and guidance. In the case of the Pilbara and the organic evolution of the NWIS, as well as yet to be developed regions in the South West, this remains critical.
Question 1. Could institutional arrangements be further developed to assist in the transformational task to 2030? Response: There are a number of reviews looking at the integration and expansion of renewables into the SWIS. As the levels of renewables increase, institutional structures will need to adapt to accelerate their integration, rather than the current approach of reacting to issues after new renewable energy sources are connected to the system. In this sense, a greater internal research and coordination capacity of the Ministerial Council on Energy would help align national policy objectives with the legacy of state-based systems. There is currently no framework in the NWIS to facilitate investment in common user infrastructure. This has led to inefficient investment decisions, a lack of open access for users, duplication of development, and the inability of asset owners to earn a return from all users of their assets. A framework that would facilitate equitable returns to asset owners and investors using shared infrastructure therefore has obvious merits.

Question 2: What regulatory, governance and rules frameworks best ensure an efficient investment mix across a range of technology types, consistent with the needs of the energy market? Response: Institutional and regulatory frameworks that favour market-driven decision making will by and large deliver the most efficient investment mix across a range of technologies. Policies and frameworks that narrowly pick winners, by contrast, can skew the energy mix to technologies that don't suit existing systems and therebore cannot deliver energy in the most reliable, secure, and economically-efficient fashion. Where government is involved in setting policy and making investments, it should be very predictable, follow a long-term plan and not seek to distort market prices and signals. An understanding of the nature of the energy industry, characterised by large and lumpy investments with long lead time, is fundamental to rational regulatory systems. This will be particularly important as newer renewable energy sources become commercialised.

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Recently enacted climate change policy has seen the accommodation of the current level of intermittent generation in the SWIS without any major problems. At present, the dominant renewable technology is wind. However, the potential for storage devices and base-load renewables may make some of these issues redundant in the medium to long term. While problems associated with wind are being addressed, the chief challenge remains the amount of wind penetration while it is the dominant technology and the time frame in which other renewables, with more desirable system management characteristics, can be encouraged to connect to the grid. The next stage of installed intermittent capacity in the SWIS will impose a much higher quantum of costs than has previously been the case. Thus costs and issues surrounding reliability issues are expected to grow, as well. Load-following and additional spinning reserve impose indirect costs on all participants in the market, which reduces overall market efficiency. Capturing the cost of individual intermittent renewable proposals may make the market processes more transparent and would provide greater visibility for renewables with the lowest total cost, as compared to those renewables with the lowest direct cost. This may be important for ensuring that existing solutions do not become entrenched as renewable generation, such as geothermal, biomass and perhaps wave power, evolve..

Question 4: Is there scope for further convergence of governance for electricity, gas, offshore and onshore energy resources? Response: In Western Australia, the high penetration of gas generation on the SWIS and single pipeline has meant a de facto convergence of gas and electricity issues. This was highlighted with the Veranus incident. While complete convergence of governance may not be necessary, any changes for either area should be considered in a broad context as there could be a number of unintended consequences. There are also a number of energy security issues associated with the convergence of previously separate systems.

Question 5: Can government ownership of assets be reconciled with transparent decision-making on regulation? Response: The tension between government ownership of assets and transparency in regulatory decision-making is acknowledged. These can be addressed through separations of functions (via disaggregation or ring fencing) that ensure conflicts of interest are avoided , or through an enhanced regulatory framework. Each option has associated costs and benefits, which need to be assessed with the particular market in mind. A one-size-fits-all approach will fail to address the unique characteristics of the WA markets.

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International Energy
Overall Response: While Horizon Power and Western Power are both focused on the electricity supply within Western Australia, a large number of their activities are influenced by the international trade in energy and the export of minerals. As the international price of LNG has increased and the investment decisions of large LNG projects remain undecided, the proxy debate over servicing international or domestic markets has manifested in Domgas discussions over reservations for domestic use. This issue is made less transparent by the lack of publicly available information in the pricing of natural gas. This is mainly due to the lack of a deep, fluid spot market and the dominance of bilateral, commercial-in-confidence, longterm contracts. While the issue of international energy is outside of the scope of both Horizon Power and Western Powers business focus, the provision of gas supplies to the SWIS from the North West Shelf and other offshore areas, and their link to electricity supply, was made very evident in the June 2009 Varanus Island gas explosion and subsequent gas shortages. As illustrated by Varanus Island and the general convergence of gas and electricity markets, international issues are starting to have domestic impacts. Any long-term national policy that considers international energy and gas markets should take into account this link to domestic use, especially as climate change policies start to favour the use of gas.

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Investment Competitive Markets and Structural Reform

Overall Response: One of the key future challenges in maintaining competitive markets will be the market and structural transition towards a low-carbon economy following two decades of deregulation and privatisation of electricity assets. Climate change policies will have impacts on physical energy flows, as well as on the functioning of existing markets. While a number of state and national studies are now focusing on the transitional issues associated with climate change policies, there need to be mechanisms that consider the medium- and long-term impacts of such policies, especially as theoretical models are surpassed by practical experience.
Question 1: What are the key factors likely to affect domestic energy sector (for electricity, gas, transport) development to 2030? Consideration should be given to: Energy security implications Supply and demand growth Direct and indirect impacts for the energy sector from carbon pollution reduction response The role of financial markets Response: In the SWIS, which is predominantly driven by household consumption patterns, population, load and peak growth remain the chief concerns for the domestic energy sector. Overall, the SWIS is indirectly affected by mining booms through population settlement, as compared to the direct impact experienced by the NWIS. At a grid level, the rapid evolution of the penetration of small scale renewables, distributed generation (DG) more broadly, and electric cars will shape the energy sector in the coming decade. Smart grids, along with other technologies, will improve network security, but the design and functioning of future networks remain very uncertain. WA mining and industrial energy loads are greatly affected by macroeconomic factors such as global demand for iron ore, commodity prices, and foreign exchange. In the North West, the expansion and development of mining projects in the Pilbara are directly linked to these factors and as such add complexity to electricity providers as long-term demand is highly volatile. Western Australia is the most energy and gas-dependent economy in Australia. Natural gas supplies half of the States primary energy requirements and fuels 60% of the States electricity generation. In contrast, natural gas supplies 19% of the primary energy needs of 4 Australia as a whole. WA's energy market is unique in its dependence on gas for generation. Domestic gas pricing has quadrupled over the past decade although, until recently, electricity tariffs remained unchanged. The fact that the input costs have been variable while the output charge has been fixed has grossly distorted the economic operation of the market. The introduction of the CPRS could exacerbate this as will add another variable input, which is unlikely to be passed through on a variable basis. WA's energy market would benefit from increased diversity of gas supply sources, along with shorter development times.

Question 4: What are the main impediments to long term investment in energy generation?

DomGas Alliance, Western Australias Domestic Gas Security, 2009 Report

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Consideration should be given to: Measures which might encourage generation investment in the future Management of the costs and risks associated with intermittent generation Technology neutrality Response: One of the major impediments to long-term investment in energy generation is lack of business certainty (such as is now being seen in the development and timing of CPRS legislation), which is closely tied to the availability of capital. There are also a number of existing regulatory frameworks that do not allow new generation sources to connect quickly to the grid. The skew towards larger generators, as opposed to aggregated smaller generators (or storage devices), may deter smaller investments and actually encourage traditional types of investment, which are typically large fossil-fuel plants. In the NWIS, the private nature of some infrastructure has impeded development of a true network in the Pilbara, which has serious ramifications for resource and regional development.

Question 6: What international and domestic factors will influence the competitiveness of the downstream petroleum industry to 2030? Consideration should be given to: The ongoing viability of the domestic refining industry Competition in the wholesale market Any barriers to investment in alternative transport fuels? Energy security implications Response: Reliance on few sources of gas supply in Western Australia, along with the tyranny of distance, mean disruptions to domestic refining and processing have severe knock-on effects for the entire state. The explosion in 2008 at the Varanus Island gas processing plant, for example, cut the state's 5 domestic gas supply by 30 per cent and cost the State billions of dollars . The remote regions of the state also rely heavily on liquid fuels (mostly diesel), which bear high transport costs, for both primary and backup generation. Investment in alternative liquid fuels for generation (such as biofuels, or alternatives to liquid fuels altogether), as well as for transport, could also be considered in the investment policy context.

Question 8: What are the benefits of common market arrangements across connected and non connected systems to 2030? Consideration should be given to: Market design over the long term? Barriers to entry created by further integration and aggregatio n? Integrated gas and electricity investment and operation? Competition arrangements Risks to competition, transparency and the consequential price effects associated with the changing market structure? Response: National policies should be adopted provided they are of benefit to all parts of the nation. Generally, national policies attract investment and lower transaction costs. However, consistency doesn't always mean better outcomes for Western Australia, where neither the SWIS

Source: http://www.dmp.wa.gov.au/7202.aspx; source http://www.theaustralian.news.com.au/business/story/0,28124,25553215-36418,00.html]

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nor the NWIS is connected to the NEM. Where national common market arrangements will benefit WA, they should be encouraged, so that in the absence of a physically connected market there are similar market instruments that would allow for greater use of secondary financial instruments as a means of risk management, which is not possible in Western Australia now.

Question 9: What is the role of smart networks to 2030? Response: A smart network that allows bi-directional flow of electricity and is able to manage, amongst other matters, small-scale distributed intermittent generation could address some of the current reliability problems. Initially, a smart network may be able to handle a greater level of DG solutions without disrupting the broader system. Advanced metering infrastructure is also an essential component of a smart networks and helps transform the customer's experience. The use of smart meters in houses, commerce and industry will change demand and patterns of energy use, leading to valuable opportunities for customers and networks alike. Technologies are being developed to better manage network systems and reliability of supply, as more diversified forms of energy are connected to networks. Cost, lead time, and technological integration are challenges that will temper unbridled enthusiasm for smart networks. Smart networks provide the following benefits to consumers and the community: Reduce the impact and duration of system faults. Offer consumers services such as remote billing, remote connection and disconnection and the provision of real-time energy consumption data. Excess telecommunications capacity can be used for regional and remote community services.

Smart networks offer these benefits to energy providers: Enable remote monitoring and control of switching and metering devices in regional systems, giving real-time control of networks from a central location. Reduce costs of servicing remote areas (through reduction in travel and related costs) Demand side management (the ability to introduce peak- and off-peak tariffs and to manage peak load through load-shedding)

Question 11. What factors are likely to impact on the efficient operation of the electricity, gas and transport retail sectors? Consideration should be given to: Current arrangements and how to adapt to challenges to 2030 Those factors which might enhance or reduce competition Impact of gas and electricity market arrangements which may limit the emergence of demand -side participation The factors likely to shape the liquid transport fuel retail market in the period to 2030? What are they and will they enhance or reduce competition? The role of end use. Response: At a high level, consideration should be given to the benefits nationally of all jurisdictions moving to cost-reflective pricing at all levels of electricity sales and removing impediments to passing costs through the system. Furthermore, time-of-use and fully variable pricing will be possible as smart networks become commonplace and as new metering supports this

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kind of pricing mechanism. Bundling of services to remote communities will also be made possible by such increased efficiencies.

Question 12: How should demand side arrangements be most effectively structured across electricity, gas and liquid fuel markets to reduce energy use to 2030? Consideration should be given to: Demand side participation Impact on fuel demand and domestic refining capacity Impact of vehicle technology developments on fuel demand and the fuel mix Future energy use patterns, such as electric vehicles, combined heat and power and micro -turbine technology Response: The WA Wholesale Electricity Market (WEM) currently provides market-based incentives for DSM services. These are chiefly focused on large users that can turn off when required. The emergence of aggregators at the small industrial, commercial and household level may make the functioning of DSM services much different in the future. Smart grids, electric vehicles, and other potential energy storage systems will be successful if they can integrate into existing infrastructure and systems. How electric vehicles are regulated, along with the standards for charging, discharging and potentially ancillary or frequency-keeping roles, could determine the rate of adoption. While the adoption rate of electric cars, and whether they will become a meaningful component of the total car fleet, are unclear, a very small, but concentrated adoption, may soon have an impact at the feeder and sub-station level, with potentially large liability issues arising, especially if levels of functionality and service have to be curtailed.

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Maximising the value of technology in the energy sector

Overall Response: While the electricity system has not changed greatly over the course of the past century, there could be radical changes over the period to 2030. Perhaps more than any part of the energy sector, electricity systems will benefit from adoption of a range of new technologies which are likely to emerge. While picking winners can result in disastrous outcomes, it should be recognised that there is an important balance between the optimal mix of market forces and central planning for assets which have a life span of up to five decades. In terms of new technologies such as electric cars, Smart Grids, Smart Meters, distributed generation, storage devices, the key issues include: Regulated Assets: One of the big issues with new technologies, especially disruptive technologies, is the creative destruction of existing business models and the need for all businesses to respond. For regulated businesses, there needs to be appropriate incentives to incorporate new technologies and, more importantly, encourage new technologies to be utilised. The regulation and treatment of new technologies of a range of items such electric cars and distributed renewable generation should be considered well before they start to become common consumer items. Standards: Australia and Western Australia will never set global technical standards for new technologies. Accordingly, there needs to be a concerted effort to ensure that both the nation and WA adopt the most suitable technical standards and there do not become internal competing standards, especially for infrastructure.

Question 1: What does the Australian community want the energy technology mix to deliver in 2030? Consideration could be given to the following: Conventional technologies New and emerging technologies Energy storage systems Demand reduction and energy efficiency Synergies between technologies The cost of maturating each technology and their timing. Response: The energy needs of the future will keep on rising. We live in a society that is increasingly dependent on electronic technology for every facet of daily living, but whose environmental awareness is also increasing. The result of this tension will probably yield a significant rise in energy demand over the coming decades coupled with a change in the fuel mix that supplies that energy. At present, intermittent renewable penetration is generally limited to 15-20 percent of an interconnected system. Until this technological barrier is broken (through advances in storage technologies and high-penetration renewable-hybrid systems), combined cycle gas turbines

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will serve as an interim solution that provides reliable base-load generation with relatively low emissions. The alternatives to gas would be coal-fired power stations with carbon capture and storage, nuclear power stations or geothermal energy. It is improbably these will be more attractive to Western Australia in the near term than gas. If, along with technological advances, renewable generation offers reliability and cost that are close to those of gas, it will dominate the fuel mix. Consumers will want more control over their energy consumption in order to minimise their costs (assuming a time-of-use tariff is introduced) and carbon footprint. Energy efficiency and other DSM solutions reduce or delay capital expenditure and may also reduce greenhouse gas emissions. Western Australia is strongly affected by its summer peak, which is most prevalent in the Pilbara. Demand-side response, electric vehicles and energy storage would reduce the need for capital expenditure that addresses peak load. Government should facilitate these initiatives by rolling out a smart grid throughout Australia; by enforcing common energy standards and communication protocols in all energy-intensive appliances (such as air-conditioners, refrigerators, boilers and heaters); by subsidising energyefficient appliances (with energy ratings) and building products (insulation) or incentives (audits); and by offering attractive interruptible supply arrangements to households, as well as to industry. These measures would largely shift demand, rather than reduce it. Demand can only be reduced by a larger change in consumer behaviour. It is too early to tell whether consumers will adapt to change or prefer to pay more for status quo demand levels.

Question 3: What key global energy technology initiatives strategically fit Australia's interests and what part will Australia need to play in these (if any) to ensure access to emerging technologies? Response: Western Australia has significant solar, wave, wind and geothermal resources. While there are few areas where large-scale generators are needed, it will be the scaled-down versions of future renewable generators that are of most interest to the State. Given the large distances and significant network costs for relatively small loads, it is the application and scalability that is of most strategic importance to Australia. Australia has one of the best solar resources on earth. However, solar power generation is still significantly uneconomic (even after factoring in RECs and CPRS). Government should encourage investment in technologies and manufacturing processes that reduce the costs of solar-thermal and photovoltaic installations. Additionally, investment in storage technologies, including the facilitation of plug-in electric vehicles (whose batteries can be used for distributed storage), would allow for a higher penetration of intermittent renewable generation onto the grid.

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Our people demographics and indigenous participation

Overall Response: One of the key issues associated with the late 2000s mining boom was the skills shortage. While the economic downturn has diminished the acuteness of the skills shortage, the long-term trends of retiring baby boomers, limited technical experts trained locally, and increased convergence between electricity and information technology infrastructure and software make the source and mix of the future workforce look very uncertain. It is important that a range of electrical engineering skill sets and greater indigenous participation into our workforces be encouraged. This may be achieved by long-term national government polices that consider the remote worksites in Western Australia, the structure of local apprentice programs, and the impact of cyclical mining booms on pay differentials and on overall industry attractiveness.
Question 1: How can the energy sector ensure that it has the human resource capacity needed to enable the transition to a lower-carbon economy? Consideration could be given to: the role of Indigenous workers in the sector the role of female workers in the sector the role of overseas workers in the sector training requirements for workers in the sector.

Response: During the height of the resources boom in Western Australia, industry cited the skills 6 shortage as the number-one issue facing the state's economy. The health of regional economies depends on the reliability and security of their energy supplies, which in turn depend on the vibrancy and engagement of community members employers and employees, customers, students and trainees, leaders and young people. Australian workers or potential workers who may be at a disadvantage because of their location, gender, age, ethnic background, socio-economic status, or other factor should be actively recruited into skill-building programs. Where there are insufficient numbers of domestic workers, industry should be encouraged and assisted to recruit from beyond our borders. Approvals processes should facilitate, rather than hinder, the hiring of and provision of social support services for overseas workers. An understanding of industries' future employment needs is critical to developing and retaining adequate numbers of highly skilled workers. Regular engagement with industry on this matter and coordination with the education sector is important, therefore, for ensuring an appropriate flow of the right skills mix over the long term. Further development of WAs offshore gas industry will offer some indigenous employment opportunities, most likely in the construction phase. It has been suggested, however, that to achieve substantial outcomes, Government should encourage the private sector to train and engage indigenous staff. There is a shortage of indigenous people who are work-ready, properly trained and certified, and many companies have found it difficult to retain those they have employed.

Chamber of Commerce and Industry of Western Australia, "Building Human Capital", 2007

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