Electricity Market


The WA electricity market is known as the Wholesale Electricity Market (WEM). This market covers the south-west portion of the state generally bounded by Geraldton, Kalgoorlie, Albany and the Perth metropolitan area. Electricity customers here are served by the South West Interconnected System (SWIS) as shown in the figure below.

Location of the SWIS

The SWIS is geographically isolated from the National Electricity Market (NEM). The SWIS serves over 900,000 retail customers. Approximately 20,000 of these customers have an annual consumption in excess of 50MWh, so are defined as contestable customers who may choose their supplier. This contestable market, while a small share of total SWIS in customer numbers, actually accounts for about 70% of the market in value and volume terms, or well over $1 billion per annum. Synergy (State owned retailer), Alinta and Perth Energy are the three largest retailers to the contestable market. The remaining customers (residential customers and most small businesses) are supplied by Synergy. It is expected that the contestability threshold will be reduced or removed in the future, opening up the sub 50MWh pa market to retail competition.

The maximum electricity demand in the SWIS is expected to be 4,346MW in 2010/11 and annual electricity consumption including network losses is expected to be 17,409 GWh (source: IMO).

The SWIS is characterised by an unusually peaky load profile, as shown in the figure below.

SWIS Load Duration Curve

In 2009/10, the load exceeded 90% of the maximum demand for less than 0.5% of the year (39 hours), and 80% of the maximum demand for 1.8% of the year (159 hours). The mean load over a 12 month period is approximately 52% of the maximum load.

Maximum electricity demand is highest on hot summer days, typically between 1pm and 8pm, with a peak around 4pm. A typical summer load curve is presented in the below figure. This is due to the widespread use of air conditioning systems to cool houses, shops and offices. Western Power Corporation was disaggregated in 2006, into separate entities, being:

Typical SWIS load curve on a hot summer day

Daily winter peaks are approximately 73% of summer peaks, and occur slightly later (around 6pm) when cooking and heating periods overlap.

Requirement for peaking capacity also comes from another source in recent times, being renewable energy generation support. The Federal Mandatory Renewable Energy Target scheme introduced in 2000, and combined with State Government effort in replicating or complementing the scheme with State based targets, has created a significant market for renewable energy. WA, with its commitment to support the Federal target of 20% of total energy consumption being sourced from renewable fuels by 2020, is undertaking serious effort to bring on renewable generation. The 200MW Collgar wind farm near Merredin is the latest example of this effort. Because energy output from wind farms, the most economic form of renewable supply at present, is not reliable, such generation needs complementing supply from fast-response peaking diesel or gas fired capacity. This "energy balancing" service is highly valued by Western Power's System Management, which has estimated that for every 100MW of wind capacity there may be a need for up to 60MW of fast-response peaking capacity to provide support.

As a result of the peaky profile of the SWIS, the IMO encourages the development of peaking power stations rather than baseload power stations. "peakers" and "super-peakers" are cheaper to construct, but more expensive to operate than baseload stations due to higher fuel costs. Given that most peakers operate at only a few per cent capacity factor in the year, the higher operating costs are less relevant than the initial capital cost.

Approximately 90% of generation "capacity" in the SWIS is fuelled by hydrocarbons, as shown in the below figure. In 2010/11 approximately 28% of capacity is powered by coal, while 65% is powered by either gas or dual fuel (gas and coal/diesel). Diesel, and diesel/gas, fuels about 20% of SWIS capacity. Demand Side Management (DSM) accounts for less than 5% of "capacity". DSM refers to a commitment to stop interruptible loads when required by the IMO, and has the same effect on the SWIS as additional capacity.

Percentage of SWIS generation "capacity" by fuel type

Prior to introduction of the WEM (which commenced on 21 September 2006), the electricity market consisted of a single, State Government owned monopoly (Western Power Corporation). Western Power was responsible for the generation, transmission, distribution and retailing of electricity.

Western Power Corporation was disaggregated in 2006, into separate entities, being:

(a) Verve Energy – A Market Generator which owns and operates the government's SWIS connected generation facilities;

(b) Western Power – A Network Operator which owns and operates the SWIS transmission and distribution network;

(c) Synergy – A Market Customer, which is the largest retailer of electricity in the state, and still the only retailer to homes and small businesses under 5.7kW average demand; and

(d) Horizon Power – Owns and operates the remote, non-SWIS electricity infrastructure.

This structural separation was the first major step toward the establishment of a competitive electricity market. Since the establishment of the WEM the State Government has continued its pro-competition approach to the regulation and oversight of electricity generation and retailing.



The Independent Market Operator (IMO) is the State Government organisation specifically established to administer and operate the WEM. As the market administrator, the IMO fulfils a number of roles within the market, including:

  • -registering participants and their facilities;
  • -developing and maintaining Market Rules and procedures;
  • -conducting market settlement; and
  • -publishing market information.

In its role as market operator, the IMO:

  • -receives information from participants in respect to bi-lateral contracts and the planned output from their generating facilities;
  • -operates the Short Term Energy Market (STEM); and
  • -operates the Reserve Capacity Mechanism (RCM).

The IMO also has responsibility for monitoring and surveillance of the market to identify any rule breaches by Market Participants (Market Participants include any parties subject to the Market Rules).

Economic Regulation Authority

The Economic Regulation Authority (ERA) has substantial involvement in the electricity sector through its licensing and network access responsibilities. In respect to the market, its key roles are market surveillance, and monitoring and reporting to the State Government on the efficiency and effectiveness of the market.

The ERA also has several other approval functions, including:

  • -approving the maximum prices for the RCM;
  • -approving the maximum and minimum energy prices; and
  • -approving the efficient costs for the operation of both the IMO and System Management.

System Management

System Management is the "System Operator", and is contained within Western Power. It conducts short and medium term (up to three years) system planning, including outage planning. It schedules Electricity Generation Corporation resources, while respecting IPP transactions. In real-time it dispatches the power system, and can only change IPP schedules under special circumstances.

Network Operator

A Network Operator is an entity that operates or intends to operate a registered transmission or distribution system within the SWIS. Western Power is currently the only significant Network Operator.

Western Power also has responsibility for metering of electricity usage by end-use customers. This responsibility includes:

  • -the provision of customer meters;
  • -gathering and processing data from these meters; and
  • -providing metering data to the IMO for billing and settlement for energy traded in the wholesale market.

  • Market Generator

A Market Generator is an entity that operates a generating facility to provide energy to the market. Subject to some exemptions in the rules, all generating facilities with a capacity in excess of 10MW are required to register.

The largest generator in the SWIS is Verve Energy, which controls a range of coal, gas and liquid-fuelled power stations. Verve Energy provides the generation capacity required to balance the system in real time and, as a consequence, it is treated differently in the market from IPPs.

Merredin Energy is registered as a Market Generator.

A number of Market Participants, such as Perth Energy and Alinta, are both Market Generators and Market Customers.

Market Customer

A Market Customer is an entity that purchases power from the market either for its own consumption or for retail sale. End use customers, such as residential customers, who purchase electricity from a retailer, are not part of the market. Most Market Customers are retailers. Very few end-use customers buy wholesale power from the market.

The Government-owned Synergy is the largest retailer in the market. It competes with independent retailers to supply contestable customers but is also required to serve all non-contestable customers. Perth Energy and Alinta are the other two Market Customers of note.

The following diagram outlines the market structure, and flow of both energy and relevant payments.

WEM Market Relationships