Electricity, why is it so hard?  

by Martin Jurat
Managing Director
Amanda Energy


Faraday worked out how to generate it 200 years ago. Ample time to get policy in place? Why is it so hard? The recent plethora of politics and policy has only made it more confusing.

The NEM and the NEG

Firstly, the National Energy Market and the proposed National Energy Guarantee are over east. “National” does not include WA! Pricing is very different to WA, more laissez-faire. It should be incredibly competitive, generators bid electricity into the grid every 5 minutes of every day. There is a price cap mechanism, but look out, it’s about $14,000/megawatt.

The WEM and the Why

WA has the Wholesale Electricity Market operating in the Western Power grid. It is fundamentally different to the east because we are the most isolated large electricity grid in the world. We can’t run an extension cord over the Nullarbor and plug into the NEM, the cost and electricity loss is too high over that distance and temperature.

We don’t run out of electricity because we pay our generators a capacity charge to be on standby. They are paid for their “capacity” to generate. Generators bid into our grid every 30 minutes of every day and although they get paid for capacity, the price cap mechanism is about $500/megawatt, not $14,000.

The Why of expensive and the How of cheaper

The key to getting the best value electricity is understanding what charges make up your electricity bill. For a typical WA business, the cost of supply is about 20% for the capacity charge and 38% for transmission. The actual spark coming out of your power point is only about 33% of the bill. Electricity is cheap, capacity and transmission is expensive.

Next time you tender electricity, the cents per kilowatt are important but not as important as the opportunity to reduce capacity and transmission charges. Know your electricity supplier personally, tell them you want a tailored electricity analysis and a plan to reduce the total cost, not just the cents per kilowatt.

For more information about any of the contents of this article or for an electricity analysis, please contact Martin Jurat at  martin@amandaenergy.com.au


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