As far as we can tell, nobody has published total cost estimates for Western Australia’s Wholesale Electricity Market (WEM).
This is most likely due to the significant (but opaque) role of bilateral contracting in the energy market, which makes up >80% of energy traded in the WEM. Because the details of these contracts are not made public, one can only estimate the cost of bilaterally traded energy.
However, there is enough public data available to make reasonable enough estimates, which is what we’ll attempt to do here.
WEM trading volumes
The table below provides an overview of the volumes of energy traded in the WEM over the past four calendar years, with a breakdown of the proportions traded via bilateral contracts, the day-ahead Short Term Energy Market (STEM) and the real-time balancing market (along with average balancing prices).
|Short Term Energy Market (STEM)||MWh||754,117||731,906||639,974||631,165|
Of interest are the relative shares of bilateral, STEM and balancing volumes in the total amount of energy traded. While total consumption has remained fairly flat in the last 4 years (fluctuating between 17.2 and 17.8 TWh), the share of bilateral contracts in the total mix has fallen steadily from 95% in 2017 to 83% in 2020. In the meantime, the volume of energy traded on the balancing market has increased its share from 1.4% in 2017 to 12.9% in 2020.
What price to put on bilaterally traded energy?
Bilateral contracts are inherently private transactions where the terms are known only to the counterparties. However, a regulatory scheme imposed by the government after the re-merger of Synergy and Verve Energy in 2014 to mitigate the risk of anti-competitive behaviour (called the Electricity Generation and Retail Corporation Regulatory Scheme) sheds some light on the range of prices one could expect from bilaterally traded energy.
Synergy is required to publish information on its Standard Products, which since 2017 has applied the same Energy Forward Curve to set transfer prices between Synergy’s Generation and Retail arms. Using the Standard Product historical pricing data, the following average annual prices are calculated:
|PEAK (*) BUY||$/MWh||47.36||46.50||58.42||60.01|
|PEAK (*) SELL||$/MWh||56.87||58.12||63.02||75.01|
(*) PEAK periods are between 8 am and 10 pm.
The average price for bilateral contracts will most likely fall somewhere between the FLAT BUY and PEAK SELL prices. Taking the midpoint as a rough estimate of the average bilateral price and comparing this estimate to average balancing prices indicate that the prices broadly line up:
|Average bilateral price estimate||$/MWh||48.42||49.22||52.44||60.95|
|Average balancing price (volume-weighted)||$/MWh||53.19||48.71||50.05||62.90|
Total wholesale market costs
A breakdown of the wholesale cost components in the WEM is shown in the table below:
| Reserve Capacity |
|Load Following||$||56,408,659 (*)||72,243,264||76,100,796||66,335,324|
|Spinning Reserve||$||21,867,113 (*)||13,049,364||18,371,164||20,883,843|
| Load Rejection |
|System Restart||$||2,912,462 (*)||2,577,445||1,116,098||920,674|
(*) Ancillary services costs for 2020 are estimated as the latest Ancillary Services Report has not been released at the time of writing.
Note that the table above excludes the following cost components that would also be included in an end-user’s electricity bill:
- Western Power transmission and distribution network access fees (including metering)
- Renewable and environmental government policy costs, such as the renewable energy target
- Electricity retailer (e.g. Synergy) fees
Unit wholesale cost breakdown
Finally, the unit cost breakdown (in $/MWh) can be calculated by dividing total costs by total consumption in the WEM:
| Reserve Capacity |
| Load Rejection |
Appendix: Data sources
|Energy||WEM Weekly Market Report||AEMO|
|Energy||Historical Standard Product Prices||Synergy|
|Reserve Capacity||Historical Reserve Capacity Prices||AEMO|
|Reserve Capacity||Capacity Credits Assigned Since Market Start||AEMO|
|Ancillary Services||WEM Ancillary Services Reports||AEMO|
|Ancillary Services||Ancillary Service Requirements Decision 2019/20||ERA|
|Ancillary Services||Ancillary Service Parameters Determination 2020/21||ERA|
|Market Fees||WEM Market Accounting Reports||AEMO|