Western Australia's Transition To A Competitive Capacity Auction

This report was prepared for EnerNOC.

Executive Summary

The Western Australia Public Utilities Office (PUO) outlined its proposal for reforming the Reserve Capacity Mechanism (RCM) into a competitive auction-based mechanism that meets reliability objectives at lower cost. However, the PUO was concerned that if it instituted the auction immediately, a sudden large drop in capacity payments could impair suppliers and threaten the sustainability of the electricity market. The PUO therefore proposed a transitional mechanism intended to balance the competing objectives of reducing excess capacity and customer costs, while mitigating price impacts on suppliers.

A key element of the PUO's transition proposal is that it would discriminate against demand response (DR), paying a much lower price for it than for generation, to incentivize some DR to exit. Generation would be paid according to an RCM payment curve that declines somewhat more steeply than today's curve.