WA Government releases consultation papers on Pilbara electricity reform

As with many industries, there has been a significant decarbonisation push in the mining sector over the last few years.  However, the mining industry faces additional challenges in this respect due to the often-remote areas in which mines are located.  Unlike many other industries, often mines are not connected to a broader electricity grid and market such as the National Electricity Market (NEM) in eastern Australia or the Wholesale Electricity Market (WEM) in WA, and so they do not have access to renewable power through such grids.

Over recent years, the WA Government has started to focus on facilitating decarbonisation in the Pilbara region, which hosts a significant portion of Australia’s mining sector, including BHP, Rio Tinto and FMG’s iron ore mines.  This has involved a number of reforms to mature the electricity sector in the Pilbara, facilitate development of necessary infrastructure, and move towards a common-use, centrally coordinated grid – enabling greater decarbonisation for miners in the area in a similar way as in the NEM and WEM.

This push now continues with the release of two further consultation papers on electricity reform in the Pilbara:

• Evolution of the Pilbara Electricity Access Regime: Consultation Paper (Access Regime Paper)
• Evolution of the Pilbara Networks Rules: Consultation Paper (Networks Rules Paper)

(together, the Consultation Papers).

Key takeaways

• The reforms proposed in Consultation Papers build on electricity reforms introduced in the Pilbara in 2021, which included the introduction of the Pilbara Networks Access Code, Pilbara Networks Rules, Harmonised Technical Rules and Independent System Operator (ISO).
• The reforms are intended to further facilitate the development of electricity infrastructure in the Pilbara, which will help drive decarbonisation by unlocking opportunities for renewable developers and offtakers. They will build upon the reforms introduced to date as well as the State’s Pilbara Energy Transition Plan, which involves the construction of common-use transmission infrastructure in 4 key corridors in the Pilbara.
• Key components of the proposed reforms include:
  • automatic ‘coverage’ under a light-handed access regime for any new transmission assets that are built in the Pilbara, coupled with other access reforms to ensure that third parties can obtain appropriate access to transmission infrastructure;
  • enhanced ringfencing measures to manage the impact of vertically integrated network service providers on access seekers and network users;
  • the introduction of a capacity forecasting and procurement mechanism which will require participants in the North-West Interconnected System (NWIS) to ensure they procure sufficient capacity for their requirements, or pay for shortfall capacity procured by the ISO if they do not; and
  • the introduction of a day-ahead trading mechanism open to all participants in the NWIS, allowing trading around contracted positions, together with a real-time balancing mechanism open to certain facilities from whom the ISO procures back-up capacity.
• Energy Policy WA is currently accepting submissions on the Consultation Papers, with consultation closing on 15 April 2025.

Recap

Over recent years, the Pilbara electricity sector has been the subject of a number of reforms and developments, including:

• Access regulation: the introduction of access regulation in 2021 via the Pilbara Networks Access Code (PNAC), which resulted in the networks owned by Horizon Power and APA (formerly Alinta) in the Pilbara becoming ‘covered’ under a light-handed access regime to allow third party access (with the potential for other networks to become covered in future). This regime is based on a negotiate/arbitrate model, where access is by negotiation between the parties, with an arbitration fallback.  Under the PNAC, there is not currently full economic regulation like there is for distribution and transmission networks in the NEM and for Western Power’s network in South-West WA, but the option is left open for Pilbara networks to become subject to this kind of ‘full coverage’ if the Minister for Energy deems it appropriate in the circumstances.
• Establishment of ISO, Pilbara Networks Rules and Harmonised Technical Rules: the NWIS, which is the main electricity system in the coastal Pilbara (around Port Hedland) is a collection of loosely interconnected networks owned by various entities (including Horizon Power, APA, Rio Tinto, BHP and FMG), meaning there has historically been little central coordination or planning. In 2021, an ISO was established, together with the introduction of the Pilbara Networks Rules (PNR) and Harmonised Technical Rules (HTR), to assist with a more centralised, coordinated approach to the development and operation of the NWIS (and other covered networks in the Pilbara).
• Pilbara Energy Transition Plan: in late 2023, the WA Government approved the Pilbara Energy Transition Plan (PET Plan) to support decarbonisation in the Pilbara. The PET Plan proposes the establishment of 4 common use infrastructure transmission corridors in the Pilbara.  In September 2024, the WA Government sought expressions of interest from project proponents for the construction of this transmission infrastructure, with the successful project proponents being APA Group (for two of the corridors), Yindjibarndi Energy Corporation and AREH Pty Ltd.  This infrastructure will link key areas of the Pilbara and allows for a more centrally-coordinated approach to network development.  It will open up opportunities for mining companies to access power, including renewable power, from more sources (and for developers to supply such power).

Current consultation

The current consultation aims to build upon the above reforms and facilitate further developments in the Pilbara electricity space.  The reforms proposed in the Consultation Papers are wide-ranging, with the key proposals including the following.

Access Regime Paper

• All new Pilbara transmission assets will be automatically covered under the light-handed access regime (except for certain small connection assets). This means that third parties will have a clear pathway to obtaining access to future transmission developments (including the PET Plan corridors).  It is proposed that existing uncovered networks be exempt from this – although such networks will always be subject to the possibility of a coverage application being made.
• Further ringfencing measures will be introduced to manage vertical integration of network service providers, with the preferred approach being to require certain ‘sensitive’ functions in respect of electricity networks (such as managing the queue for access applications and monitoring or approving access contract terms) to be managed by the ISO rather than by the network service provider.
• Amendments to the regime to:
  • allow for connecting parties’ electricity to physically flow through any network where the connecting party has access rights to the entry network and exit network (eg if a generator is connected to Network A, the user’s mine is connected to Network C, and Network B connects Networks A and C, then provided the user has rights to inject electricity into Network A and withdraw electricity from Network C, that electricity can flow through Network B without the user needing a separate contract with Network B);
  • tariff reforms to ensure that users pay for network use appropriately (such as ensuring that the user in the example above pays a transmission use of system tariff for its use of Network B, even though it does not have a direct contract with Network B); and
  • regulate interconnection contracts between two networks to ensure that these contracts do not impose unnecessary barriers to users’ use of networks (eg by imposing technical requirements that are then pushed down to users under their access contracts with individual networks).
• Introduction of the possibility of revenue control being imposed on a covered network in appropriate circumstances. Importantly, it has been flagged that the PET Plan corridor projects may be asked to commit to revenue control in their development agreement with the State.
• Introduction of a set of model access terms which can be used as a basis for negotiation and as a benchmark in any arbitration.
• Imposing limits on foundation customer rights that may impact access for other users, such as expansion rights that sterilise spare capacity in a network.

Network Rules Paper

• The introduction of an n-1 reliability standard for all parts of the NWIS (with Energy Policy WA acknowledging there will be flexibility for this to be met with non-network options, eg demand response agreements, where appropriate to allow transmission elements to be designed to an n-0 standard).
• The introduction of a capacity forecasting and procurement mechanism, under which:
  • the ISO will determine capacity requirements in the NWIS and each individual consumer’s contribution to the requirement;
  • consumers will be required to provide evidence that they have procured sufficient capacity to meet their capacity requirement; and
  • if there is a projected capacity shortfall, the ISO will procure additional capacity via a competitive tender process and pass the costs on to consumers who have not procured sufficient capacity themselves.
• The introduction of a contingency reserve lower essential system service once energy storage penetration increases, and a move to a ‘causer pays’ model of essential system service cost allocation.
• The introduction of a day-ahead energy trading mechanism. This will allow participants to submit bids and offers to purchase or supply energy around their contracted position and will assist in more efficient dispatch.  There will also be a real-time balancing mechanism; however, unlike in the NEM and WEM, participation in this mechanism will be limited to facilities from whom the ISO has procured back-up capacity (with costs recovered from participants who have an energy imbalance for the relevant trading interval).
• A restructuring of the ISO, including:
  • the ISO taking the control room function, which is currently delegated to Horizon Power, in-house;
  • the board of the ISO being made of up independent directors, rather than the current system of the majority of ISO directors being appointed by APA, Horizon Power and Rio Tinto; and
  • recovery of ISO costs from all NWIS participants (based on their gross injection and withdrawal of energy into / from the NWIS), rather than costs being evenly shared between APA, Horizon Power and Rio Tinto.
• The introduction of a specific process for new networks (as opposed to other types of facilities, eg generation and storage) connecting to the NWIS (which will be managed by the ISO).
• Amendments to ensure that the HTR represent the only technical standards for the NWIS (rather than individual networks having their own technical standards in addition to the HTR, which may also need to be complied with for connection).

Next steps

Energy Policy WA is currently accepting submissions on the Consultation Papers, with consultation closing on 15 April 2025.  Following consultation, Energy Policy WA will report to the Government, and this may then result in more detailed design work (and consultation) being undertaken to progress these reforms.