WA energy utility Synergy to receive more than $700 million in taxpayer subsidies as revenue slides
West Australian taxpayers will fork out almost three-quarters of a billion dollars to subsidise loss-making electricity utility Synergy, which is being battered by low prices and a renewable energy onslaught.
- Synergy will be given $164.5 million this financial year before subsidies ease
- Falling revenue has been compounded by a freeze on electricity prices
- The WA Government predicts reforms will see the utility back in the black
Last week’s WA Budget revealed Synergy was in line to receive more than $700 million over the five years to 2023-24 in so-called financial viability subsidies to cover shortfalls in its revenue.
After collecting $135.9 million in 2019-20, Synergy will be given $164.5 million this financial year before subsidies ease to a projected $134 million at the end of the forward estimates.
The blowout comes after the McGowan Government opted to freeze household tariffs, including electricity prices, to shield families struggling during the coronavirus pandemic.
That decision left Synergy’s prices even further behind the level at which it can recover its costs, requiring the Government to provide annual top-ups to keep the corporation solvent.
It also comes as the operating performance of state-owned Synergy continues to slide, with the provider posting a $27 million loss in the 12 months to June 30 on top of a whopping $656 million loss the previous year.
“These subsidies will ensure that Synergy is appropriately compensated for activities that it is required to undertake on behalf of the Government,” the Budget papers said.
Renewable uptake slashes demand on grid
The Government yesterday alluded to the problems bedevilling Synergy when it released a landmark plan charting a course for the state’s biggest electricity grid, the South West Interconnected System.
According to the plan, soaring rates of renewable energy uptake were hollowing out demand for electricity from the grid, most notably during the middle of the day when solar output was at its peak.
The “whole of system plan” noted such surges often required conventional power plants such as gas or coal-fired generators to dial back their output, or even switch off, to avoid the grid becoming overloaded.
While such actions could be accommodated at minimal cost by gas-fired power stations, the plan found “cycling” coal plants cost up to $150,000 every time they were restarted.
Amid expectations renewable energy will take up an ever-increasing share of the grid’s supply and demand will remain relatively low, the Government expects up to half the state’s coal-fired capacity may need to be shuttered by 2025.
In the meantime, chairman Rob Cole noted Synergy was on the hook for the financial turbulence facing its coal fleet.
“Customers are installing rooftop solar in ever-growing numbers and increasingly wanting to trial new energy technologies such as battery storage to reduce their energy bills, thus resulting in a decreasing demand for our generation,” Mr Cole wrote in the group’s annual report.
“Despite this change, Synergy still bears the burden of very large fixed network costs and maintaining critical coal plants to underpin the reliable supply of electricity in the [grid].”
Subsidies to cover ‘policy decisions’: Minister
Energy Minister Bill Johnston said the subsidies would help cover costs to Synergy from administering government schemes such as solar feed-in-tariffs and renewable energy buybacks.
He also said the Government was also compensating Synergy for the cost of cross-subsidising power bills in remote and regional areas.
“The previous system was inefficient. This is a much better system to keep Synergy’s operating costs low,” he said.
“The subsidies are only covering the cost of Government policy decisions, allowing Synergy to continually improve its financial performance.
“We believe Synergy will move back into profitability in the medium term because of our strong reform in the electricity system.”
Synergy a ‘sacrificial lamb’, Opposition says
Shadow Finance Minister Steve Thomas, whose Upper House electorate covers the Collie coal basin, said Synergy was being used as a “sacrificial lamb” in the switch to more renewable energy.
He said Synergy’s bottom line was likely to take an even bigger hit in coming years as the Government was forced to write down, or write off, the remaining value of its coal plants.
“And you only have to look at the way they use their power stations to understand it is the generator of last resort and being used up at an alarming rate.
“This is a long-term issue where the Synergy assets have been misused to the point that they’re now largely in a difficult position and will have to be planned to be replaced and written off.”
Dr Thomas said governments, including the previous Liberal-National administration, had failed to properly plan for the structural changes facing WA’s coal industry.