Decarbonising the Pilbara region 8 min read
The North-West Interconnected System (NWIS) has become a central focus of the WA Government's energy sector reform agenda in recent years. Since the introduction of the Pilbara Regime in July 2021, a series of additional reforms have been set in motion.
These reforms reflect the WA Government's recognition that decarbonisation of the Pilbara region is key to its net zero target. In line with this vision, Energy Policy WA (EPWA) has developed the Pilbara Energy Transition Plan (PET Plan), which invites private sector involvement in developing new, common-use transmission infrastructure, known as Priority Projects.
In this Insight, we explore current and proposed reforms, highlighting opportunities for developers and investors to drive decarbonisation in the Pilbara region.
Key takeaways
- The pace of reforms to the NWIS has been rapid, with an ambitious policy agenda going forward.
- The WA Government is strongly focused on decarbonising the Pilbara region, seeking to leverage significant Federal Government support.
- The PET Plan, particularly Priority Projects, has the potential to significantly transform the NWIS and transmission infrastructure in the region. This presents opportunities for industrial load and heavy industry to decarbonise their operations and increase renewable energy consumption.
- The proposed reforms to the NWIS present a key opportunity for development and investment in transmission infrastructure.
What is the NWIS?
The NWIS consists of a series of interconnected electricity transmission, distribution and generation assets in the Pilbara region. It supplies major mining and heavy industrial customers, coastal towns such as Karratha and Port Hedland, and some remote communities. However, it should be noted that many industrial facilities and communities in the region rely on remote generation, such as stand-alone power systems and microgrids, which are not connected to the NWIS.
The NWIS market does not operate through a central dispatch mechanism; rather, electricity is generated either for self-supply or contracted under bilateral agreements. There are three registered network service providers, APA, Horizon Power and Rio Tinto (NSPs), each operating a vertically integrated business, participating in electricity generation, supply, and in some cases provision of essential system services and retail supply.
Pilbara ISOCo Limited (Pilbara ISOCo) oversees NWIS operations as the independent system operator including administering the energy balancing and related settlement process. The role of Pilbara ISOCo reflects an administrative system operator model, designed to align with the 'light-handed' regulatory regime that applies to the NWIS. Under this model, Pilbara ISOCo performs a series of core functions, while the registered NSPs retain significant control over other system-related functions and operations, in contrast to other electricity networks in Australia such as the Wholesale Electricity Market and the National Electricity Market. The NSPs are also members of Pilbara ISOCo.
How did we get here?
Prior to July 2021, the NWIS operated primarily under informal or bilateral agreements between NSPs. It developed in a somewhat ad hoc manner, as energy companies and industrial facilities invested in generation for self-supply. There was no central planning or coordination framework—each NSP was generally responsible for functions such as system security on an autonomous basis, with no independent system operator in place.
After a series of consultations on the potential for regulatory reform, the WA Government determined there was a need for a formal framework for the NWIS and subsequently announced the Pilbara Regime. The regime would consist of a suite of reforms aimed at addressing, among other things, access and more centrally coordinated system operations. These substantive reforms took effect on 1 July 2021.
Pilbara Regime
Key regulatory instruments
Part 8A of the Electricity Industry Act 2004 (WA) (EIA) sets out the overarching framework for the Pilbara Regime. Amendments to the EIA were recently passed and, once in effect, the Pilbara electricity objective will expressly acknowledge the need to invest in reducing greenhouse gas emissions for electricity services.
The Electricity Industry (Pilbara Networks) Regulations 2021 recognised Pilbara ISOCo as the independent system operator and allowed the Minister to establish the initial Pilbara Network Rules (PNR). The PNR, which includes the Harmonised Technical Rules (HTR), governs the operations of the NWIS, connection standards and approval processes, as well as system security and reliability measures. There have been two rule changes amending the PNR to date, and the Pilbara Advisory Committee (PAC)—which consists of industry representatives—advises the EPWA coordinator on rule change proposals.
The HTR set out technical design and operation requirements for systems and equipment connected to the NWIS. Horizon Power, as a NSP, also has its own set of technical rules which apply to those who connect to its network.
Pilbara ISOCo also develop procedures in accordance with the PNR which outline specific requirements for the processes set out in the PNR. The procedures are currently being developed on an interim basis and can be accessed here.
The Pilbara Networks Access Code (PNAC) regulates access and connection to the NWIS by outlining the requirements for 'covered' networks, which are subject to rules on ringfencing, tariffs and access disputes. The PNAC was modelled on part of the National Gas Rules, which similarly include access provisions for pipelines. The Minister for Energy may decide a network is covered if a person makes an application or an NSP may opt in to become a covered network. Horizon Power and APA's networks are covered under the PNAC and are required to publish access information as part of their obligations.
Pilbara Roundtable
The Pilbara Industry Roundtable (Roundtable) was formed by the WA Government in August 2022, with a broad membership from industry stakeholders in the NWIS and the Pilbara more generally.
The Roundtable released a communiqué in July 2023, supporting the development of common-use transmission infrastructure to support the growth of renewable generation and decarbonisation. The Roundtable agreed that any new infrastructure should empower Traditional Owners and expressed their support for regulatory reform to the Pilbara Regime to ensure it remains fit-for-purpose during the energy transition.
Where are we now?
The consensus goals contained in the Roundtable communiqué form the basis of the PET Plan. The PET Plan aims to increase the scale of renewable generation in the region and facilitate the decarbonisation of the Pilbara to meet the WA Government's net zero target. The WA Government has placed a strong emphasis on involving Traditional Owners and their communities in this process, including benefit sharing and minimising disturbance to country as the PET Plan is implemented.
Priority Projects
The flagship policy outlined in the PET Plan is the development of new, common-use transmission infrastructure, to be built in priority transmission corridors known as Priority Projects. On 13 September 2024, EPWA opened an expression of interest (EOI) process for developing Priority Projects in two corridors in East Pilbara (Hamersley Range and the Great Sandy Desert), and two corridors in West Pilbara (Burrup (Murujuga) and Chichester Range). Construction within these corridors aims to connect current and potential loads, such as strategic industrial areas, and to provide access to areas that will be favourable for future renewable energy projects connecting to the Priority Project. EPWA envisages that Priority Projects may form part of an expansion of the NWIS. The EOI deadline closed on 25 October 2024, and it is anticipated that the EOIs and ongoing regulatory reviews will help develop the design elements to facilitate the PET Plan, such as how charges for 'wheeling' electricity through various transmission assets will apply.
In August 2023, the Federal Government committed $3 billion from the Rewiring the Nation fund to WA to assist in the investment in new and upgraded transmission infrastructure. Funding from Rewiring the Nation is provided as concessional finance from the Clean Energy Finance Corporation. This may trigger significant reform and investment in both the NWIS and the South-West Interconnected System. The WA Government has made clear it will recommend Priority Projects for obtaining this funding, although this does not guarantee that Priority Projects will be successful in obtaining Rewiring the Nation funding.
Where are we going?
In April 2025, the Economic Regulation Authority (ERA) will commence its statutory review of the Pilbara Regime, which is required on the fifth anniversary of the Pilbara Regime coming into force (the Five-yearly Review). The aim of the Five-yearly Review is for the ERA to determine whether the Pilbara Regime is meeting the Pilbara electricity objective, which is being updated. If the ERA finds that the Pilbara electricity objective is not being met, it is to make recommendations for reform in its report, which is due no later than April 2026. The report is then laid before Parliament within six months of receipt by the Minister, who must prepare a response.
EPWA is currently reviewing the PNR with the support of the Evolution of the Pilbara Networks Rules Working Group established by the PAC. The objective of the Evolution of the Pilbara Networks Rules review project (EPNR Project) is to ensure that the PNR and HTR effectively enable and facilitate the planned rapid decarbonisation of the Pilbara region, as well as the shift from thermal sources to renewable generation (ie solar and wind) and storage in the NWIS. EPWA has acknowledged that the reforms surrounding the regulatory regime create mixed signals for potential investors and, as such, has implemented a staggered approach to reviewing the PNR to support early investment decisions. EPWA and the PAC are proposing to present a final implementation plan in February 2025.
The EOI for the PET Plan anticipates that changes to the PNAC will be progressed under sections 120H to 120J of the EIA to ensure the PNAC can support Priority Projects. The EOI flags a review of potential changes related to managing vertical integration, the priority regime for constrained versus unconstrained access and access price regulation. It is expected that EPWA will take the lead on this review and any proposed changes will need to be made available by the Minister for public comment.
As the Pilbara regime contemplates coordination between the NSPs and between the NSPs and Pilbara ISOCo, Pilbara ISOCO sought ACCC authorisation for the parties to engage in this conduct. Currently, the regime is exempt from competition law requirements under the Electricity Industry (Pilbara Networks) Regulations 2021 (WA). This exemption expires in November 2024, and the ACCC authorisation is intended to apply beyond that expiry.
The ACCC considered the public benefits associated with the Pilbara regime and the coordination between NSPs and Pilbara ISOCo to facilitate system security, outage coordination and technical connection standards functions. Within that consideration, the ACCC is balancing any potential public detriments, such as those arising from NSPs sharing information.
In a Draft Determination released in September 2024, the ACCC proposed to grant authorisation for a three-year period, subject to conditions to limit the scope of coordination and information sharing and enhance governance controls. The ACCC's final determination is due by 20 December 2024, following further consultation. The ACCC process has acknowledged the ongoing reform process underway—including the EPNR Project—noting that a three-year authorisation should provide sufficient time for that reform process to take place.
Key considerations
- Access, approvals and operational constraints applying to the NWIS remain challenging when developing new projects. However, there is political support for removing these barriers, so developers should stay informed about the latest updates.
- The infrastructure investment required for achieving the energy transition presents opportunities for developers, Traditional Owners, the local workforce and local contractors.