Attempts by the WA Government to limit power price rises could lead to inflation-busting bill hikes or taxpayer-funded bailouts down the line for the state's stricken power retailer, energy experts and the Opposition warn.

Key points: Synergy has been crippled by the huge uptake in solar and other renewable power

Synergy has been crippled by the huge uptake in solar and other renewable power It still has to stabilise the power grid through costly coal- and gas-fired plants

It still has to stabilise the power grid through costly coal- and gas-fired plants The Government insists it won't raise power prices to ease the financial pain

State-owned Synergy last month handed down the biggest financial reverse ever reported by a WA Government trading enterprise, booking a $657 million loss for the 12 months to June 30.

At the heart of the result was the runaway uptake of rooftop solar and large-scale renewable energy, which Synergy said was hollowing out demand for electricity from its coal- and gas-fired power plants.

Revenues fell by 4.7 per cent to $2.84 billion, while the amount of solar in the South West grid rose by more than 20 per cent to 1100 megawatts of capacity.

Synergy says the rise of renewable energy, particularly rooftop solar, is partly to blame for its woes. ( Randy Montoya: Creative Commons )

The dire performance prompted Synergy to announce in August that it would bring forward the partial closure of its biggest coal-fired generator, Muja in Collie, from 2022.

On the back of the decision, Synergy wrote down the value of its plant and equipment by a massive $430 million.

This has left the group with a net asset value of just $250 million, compared with $1.13 billion in 2014, once provisions for huge costs such as decommissioning Muja are offset against the value remaining in its assets.

Synergy is bringing forward the partial closure of its biggest coal-fired generator, Muja. ( ABC News: Eliza Borrello )

Over the same time, cash and cash equivalents plummeted from $508 million in 2014 to $128 million last year.

More worryingly for the utility was the decline of its net cash flows, which plunged from a surplus of $60.6 million in 2017–18 to a $93 million loss on a cash basis in the past financial year.

Price hike vs bailout

Adam McHugh, an honorary research associate at Murdoch University, said Synergy would eventually face a reckoning.

He said taxpayers were already paying for the deterioration in Synergy's bottom line, given this year's loss meant it would not provide a dividend to the State.

Synergy last month posted the biggest financial reverse by a government trading enterprise. ( ABC News: Marcus Alborn )

"If something is not sustainable, by definition it's not sustained," he said.

"When you're Government-owned, you've always got the recourse of asking for the Government to borrow … to make up any revenue shortfall. And Synergy's obviously Government-owned.

"That's one way of sustaining an increasingly large gap between revenue and costs.

"The other is increasing prices."

No power price rises: Minister

Despite the setbacks, Energy Minister Bill Johnston insisted the Government would not grant Synergy bigger power price rises to ease the pain.

Mr Johnston said the decision to write down the value of Synergy's assets was long overdue and the previous government's failure to do so had left the utility with artificially high costs that had to be recovered from consumers.

As a consequence, he said the previous government was forced to tip in $750 million to subsidise Synergy's costs.

Bill Johnston insists big hikes in the energy price will not be allowed. ( ABC News: Jacob Kagi )

"The important thing for the community to understand is we're not increasing the price of electricity by a large amount anymore," Mr Johnston said.

"And the reason we can do that is because it's a Government-owned business and we can tell it what to do."

Something's got to give: Opposition

Mr Johnston's insistence drew scepticism from shadow energy minister Dean Nalder, who said the slide in Synergy's financial health was unsustainable.

He said Synergy had a high cost base needed to pay for its ageing fleet of power stations, as well access to the network of poles and wires owned by Western Power.

Dean Nalder says Synergy's financial situation is not sustainable. ( ABC News: James Carmody )

But he said Synergy was unable to materially grow sales revenue because the Government was keeping a lid on price rises for households — over which it has a monopoly — and it was faring poorly in the contestable market for bigger users.

Mr Nalder said sooner or later something would have to give and there would need to be catch-up price increases or a Government bailout to ensure Synergy stayed solvent.

"It's a record loss … and it will either be borne by taxpayers or energy users," Mr Nalder said.

"It just depends how the Government is going to apply the loss going forward.

"We're asking the Government to come clean on what it proposes to do in the future with Synergy."

Synergy's value slide prompts stark choice

Jeff Dimery, chief executive of Australia's biggest private power company, Alinta, said Synergy's inability to expand by competing in other markets was making it harder for the utility to respond to a changing energy economy.

Mr Dimery said the value of Synergy was being whittled down and the Government would ultimately face a difficult choice.

"What the Synergy results are highlighting is that the business itself is at a really important juncture," Mr Dimery said.

"And the Government really needs to decide whether it wants to inject fresh capital into the business to modernise the asset base and re-establish it on a competitive footing in a sector that's transitioning to a low-carbon economy.

"Or whether in fact the Government wants to essentially ride with the existing asset base, which will ultimately see the asset value eroded to zero over time."

Synergy's increasing costs include paying to access the network of poles and wires owned by Western Power. ( ABC News: James Carmody )

Mr McHugh said even though Synergy was suffering financial pain, the board made the right call in slashing the value of its coal-fired assets.

He said the trend towards increasing renewable energy output — and reduced demand for power from coal plants — was not going away and had to be recognised in Synergy's accounts.

Coal generators were designed to run as base-load — or steady-state — providers of electricity, but Synergy's were increasingly being ramped up and down to accommodate fluctuations in output from solar panels and wind farms.

Fluctuating energy generation from wind farms and solar panels is causing issues for Synergy's coal generators. ( ABC Radio Perth: Gian De Poloni )

The result, he said, was a sharp rise in wear and tear on the plant and a corresponding jump in maintenance and operating costs.

"If it is a decision of Government to keep those retail prices under constraint and [there is] a willingness for taxpayers to make up the difference between revenue and cost as a result of that decision then the assets are worth less," Mr McHugh said.

The cost of keeping the lights on

A bigger issue for Mr McHugh was the need for reform in the South West electricity market.

He said the rules and regulations governing the market were designed for a 20th century electricity system, which was rapidly changing into something different.

Key to the required changes was appropriately rewarding and providing incentives for services that stabilised the grid and ensured there was always enough back-up power supply to keep the lights on.

The amount of solar in the South West grid rose by more than 20 per cent over 12 months. ( Pixabay: MariaGodfrida )

At the moment, Mr McHugh said those essential services were largely provided by Synergy as a matter of course — and often by the traditional power plants that were increasingly uneconomic.

But he said Synergy was barely paid for those services, if at all.

Mr McHugh said plans to modernise WA's electricity system and make the switch to renewable energy depended on such "ancillary" services being properly recognised.

"There is a sense of urgency," he said.

"We're seeing the demand hollow out in the middle of the day. That's the major issue at the moment … the imminent threat in a sense.

"And that then starts to force generators off the system that currently provide various services like voltage and inertia … that keep the system stable.

"Those services have been provided for free for a long period of time. They've never really been thought about until we've got to this situation where we're starting to see less and less of them on the grid in the middle of the day.

"We've now got to rethink how those services are provided and, most importantly, at least cost."

Reform timing uncertain

With the McGowan Government more than halfway through its first term, Mr Johnston insisted such reforms were at the top of his agenda.

He said the Government's "energy transformation strategy" was aimed at ensuring ancillary services were properly rewarded and that companies in the market which contributed to costs — including renewable energy projects — paid for them.

But the Minister was unable to say when the Government would implement the changes.

"We'll know where we're going by the middle of next year, absolutely," he said.