An energy market blueprint that would pay old and new generators to guarantee capacity in the electricity grid has been released for public scrutiny.
Coal-fired power plants and new renewable assets would be eligible for payments under a proposed “capacity mechanism” put to energy ministers and released to market stakeholders.
The draft plan prepared by the Energy Security Board of regulators says the scale of investment to maintain reliability of supply over the coming decades is “dramatic”.
The Smart Energy Council has welcomed the blueprint but says more support is needed for commercial and community-scale batteries to back up wind and solar.
“What is really needed is urgent action to deliver renewables and renewable energy storage to families, businesses and energy grid,” the industry group tweeted on Monday.
Australia’s green bank, the Clean Energy Finance Corporation, could be instructed to immediately prioritise financing for renewable energy storage.
The industry council also wants a new Renewable Energy Storage Target to get Australia to at least 82 per cent renewable energy generation by 2030.
An initial version of the capacity mechanism prepared last year under the previous federal government was tagged “CoalKeeper” by some, and rejected as going too far to extend the viability of ageing coal-fired plants.
Most market participants expect all coal-fired generation to cease by 2043. At the same time, electricity demand is forecast to at least double by 2050.
While some argue only new resources should be eligible under the new scheme, regulators say coal and gas generators should not be excluded because a careful transition to renewables is required.
A significant amount of coal-fired power is expected to become uneconomic this decade, but replacing the energy would require the equivalent of another Snowy 2.0 to be connected every year from now until 2030.
“It would be more efficient to pay to keep the existing generator in the market to minimise costs for consumers,” regulators say in the document obtained by AAP.
Regulators also recognise that renewable energy at large business and industrial premises provides a growing portion of supply to the National Electricity Market (NEM), and the plan proposes they receive capacity payments.
Battery storage is also growing strongly, as are new technologies and software to measure and manage demand.
Regulators say they want to better integrate these “demand-side” assets, saying they could provide efficient resources to the capacity mechanism and benefit customers big and small.
Energy Security Board chair Anna Collyer said the mechanism will be a key tool to ensure reliability of power supply amid an unprecedented period of transition.
“This is not a new concept, most markets in the world already operate markets that explicitly value capacity, but it is a big change for the NEM,” she said.
The National Electricity Market was established in 1988 with a market-based design that was intended to drive private investment.
Some say it has failed and should be scrapped.
The report to ministers concedes “incentives to invest may not be sufficient” when uncertainty is high, as it is now.
Regulators are aware of concerns the capacity mechanism could cause customers to pay more for the same level of service.
“This is not the intent, and will be avoided through careful design,” the board said.
An important principle for energy ministers is the continued reduction in emissions in electricity supply.
But this would not affect a state or territory’s power to determine what assets can participate, under the blueprint that is set to take effect from July 1 2025.
Under the proposed approach, the Australian Energy Market Operator would hold capacity auctions, award contracts, and make payments to generators who would pass through higher costs to energy retailers.
This centralised model would make the operator responsible for forecasting, buying enough capacity and and determining demand.
“It leaves less to chance,” the document says.
