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Crikey
Crikey
National
Bernard Keane

Energy Security Board admits CoalKeeper will keep coal — just not ‘intentionally’

It seems only a stake through the heart will kill CoalKeeper, the Angus Taylor-era proposal to force households and small businesses to prop up lethal, emissions-intensive, coal-fired power stations despite economic inviability.

The Energy Security Board (ESB) today released its “high-level consultation paper” on the design of the proposed “capacity mechanism” intended to assure reliability by guaranteeing sufficient capacity in the electricity market — although the paper notes that the National Electricity Market (NEM) “has performed well against its reliability objectives since the NEM started”. A capacity mechanism would not address soaring electricity prices driven by international market forces, and it cannot guarantee against unplanned outages that have occurred repeatedly across coal-fired power generators.

Evidently aware that the tag “CoalKeeper” has stuck to the proposal, the paper goes out of its way to assure the reader all is well. “For the avoidance of doubt, the purpose of a capacity mechanism is not to extend the lifespan of ageing coal generators,” it says, insisting that the “structural challenges” of coal-fired power can’t be fixed via the capacity mechanism.

ESB chair Anna Collyer goes further in an op-ed today, saying “in the past, the concept of a capacity mechanism has been dubbed ‘coal-keeper’. It is a catchy line, but it is not the intent. The intent is to design a tool that provides more certainty around dispatchable capacity — that is capacity that can respond to a dispatch signal on demand.”

Except, in the fine print of the discussion paper, the ESB admits that it will indeed function as CoalKeeper:

Participation of both new and existing capacity could allow better coordination of entry and exit decisions at lower overall cost. Auction prices revealed through the proposed centralised auction processes should reflect the costs to capacity providers of remaining in, or entering, the market. For example, a capacity provider may decide to factor in refurbishment or retrofitting costs into their bid [emphasis added], and if this is cost-competitive against new capacity, then customers receive the reliability benefit of this asset remaining in the market.

A number of stakeholders have pushed hard for the exclusion of existing capacity from the mechanism, which would prevent existing fossil fuel generators from benefiting from the scheme. The ESB has rejected this — despite existing capacity like old coal-fired power plants being well past the point of returning their cost of capital, and thus potentially having an advantage over new capacity from which investors would be seeking a return on investment.

The nearest the ESB comes to addressing this is allowing that there may be some form of special pricing for new capacity in bidding in the “capacity market”.

Nowhere in the ESB’s paper is there any recognition of the urgent need to shut down coal-fired power from the perspective of emissions abatement and of the hundreds of people who die as a result of exposure to coal-fired power every year. There is only the de facto recognition that states like NSW and Victoria simply won’t cop coal-fired power being protected, with the suggestion they can “opt out” of applying the mechanism to coal.

Even less convincing is Collyer’s assurance that this won’t involve higher costs for consumers.

The ESB is aware of concerns that a 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 intent is not to provide an additional revenue stream, but rather an alternative revenue stream.

Working through the paper in search of an explanation for how this will happen doesn’t yield much other than that it will be addressed through “careful design”, as if previous generations of energy bureaucrats haven’t “carefully designed” the current rules that saw generators gouging consumers until last week’s market shutdown. The ESB appears to suggest it might be achieved if the market price cap would be lower in the presence of a capacity mechanism, but the only assurance is that it will “ensure customers pay no more than is necessary”.

The ESB feels its assurance about the “intent” behind CoalKeeper is sufficient to placate concerns about consumers being forced to prop up coal. You’d be hard-pressed to find anyone who thought the intent of the NEM was to enable such egregious gouging that the whole market had to be shut down, or that the intent of powerful fossil fuel companies was anything other than to manipulate the major parties and regulators to keep them operating. The intentions of bureaucrats have nothing to do with it.

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