Tesla has called on the federal Labor government to legislate the Capacity Investment Scheme, the main policy mechanism to lift the country to its 82 per cent renewables target by 2030, arguing that it needs protection from any future political swings.
The Tesla call came as energy incumbents and energy transition specialists argue over the details of the CIS, which started off seeking 6 GW of dispatchable capacity, but which is now seeking some 23 GW of wind and solar and 9 GW of clean dispatchable capacity by 2030, and which will go most of the way to reaching the ambitious renewables target.
However, the energy industry seems lined up on two sides of the coin on some of the key design features of the dispatchable component of the CIS, particularly the “collar” component which would force project owners to return super profits back to the government.
They want a fixed payment, while newer players in the industry – many of whom have dealt with similar proposals in Australia and overseas – are more comfortable with the proposed floor and collar arrangement and say fixed payments from the governments could end up as windfalls for the storage project owners.
Another key concern is the length of storage duration, which is nominally set for an average of four hours storage. Some question how this would help pumped hydro and other long duration storage, and they call for an additional category.
Some want more flexibility on timelines because of it. Origin, still negotiating the closure timing of the country’s biggest coal generator at Eraring, and despite starting construction of two giant batteries, wants gas generation to be eligible, saying it will allow coal generators to be closed more quickly.
Not long enough
Many of the 51 submissions from utilities, generators, renewable and storage developers, software specialists, lobby groups, and consumer representatives expressed concern that the CIS – as designed – will operate for just four years in a flurry of activity that will seek to contract 23 GW of wind and solar and 9 GW of storage.
Some say this is not long enough, and say the program needs to run longer. Some warn that it means few projects would be built outside of the CIS. Tesla suggests that, in any case, it needs to become law to provide certainty, saying it is vulnerable to a change in government.
“Repeal of key energy policies, particularly clean energy policies, is unfortunately common-place, and industry has been in desperate need for lasting policies,” says the Tesla submission, which along with the others was published by the Department of Climate Change and Energy late last week.
Tesla’s fear is well placed. The federal Coalition has made no secret of its intention to try and bring a halt to the roll out of new large scale wind, solar and storage projects, and to try and keep coal fired generators open long enough that nuclear energy might one day be built in Australia.
That is a policy based around distrust and a false narrative around renewables, basically that they cannot power a modern economy. The achievement of South Australia, now at an average 75 per cent wind and solar and heading to net 100 per cent within three years, is ignored – as it has been almost entirely by mainstream media.
And, while Labor currently rules in all mainland states, and the aspiring Tasmania minority Liberal government is also supportive, forthcoming state elections could see a change in government that could have impact on the local components of the scheme, and respective state targets.
The Australian energy industry isn’t the slightest bit interested in the Coalition’s nuclear fantasy, but debate rages about the optimum mix of storage and – while the CIS in general is widely supported – their is division over the fine details.
One of the key issues is the duration of the scheme, which kicks off this year with 6GW of capacity sought, and with repeat doses every year for the next three years.
Tesla says the CIS scheme should morph into a long term program out to 2040 or 2050,
“Our concern with the current approach is that a four-year scheme does not provide industry with much long-term certainty,” it writes.
“The federal renewable energy target (RET) was established in 2000 with targets out to 2030 – providing a length period of relative, investment certainty.
“Conversely the CIS will exist for only four years and be used to drive only the capacity needed to 2030 …. a fraction of the utility scale storage requirements predicted by AEMO as being needed in the NEM in 2040 and 2050.
“If it exists for a short period only, it is unclear how the additional at least 10GW of utility scale capacity AEMO is projecting as needed between 2030 and 2050 will be supported.”
The biggest utilities were virtually unanimous in their dislike of the “cap and floor” arrangement, which provides a minimum price guaranteed by the government on one hand, and a cap, or “collar”, which would set a limit on the revenue earned in a particular year. Any sums that exceed that would be returned to the government.
No windfall gains
AGL said it favoured the payment of an “annuity”, and the contracts to be reduced to two to five years, while EnergyAustralia and CleanCo also favoured fixed payments.
Alinta, which is pursuing a pumped hydro project in Victoria, wants separate funding tranches for long duration storage, particularly those for eight hours or more, and wanted the requirement that projects be operational by 2030 be removed.
EnergyAustralia, which has already signed up to one deal with the Victoria government locking in undisclosed payments in return for certainty about the closure of the Yallourn brown coal generator, wants that replicated in other states. (It also owns the Mt Piper coal generator in NSW, which could be the last out of the system)>
“To keep the lights on and minimise price shocks as part of an orderly transition, we must build the new system before the old one closes. The CIS, by supporting new investment, must be coupled with a mechanism that provides certainty on the timing of coal generator retirements.”
CS Energy said a standard floor price arrangements would simplify the policy design, it recognises the “Commonwealth’s interest in avoiding real or perceived windfall gains to capacity providers.”
Engie wants a minimum contract term of ten or fifteen years for all projects, arguing that the presence of the CIS means that it is “unlikely that new storage projects will be developed outside the CIS” in the coming years.
“Existing privately funded batteries potentially face reduced returns in the coming years given the large amount of CIS projects forecast, as such, investors are even less likely to build outside the CIS unless there is complete transparency around scheme operation, timing, and when it will close to new projects.”
Energy storage systems provider Fluence questioned the use of current reliability assessments, including the “1 in 10 year unserrved energy events, that it says may cause an unneccesary overbuild of duration.
Origin also questioned the requirement for storage projects to make 50 per cent of their capacity available in response to Lack of Reserve level 3 events (potential load shedding) forecast with two-hour notice.
“While this is an improvement on a similar requirement applied under the NSW Roadmap, we are concerned this could still lead to capacity being held in reserve by projects to ensure compliance,” it writes.
“This could limit the overall utility of the scheme in supporting reliability (at other periods) while also undermining the least cost objective.”
“We want gas”
Most of all, Origin, which remains heavily invested in the LNG industry, wants gas to be included in the CIS, despite the federal government’s ruling that it should be open to zero emission technologies only, and the introduction of a “shadow” carbon price and the writing of environment into the national electricity objectives for the first time.
“We consider there is a crucial role for gas power generation (GPG) in optimising both cost and emissions,” writes Origin, which is also building big battery projects at Eraring and Mortlake, and last week signed up for its first off-take for a big battery project, a 500 MWh facility in Brisbabe.
“In particular, GPG can enable the retirement of coal plant while supporting reliability through the provision of both peak capacity and energy where required to supplement VRE (variable renewables, or wind and solar).
“The emissions impact of GPG could also be managed under the CIS by imposing emissions limits on participating projects that are aligned with government objectives.”
Neoen, the most successful storage developer in the country to date, had a different take about storage duration, saying “it is not clear” that one 4-hour battery is more effective at maintaining reliability than two 2-hour batteries.
It also supported the floor/ceiling mechanism, saying that batteries will discharge when the market signals indicate the best opportunity: representing a win-win for all under the price floor/ceiling mechanism.
“The duration should be directed by the technical outcomes sought, rather than setting an arbitrary minimum. If bids are to be assessed using a comparable reliability measurement, longer duration storage projects will still be encouraged to participate while allowing an overall cost-benefit assessment,” it writes.
“This would have the added benefit of broadening the pool of eligible projects and recognises that the majority of projects under development have been developed on the basis of current market signals which support a two-hour or less approach in the vast majority of applications.”
Making a bad situation worse
This was supported by Windlab, now majority owned by iron ore and green energy billionaire Andrew Forrest’s private interests, which argued that the CIS should not arbitrarily exclude storage projects of short duration.
“A short duration battery can provide more reliability and flexibility than a longer duration battery with the same MWh capacity,” it writes.
It also questions the Lack of Reserve 3 performance requirements, which it says have the potential to “make a bad situation worse” if they result in many storage devices all urgently charging immediately prior to a LOR3 event.
“Storage devices should not be penalised for failing to meet a LOR3 performance requirement if efforts
to do so had the potential to bring forward or exacerbate the LOR3 event.”
Windlab also argues the CIS should strongly resist requirements for projects to be located within renewable energy zones (REZs). “There are good reasons to locate storage next to demand, or in other non-REZ regions with
high congestion or low system strength,” it argues.
