There hasn’t been such audible relief since, well, the May election result when the federal Coalition, and a decade of denial and policy bollards, were finally swept from government.
On Thursday, state and federal energy ministers did away with one of the last legacies of the Coalition’s antipathy to modern technologies, a proposed so-called capacity mechanism that would support coal and gas and which proved objectionable to just about everyone in the sector.
“Coalkeeper is dead,” hailed the Queensland energy minister Mick de Brenni, whose state government owns more coal fired power stations than anyone in Australia, but has vowed to shut them all down by 2035.
“National Energy Ministers have agreed to more historic progress to medium and long term reforms that will deliver this nation’s domestic energy independence and sovereign capability over foreign supply chains,” he wrote on LinkedIn on Thursday after the conclusion of the ministers meeting in Brisbane.
The irony is that what federal and all the Labor states have chosen to do in creating a Capacity Investment Scheme is to follow a blueprint laid out by another Coalition government, this time in NSW, and painstakingly put together by that state’s energy minister Matt Kean and his team.
How to replace ageing and unreliable coal plants
NSW is unlike other mainland states. For a start, it’s not a Labor government, and it doesn’t have a chest-beating renewable target. What it does have is the country’s biggest coal fleet, and an acceptance that these ageing, polluting and increasingly unreliable plants are going to have to retire over the coming decade.
Kean’s team put together a plan, and Kean had the smarts and the skills to reach out to the Nationals to get the sort of bipartisan support within the state Coalition that has been beyond the wit of his federal colleagues.
What he produced was a renewable infrastructure roadmap based around the creation of renewable energy zones, and a series of tenders that will underwrite new renewable generation and storage, and auction off exclusive positions on the grid.
The underwriting is designed to provide enough certainty for projects to get financed and built, and ensure there is enough new wind and solar, batteries and other long duration storage to replace the retiring coal generators.
World’s biggest shock absorber
If the state needs more, it has the flexibility to move quickly, as it has done with the Waratah super battery, the world’s biggest “shock absorber”, and with a call for another 380MW of dispatchable generation after future needs were reviewed again.
It’s the underwriting agreement, known as Long Term Energy Service Agreements, however, that has captured the attention of the federal and state Labor governments.
It’s an efficient and ostensibly low cost means of guaranteeing enough revenue to get bankers on board and a projects built, and the tenders are managed according to the needs identified by the market operator.
In fact, in NSW, it’s a division of the market operator, AEMO Services, that is managing the process. The first of those tenders is already underway and another two are pretty much locked in for 2023.
Kean says that the Commonwealth has recognised that the LTESAs are the best way to provide investment certainty and reduce prices for consumers.
Investment certainty
“They are going to partner with us, helping to fund the costs to deliver the existing legislated Roadmap,” he tells RenewEconomy. “This won’t affect the tender that is currently underway or those tenders planned for next year which will continue to be run by AEMO Services, now with the financial support of the Commonwealth.”
The exact details of the federal scheme have not been nutted out. RenewEconomy understands that the Chris Bowen’s team is proposing to simplify the LTESAs, and individual states will call for auctions according to their specific needs, presumably on the advice of AEMO.
“Tenders in NSW will continue to run according to our published six monthly schedule,” Kean says. “Other states may choose to align with us, but there is no plan to bundle at this stage.”
Chris Bowen says the auctions will set a floor price – to be underwritten by the Commonwealth – and a ceiling price, “which after that the Commonwealth will share in the revenue.”
The federal government allocated $64 million over four years in its latest budget for the development of a capacity mechanism, but it’s unlikely this covers the cost of underwriting.
The assumption from the energy ministers is that this will lock in around $10 billion of new investment, and 6GW was mentioned by Bowen, although it is not clear exactly what that refers to in terms of capacity or storage.
The industry is delighted.
A national plan, finally
“After nine long years of inaction on climate change and renewables, we finally have a national plan for renewable energy generation and storage – a plan that will take us to 82% renewables and beyond,” said John Grimes, the CEO of the Smart Energy Council.
“We finally have a National Renewable Energy Storage Target. That means cheaper, cleaner and more reliable power for all Australians.”
The Clean Energy Council’s head of transition Christiaan Zuur notes that the ministerial communique states that “all configurations will be considered (co-located and standalone)”.
“This looks like the funding will be made available to ‘hybrid’ plant, where wind or solar is co-located with storage. This is a really good outcome, helping to accelerate the rollout of this new model of generating system,” he notes.
Zuur also says the scheme will “complement other investments … including Rewiring the Nation, which is federal Labor’s $20 billion funding plan for new transmission and infrastructure.
Rewiring the Nation
“This is something to watch, as the Rewiring the Nation funding is targeted to transmission, which could include ‘virtual transmission’…also known as batteries,” Zuur says. “So how the funding vehicles overlap and interact could be interesting.”
More fundamentally, Zuur notes: “After a decade of nonsense energy wars, this is a moment to celebrate. Perhaps we can finally move on from ideological crusades and just get on with the job of decarbonising the NEM.”
All the state Labor governments are now locked in power for a few more years, having won recent elections. The next to go to the polls is NSW, where the return of the Coalition is by no means certain, and where NSW Labor is nowhere to be seen on energy policy
That, perhaps, is the other gift of Kean’s work and ministers’ decision. Now that it is locked into the national scheme, the program is protected from any daft ideas from the NSW Labor right. No wonder the industry is cheering.
See also: Adults are back in the room, with policy that paves the way for cheaper electricity
