Energy Minister Chris Bowen is leading talks on the introduction of a so-called “capacity mechanism” to shore up the problematic network. The policy aims to reward assets like large batteries and pumped hydro that can be on standby and available to support renewables in all weather conditions.
But the industry is now warning that further spikes in energy bills could cripple businesses if state and territory governments carve up the national electricity market by adopting different models to manage their transitions from fossil fuels to renewables.
On Monday, Bowen said it could be left to state governments to decide whether they wanted to include existing coal or gas generators in their jurisdictions’ schemes.
Victoria has said she will not support coal and gas payments. New South Wales is open to gas but not to coal, while Queensland has indicated it would support payments to gas and coal plants.
“The network is in different stages of development. Queensland’s coal-fired power plants are younger than those in Victoria, for example,” Bowen said. “It is appropriate that states can implement this in a way that is appropriate for their needs, but it will need to be within that national framework and will complement our emissions target.”
The Australian Power Users Association, a group representing some of the country’s largest corporate power users including Woolworths, BlueScope Steel and building materials supplier Brickworks, warned that different state-by-state rules apply. the risk of increasing bills and inflating costs for customers.
“For states to go it alone, you tend to get over-invested in what should be shared resources…it’s not an economically efficient way forward,” said Energy Users Association Executive Director Andrew Richards. Age and the Herald.
“If you run a business that spans multiple jurisdictions, then you’re dealing with multiple programs and layer after layer of cost, and it becomes very difficult.”
Energy industry leaders welcomed the draft plan for a capacity mechanism, which was published by the Energy Safety Board (ESB) on Monday. The board said it was preferable that “all types of capacity” could bid under the scheme to guarantee supply.
The Australian Energy Council, which represents the country’s biggest generators and retailers, said the scheme should support existing plants and encourage investment in new projects. The group’s executive director, Sarah McNamara, urged not allowing state-by-state variations.
“We would be concerned if there are jurisdictional exceptions to the mechanism, which could lead to it being much less effective in supporting the energy transition,” he said.
Origin Energy welcomed progress on a universal capacity mechanism for the market that “also allows flexibility for states to navigate their own preferences and specifications.”
“Recent events in the market have underscored the need to act urgently to establish a mechanism that rewards dispatchable capacity, as this will be important to support reliable supply as the energy transition accelerates,” Origin said.
“We look forward to working out the details of the mechanism through the consultation process.”
EnergyAustralia managing director Mark Collette said tight east coast power market conditions underscored the “importance of planning for the retirement of existing generators as we bring new forms of power online”.
“We support a capacity mechanism that would help combat elevated levels of volatility by stabilizing supply and, more importantly, energy prices,” he said.
EnergyAustralia, Australia’s third-largest power company, said on Monday it had returned service to both units at its Mt Piper coal-fired power station in New South Wales. At the company’s Yallourn power plant in Victoria, two out of three units were operating, with a fourth expected to return by the end of the week.
“Once this unit comes back, we will have to take another unit offline for maintenance,” Collette said. “We will be in close contact with the Australian Power Market Operator at appropriate times.”
A capacity mechanism was first proposed under the previous coalition government by the Energy Security Board under former Chairman Kerry Schott.
Skeptics of the proposed reform, including environmental activist groups and the federal Greens, fear the policy will be designed to favor existing fossil fuel generators, calling the proposal a “guardian of coal.”
Greens leader Adam Bandt said the ESB proposal should be scrapped and redone because it was designed for a “broken” electricity market designed to favor existing large-scale electricity generators.
“Now is the time to rewrite, not prop up this broken system that hurts people and businesses. And that benefits only coal and gas generators,” Bandt told ABC on Monday.
Bowen said ESB’s proposal was sound and warned Bandt that he could be sidelined from the negotiations.
“The Greens may have their position, but the implementers of this are the ones who will continue the work of providing a capability mechanism,” Bowen said.
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