Picking energy winners will be cumbersome, industry warns as government launches signature scheme

Members of the energy sector fear the government’s centrepiece policy to bolster the energy transition will slow the rollout of new renewables projects.

The government’s centrepiece policy of using taxpayer funds to underwrite the development of 32GW of new renewable energy generation and storage will lure a plethora of proposals but threatens to slow the rollout of much-needed developments, industry officials have warned.

Labor on Friday launched the first of its biannual auctions as part of its Capacity Investment Scheme, which sees taxpayers underwrite the development of projects selected to form the bedrock of Australia’s National Electricity Market.

The scheme is hoping to drastically increase commitments to bolster renewable energy generation across the east coast, allowing Labor to meet its ambitious target of having zero emission sources generate 82 per cent of the country’s electricity by 2030 — a target it is currently not on course to meet.

Industry sources said many of the country’s largest renewable energy developers are planning on submitting bids, but they cautioned an immediate up-tick in action was unlikely.

“There are numerous variables. Developers have to submit a ceiling, a floor and a cap on total taxpayer liabilities, and so deciding how to pick is going to take time, perhaps plenty of time,” said one industry executive.

APA Group's solar farm in northern Queensland. Picture: Supplied

The scheme sees developers guaranteed a minimum return on new solar and wind projects. Should the wholesale electricity price fall below an agreed threshold, taxpayers will compensate the renewable energy project.

Should the wholesale electricity price exceed a metric, developers pay the government, a design which removes revenue risk from developers and accelerates investment.

The Australian Energy Market Operator estimates the country needs 57GW of grid-scale solar and wind generation capacity to be installed by 2030 — a significant rise from the current capacity of 19GW.

Labor hopes the scheme will kickstart Australia’s ailing energy transition.

Already the target looks increasingly in peril, with authorities last week warning electricity supply shortfalls will emerge in NSW and Victoria as soon as next year.

The NSW state government last week was forced to enter into a deal with Origin Energy to keep Australia’s largest coal power station, Eraring, open for at least two more years.

The NSW government insists the extension will provide time for developers to build sufficient replacements.

To bolster the environment, the tender process will target 2.2GW of capacity for NSW. A further 0.3GW for South Australia, 1.4GW for Victoria and 0.3GW for Tasmania. The remaining 1.8GW will be allocated across the National Electricity Market, including Queensland.

The scheme, while popular, is not binding, and industry sources said there were no consequences for projects not delivering successful applications.

But the challenge is stark, underscored by analysis compiled by The Australian which showed 15 of the 79 new energy projects considered by AEMO have experienced delays. The combined capacity of the 15 projects are nearly 3.5GW, which is larger than the output of Eraring.

Industry sources said the delays were the result of inflationary pressures, which have increased the costs of projects, planning holdups, transmission build issues and policy decisions.

Australia is struggling to build the high-voltage transmission lines needed to connect new developments to the grid, while recent policy from the federal government is also weighing on the plans of developers.

Australia — one of the world’s largest per capita carbon emitters — and environmental advocates insist renewables are the only viable alternative to replace the country’s fleet of coal power stations, many of which are approaching the end of their lifespan.

Originally published as Picking energy winners will be cumbersome, industry warns as government launches signature scheme