AGL Energy backs controversial plan to pay generators for ‘capacity’
AGL Energy has indicated early support for a controversial energy reform that would pay coal and gas generators to guarantee future capacity.
AGL Energy has indicated early support for a controversial energy reform that would pay coal and gas generators to guarantee future capacity, suggesting such a measure might have changed closure decisions it has already made such as the mothballing of a gas unit in South Australia.
The Energy Security Board has recommended a plan as part of its post 2025 reforms to pay coal generators to guarantee future capacity, known as a type of capacity market. Big generators say the mechanism is needed to ensure coal and gas remain operating and keep the power grid secure against a backdrop of more renewables entering the system.
The CEOs of major coal generator Delta Electricity and three of the nation’s biggest retailers — Alinta Energy, EnergyAustralia and Origin Energy — are in talks to strike a united position on the mechanism and wider reforms and AGL said it was also open to the proposal.
“What we think in principle that it does, which is good, is start to make sure the value that coal-fired generation and other forms of generation that provides stability to the network should get rewarded appropriately for that,” AGL chief executive Graeme Hunt told The Australian.
“That principle is good, but the detail is what needs to be worked through.”
The AGL-backed Powering Australian Renewables consortium warned earlier in August the controversial energy reforms may derail investment in the sector and posed added risks for clean energy developers.
Coal, gas and hydro plants will be paid under the plan to guarantee future capacity when the grid is facing periods of peak demand that threaten reliability rather than being paid on an “energy only’’ basis for the power that is used by consumers.
Renewable generators are worried it will simply favour existing thermal suppliers at their expense.
AGL announced in July it will mothball one of the four gas power units at its Torrens B power station in South Australia in October. The power giant cited “challenging” market conditions for the decision, saying declining forward prices in South Australia and the volume of new renewable energy coming into the market that AGL says makes keeping all four units running unviable.
However, if a capacity market were in place it may have led to a different decision.
“We took the decision to mothball Torrens B unit and if this kind of structure has been in place most probably our decision would have been different,” AGL’s chief operating officer Markus Brokhof said when asked about the capacity market issue.
“That’s one very concrete example where this would play in.”
Mr Brokhof said at the time the Torrens decision was made after “careful consideration” of whether the unit’s closure would risk the stability of supply into the local grid.
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