Alinta offers olive branch to governments on coal power fix

The owner of the Loy Yang B Victorian coal plant wants regular reviews on if coal should be part of a capacity mechanism amid government concerns over keeping fossil fuel in the mix.

Power giant Alinta wants regular reviews to start in 2029 assessing whether coal should be included in a national mechanism to avoid future power shortages, offering an olive branch to governments wary of promoting a fix seen as prolonging the life of the fossil fuel in power stations.

The owner of the Loy Yang B coal plant in Victoria – which provides 20 per cent of Victoria’s electricity and is set to run until 2047 – wants coal in the mechanism which would pay electricity generators to guarantee enough back-up capacity is available in the grid.

However, Alinta’s call for governments and market bodies to start reviewing its inclusion from 2029 onwards appears timed to allow both federal and state governments to commit to higher 2030 emission reduction targets by the end of this decade.

“I’ve said before that we don’t want to prolong the life of coal-fired power for a minute longer than it’s required by the market. But we can see today in an extraordinarily tight market just how critical every bit of capacity is to keep the lights on,” Alinta chief executive Jeff Dimery said.

“For that reason, we would fully support regular reviews of the inclusion of coal-fired capacity from a capacity market from 2029 in a manner consistent with achieving state and national emissions reductions targets.”

Energy ministers agreed on Wednesday to accelerate the final design of a capacity mechanism, which is expected to guarantee investment in baseload gas, pumped hydro, batteries, coal and renewables generation by requiring energy retailers to lock-in supply contracts with power companies in advance.

The nation’s energy ministers will make the final call on the make-up of the mechanism and several state governments including Victoria are reluctant to include coal as they strive to meet ambitious climate change goals and renewable energy targets by 2030.

Climate 200-backed teal independents have also maintained calls for higher 2030 emissions ­reduction targets despite the ­energy crisis, and called on ­Anthony Albanese to restrict LNG exports while phasing out coal and gas from the electricity grid as soon as possible.

Amid uncertainty around what generation assets could be included in the proposed capacity mechanism, an Energy Security Board member told The Australian that coal-fired generators would probably be included in its options paper – but the final decision would be one made by political leaders.

Widespread outages at other coal-fired generators has led to increased reliance on gas generation, spiking gas prices and piling on costs for exposed consumers.

Australia’s energy crisis deepened on Friday after AGL Energy lost half its capacity at the giant Bayswater coal plant, the second largest power station in the national electricity market, while a breakdown at its Victorian Loy Yang A facility could take an extra two months to fix.

With Energy Minister Chris Bowen looking to develop the capacity mechanism as a “priority”, Alinta said it was imperative to find a power fix and ensure the current volatility did not deteriorate.

“We are building the renewable generation and storage of the future and we are heavily invested in its success. We do not want to delay the transition to a lower carbon energy future, but equally we do not want to see the current crisis worsen,” Mr Dimery said.

“A capacity market that extends to our key sources of capacity – including gas and coal – says to generators ‘you must maintain your asset and make the generation available or face harsh penalties’. What it doesn’t say is ‘you can stay indefinitely’, that power ultimately lies with market operators and governments,” he said.

“We hope a solution like this will help all key stakeholders to get on board and feel comfortable that a way forward is within reach.”

A paper would be released by the ESB in the next few weeks assessing a range of issues related to the capacity mechanism, said Ms Savage, who is also chair of the Australian Energy Regulator.

But she said the decision on whether coal would ultimately be included in the mechanism would be one made by the government.