Australian Energy Regulator booked to oversee NSW coal reservation scheme
The NSW government has called in the Australian Energy Regulator to oversee its controversial coal reservation scheme to ease concerns that price caps could be gamed.
The NSW government has called in the Australian Energy Regulator to oversee its controversial coal reservation scheme as the clock counts down to its introduction.
Industry sources say the AER began contacting mining companies and power stations this week to lock in meetings to discuss compliance measures under the scheme, which will require all NSW thermal coal producers to reserve up to 10 per cent of their production for the domestic market.
The AER already regulates compliance by generators and retailers with national electricity laws and rules, and sets maximum tariffs for electricity networks and natural gas pipelines, by setting the maximum amount of revenue they can earn.
Industry sources say the AER was always seen as the natural regulator for the NSW coal reservation scheme, given its existing powers to oversee energy markets and compel disclosures by major generators.
But industry sources say the decision to bring in the AER to regulate the coal reservation scheme is also aimed at calming fears in the mining industry that the reservation scheme could be gamed by generators to buy cheap coal while the price cap was in place.
Orders issued in late December required miners already supplying to NSW coal-fired power stations to reserve about 18.6 million tonnes of thermal coal for domestic supply. The NSW government is likely to expand the reservation scheme to all thermal coal producers in mid-February, looking to find another three to four million tonnes of coal for local supply.
The decision has sparked fierce resistance from coal exporters, with Whitehaven Coal chief executive Paul Flynn telling the Australian last week the sudden discovery of a large shortfall “beggars belief”, amid concerns generators could use the price caps to stockpile coal reserves at below market prices.
“We think there’s a great need for some transparency here to minimise the opportunity for individual corporate agendas to be playing out,” Mr Flynn said.
“It would be obvious that there would be commercial incentives for the generators to take the opportunity to buy lots of coal at these capped prices.”
The Australian understands generators have been quietly pushing back against that argument behind the scenes, arguing that they have only limited room to stockpile coal.
The orders issued by NSW Energy Minister Matt Kean in December require power stations to keep a minimum of 30 days supply of fuel on hand, to guard against the supply interruptions that threatened widespread blackouts in the winter energy crisis in 2022.
But The Australian understands NSW government officials have now sought agreements from power stations setting maximum stockpile levels, to ease concerns about the system being gamed.
Sources say the AER is likely to be give the job of monitoring those side agreements with power stations, as well as compliance with the next set of orders aimed at miners and power stations.
The appointment of the AER as the system’s regulator comes as China returns to the Australian coal market, amid reports the first few cargoes of Australian thermal coal have left for Chinese ports, and as another major Australian trading partner quietly ramps up its opposition to the NSW scheme.
The Australian understands Japanese authorities have contacted officials in the Department of Foreign Affairs and Trade to express their concerns about the scheme, likely as a prelude to more formal complaints from Japanese ambassador Shingo Yamagami, who last year raised eyebrows in diplomatic circles by expressing strong public criticism of the Queensland state government’s decision to impose a windfall royalty rate on coal produced in the state.
The Australian revealed on Tuesday that Japan’s Sydney-based Consul-General, Tokuda Shuichi, had written to the NSW government to express concerns that the reservation scheme could undermine Australia’s reputation as a stable and reliable trading partner.
