Coal payment gets ministers’ initial backing
Energy ministers have given initial backing to a controversial payment mechanism ensuring that reliable generation, including coal, is rewarded in the electricity grid.
Australia’s energy ministers have given initial backing to a controversial new payment incentive to keep sources of power generation including coal in Australia’s electricity system, swatting away renewable investors who demanded they reject the plan.
Major investors sent a letter to energy ministers on Thursday urging them to oppose a mechanism that would pay coal generators to guarantee enough back-up capacity is available in the grid.
A letter was also sent by major coal plant owners – Delta Electricity, Origin Energy, Alinta Energy and EnergyAustralia – backing the new capacity mechanism, saying it would reward reliable supply.
The energy minister’s national cabinet meeting on Friday discussed the issue as one part of a broader set of post 2025 market reforms delivered by the federal government’s advisory body, the Energy Security Board. Ministers agreed to move to a detailed design phase for the project.
“Ministers agreed there was a critical need to strengthen investment signals for dispatchability in the market and agreed on the need to move to detailed design work,” Federal Energy Minister Angus Taylor said on Friday on behalf of the Energy national cabinet Reform Committee.
“It was also recognised that the mechanism should encourage investment in new replacement capacity and prevent premature loss of capacity.”
Clean energy companies say the move will blunt investment in new supplies and increase costs for consumers by subsidising old coal plants. But the ESB backs the move as necessary, given the market operator is having to make an increasing number of interventions to keep the system stable as more renewables flood into the system.
Energy Ministers will meet again in September before agreeing a final reform package for national cabinet.
The future of the ESB itself, chaired by Kerry Schott, was also debated given views in the market it had now completed essential design work to reconfigure the grid for the energy transition. A reformed ESB may be developed, the meeting concluded.
“Ministers agreed there is an ongoing need for a body to co-ordinate energy market advice, and considered models for a reformed ESB,” Mr Taylor said.
The ESB’s initial draft advice to ministers was leaked to media but ministers’ agreed the documents should be divulged for transparency.
“Ministers agreed it is important to release the ESB’s final advice documents in relation to its recommendations to inform public discussion of these recommendations.”
The Australian Energy Market Operator has previously backed plans to introduce a new price mechanism reflecting the important reliability role provided by power stations, which are currently struggling to receive any value for their generation when they get undercut by renewables that can produce at close to zero cost.