Power players divided over ESB’s energy ‘fix’
A plan to pay coal generators to guarantee future capacity has split the electricity market with renewable developers worried they may be edged out.
A spat over national electricity reforms has escalated after major energy users hit back at big generators’ asking for coal payments to guarantee future capacity.
It was revealed on Thursday the CEOs of major coal generator Delta Electricity and three of the nation’s biggest retailers – Alinta Energy, EnergyAustralia and Origin Energy – held meetings over concern the wide-ranging policy proposals may not solve power grid issues unless the industry can find common ground.
The most divisive idea is the Energy Security Board’s plan to pay coal generators to guarantee future capacity, known as a type of capacity market, aimed at reducing volatility and easing a transition to a renewables-dominated power supply.
Clean energy developers have savaged plans recommended by the ESB, worried the capacity plan will have a “chilling effect” on renewable companies investing in new supply.
The Australian Energy Market Operator is making an increasing number of interventions to keep the system stable but the Energy Users’ Association of Australia, which represents big power and gas consumers, said there were still doubts over whether it was even needed.
“Our objection is based on they are yet to provide the evidence it is required and secondly if there is evidence it’s required, then let’s have a quite specific discussion around what it is that we need to put in place,” EUAA chief executive Andrew Richards said.
“We need to have further discussion and analysis of the best way forward, because there‘s been no cost benefit analysis done on any of these things.
“We’re really concerned that ministers would make a premature decision on this without proper analysis of information and assessment. ”
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.
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.
Business energy retailer Flow Power said it was against the capacity model. The mechanism “takes choice away from energy consumers and adds costs”, Flow Power CEO Matthew Van der Linden said.
“It would compel retailers to contract for their retail obligations with ‘firm’ generators, forcing them to purchase certificates from coal and gas well in advance.
“Instead, we should be encouraging consumers to engage in demand flexibility, which can lower their costs and support higher levels of renewables.”
Consultancy Nexa Advisory is also opposed to the move.
“Designing an energy system beholden to ageing generators is not resilient, it is susceptible to catastrophic failure,” Nexa’s Stephanie Bashir said.
“No matter how much money consumers are asked to pay in compensation under this arrangement, it doesn’t change the fact that most of these power stations are nearly 50 years’ old.”
The Ai Group, representing big manufacturers and industry, said members were wary of the plan. “One member said we could live with it and it’s better than some of the other things the ESB could do. Everybody else is somewhere between anxious that is going to turn out to be very costly or flat out opposed,” Ai Group’s Tennant Reed said.
The four energy giants are not yet aligned on the capacity issue. While Trevor St Baker’s Delta and EnergyAustralia are in favour of the mechanism, Alinta holds concerns over its design while Origin favours a targeted model for new dispatchable resources.
Energy Minister Angus Taylor has said the ESB recommendations would be considered before a final package is sent to national cabinet later this year.
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