NSW doubles firmed capacity target via revamped capacity investment scheme

The capacity investment scheme is Australia’s plan to ensure sufficient power generation is on hand when coal retires, but there is mounting concern the country is well behind.

The federal Labor government has also proposed opening a region off the coast of South Australia and Victoria to offshore wind. Picture: AFP

NSW is targeting nearly 1GW of firmed renewable energy capacity as the country’s most populous state rolls out the revamped capacity investment scheme – designed to ensure Australia has sufficient capacity when needed.

The capacity investment scheme, agreed to late last year by national and federal energy ministers, is the centrepiece of Australia’s plan to ensure sufficient power generation is available as traditional coal power stations retire. The scheme sees the government underwrite revenue for a mix of zero emissions dispatchable generation and storage projects.

In the first use of the scheme, NSW will on Thursday announce that it will now target an extra 550MW of firmed capacity, taking its target to nearly 1GW and eradicating a forecast shortfall in 2028/29 flagged by the Australian Energy Market Operator.

“Today’s announcement will drastically improve energy security with large-scale batteries and other zero-emission technology that can quickly dispatch cleaner, cheaper renewable energy when it’s needed, like when the sun isn’t shining and the wind isn’t blowing,” federal Energy Minister Chris Bowen said.

The announcement comes amid heightened concerns about Australia’s energy transition. Much of the country’s fleet of coal power stations are expected to be retired in little more than a decade, and while there has been progress on renewable energy generation – the market is anxious about what will supplement those during days when zero emissions sources are curtailed.

Energy Minister Chris Bowen. Picture: NCA NewsWire / Martin Ollman

NSW Energy Minister Penny Sharpe. Picture: NCA Newswire / Gaye Gerard

To encourage more investment the states and Mr Bowen agreed to the capacity investment scheme, rejecting plans to pay all generators – including coal and gas – to offer guaranteed supply.

The federal Labor government believes the capacity investment scheme will unlock around $10bn of investment and add 6GW to support grid reliability and security.

NSW Energy Minister Penny Sharpe highlighted the state’s recent tender for firmed capacity as evidence of supplies that will be unlocked by the scheme.

“The large number of proponents wanting to invest in New South Wales is a clear indication that we can transform our energy system and that any risks around grid reliability can be resolved by accelerating the development of a clean, reliable, consumer-focused energy system,” Ms Sharpe said.

The federal Labor government also proposed opening a region off the coast of South Australia and Victoria to offshore wind, as Australia moves rapidly to develop the zero emission source to compensate for the retirement of coal from the grid.

By opening the 5100 square kilometre area that stretches from Warrnambool in Victoria to Port MacDonnell in South Australia – Labor hopes to spur some of Australia’s largest manufacturers to switch to renewable energy.

Mr Bowen said the region was perfect for offshore wind.

“This area is an ideal location for offshore electricity generation and could enable up to 14GW of offshore wind to be developed, which is the equivalent of powering up to 8.4 million homes,” Mr Bowen said. “Renewable energy is the foundation for Australia’s future.”

Public consultation will be open from June 28 to August 31, 2023. Feedback from the Gippsland and the Hunter regions has been overwhelmingly positive as communities seek the economic benefits of a new industry.

A digital model of the Star of the South offshore wind project off the south coast of Gippsland.

The proposed opening is a boost to Alinta Energy – Australia’s fourth largest retailer – which is looking to accelerate its plans for offshore wind to power the Portland Aluminium Smelter – which draws up to 10 per cent of Victoria’s electricity.

Alinta – which is seeking an equity partner for the 1GW proposed wind farm – wants to build about 10km off the coast of Portland, which has consistent and strong winds.

“We’ll take some time to review the government’s announcement today, and work through the specific details to consider its impact on our project,” an Alinta spokeswoman said.

The Labor government has already allowed offshore wind developments in Gippsland. It is also poised to permit offshore wind developments in the Hunter Region of NSW and is considering another three regions for the zero emission energy source.

Offshore wind is also vital to Australia’s renewable energy ambitions. Australia has legislated a target of having renewable energy account for more than 80 per cent of its electricity generation by the end of the decade, a target that has put pressure on coal generators.

Offshore wind projects are often much larger than onshore wind or solar projects, offering far better compensation for the loss of coal-fired power stations that typically produce more than two gigawatts.

As a result, states and territories have placed the zero emission source at the heart of plans to wean off ­fossil fuels.