Anthony Albanese offers deal on coal price compensation but states want more
PM offers initial funding package for deal on coal price caps, but NSW, Qld governments push for greater compensation.
Anthony Albanese has offered an initial funding package to get a deal done on coal price caps with the NSW and Queensland governments but is under pressure to significantly increase the commonwealth’s financial assistance ahead of Friday’s national cabinet meeting.
As energy ministers meet in Brisbane on Thursday to announce a new capacity mechanism, which will shun coal and gas in favour of dispatchable renewable energy, The Australian can reveal the Prime Minister has been told to up his offer before a deal is landed.
NSW government sources said the offer to fund programs not directly linked with subsidising coal producers and generators remained “insufficient” but did not rule out a deal before the national cabinet meeting.
But to clinch a deal with Queensland and NSW, it is believed a price cap compensation package would run into the billions of dollars.
Negotiations with the NSW government, which involved discussions between NSW Treasurer Matt Kean and Energy Minister Chris Bowen on Wednesday, is focused on compensation for businesses affected by a proposed $125-a-tonne price cap.
The NSW government is concerned about potential losses for generators who have existing contracts above the price cap and for coal suppliers whose cost of production is higher than the cap. With the spot price for thermal coal above $600 a tonne on Wednesday, a $125 price cap would hit suppliers hard and potentially cost the NSW and Queensland government in royalties.
Mr Albanese and Jim Chalmers, who will cap gas prices around $13 a gigajoule under a mandatory code of conduct for producers, want dual action on coal and gas to deliver relief for households and businesses facing soaring energy bills next year.
The stand-off over compensation comes as energy ministers meet to unveil the final design for a capacity mechanism to shore up the grid over the medium to long term and support massive investment in renewables ahead of coal and gas.
The capacity mechanism, a key Energy Security Board post-2025 market design recommendation fast-tracked by governments during the east coast energy crisis, is aimed at locking in future investment and supply for producers, generators and retailers. The renewables-focused mechanism expected to be agreed to by state and territory energy ministers at a five-hour meeting in Brisbane is considered a longer-term fix when proposed temporary coal and gas price cap emergency measures cease.
Industry and energy experts had warned federal and state governments to include coal and gas under an agnostic approach which supports the transition to renewables while guaranteeing reliable power to avoid blackouts and price hikes during peak demand.
The capacity mechanism will incentivise new renewable generation and storage, including solar, wind, pumped hydro and batteries, but will allow individual states to exclude payments to coal and gas. The move is seen as an olive branch to Victorian Energy Minister Lily D’Ambrosio who opposed including coal and gas in the energy market fix.
The mechanism is expected to be designed in a similar way to reverse auctions, a method favoured by several states which involves them effectively underwriting supply by buying power from the projects, sources said.
Shortfalls in electricity capacity will be identified and a floor price arrangement will be guaranteed, luring investment into the electricity resources seen as required to plug any shortfalls. The design will seek to avoid renewables competing directly with storage capacity for spending and instead set separate investment signals for each generation type although under a unified policy.
Mr Bowen said the capacity mechanism would be aimed at encouraging “more dispatchable renewable energy”.
“This is the very important safety net to underpin the transition, we need the transition to renewables to be faster and to be more orderly. It’s been, for the last decade, too slow and too disorderly. There hasn’t been enough management of the transition by the federal government, and it’s occurred too slowly,” he said.
The Clean Energy Investor Group, whose members control $24bn of energy generation across 70 power stations, said it backed a renewables-focused capacity mechanism.
“We are very encouraged by the approach it would appear ministers will adopt at (the ministers’) meeting. A mechanism that contracts zero emissions dispatchable capacity to manage the closure of thermal generation will significantly incentivise new investment in energy storage projects,” CEIG chief executive Simon Corbell said.
Nexa Advisory chief executive Stephanie Bashir said the “previously proposed Energy Security Board capacity mechanism would never actually solve supply and cost-of-living pressures”. “It would continue to incentivise violative fossil fuels which inevitably ends up being paid by the Australian consumer,” she said.
Amid the political clash over coal and gas price caps, Ms D’Ambrosio said “our position is very clear – Victorian households and businesses should not be paying European prices for gas”.
“All options are on the table to drive down energy bills – including capping prices and establishing a robust domestic reserve. We need a solution this week that protects households and businesses across our state on price gouging,” Ms D’Ambrosio said.
The Victorian government will advocate that exporting coal and gas states would continue to gain from massive profits on the international market while relieving pressure on households and businesses.
Victorian Premier Daniel Andrews pushed back against compensation for NSW and Queensland because “you’ve got super profits that are being made by a number of companies where their cost of production hasn’t gone up $1”.
“We won’t be contributing. On a domestic gas reserve … I don’t think that requires any compensation at all. You can set that reserve now.”
Additional reporting: Perry Williams, Rachel Baxendale, Paul Garvey
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