Victorian pressure on power subsidies proposal

Victoria has signalled it could oppose subsidies being used to extend the life of coal generators.

Energy Minister Angus Taylor. Picture: Gary Ramage

Victoria has signalled it could oppose subsidies being used to extend the life of coal generators under proposed reforms to the energy market, raising pressure on Energy Minister Angus Taylor to ensure his plans do not extend the life of fossil fuel generators any longer than necessary.

The Energy Security Board on Thursday released its post-2025 market design, with a “capacity mechanism” that would offer incentives to encourage construction of dispatchable power sources and prevent premature closures of coal generators.

A spokeswoman for the Andrews government said the design of the capacity mechanism would have to align with the state’s ambition to lower emissions by 45-50 per cent of 2005 levels by 2030 - a target nearly double that of the Morrison ­government.

“While we have agreed that the ESB should continue to work on the design of a capacity mechanism, there has been no agreement on a specific model, including whether coal should be eligible for payments,” she said.

NSW Energy Minister Matt Kean, an outspoken critic of the Morrison government’s climate change ambition, gave his preliminary backing to the plan, saying it would help ensure a smooth transition to a zero emissions ­energy sector. “While we have a plan to build new generation, we recognise we need to have a mechanism to manage the exit of existing plant generation, including coal,” he said. “This shouldn’t be about ideology (but) about ensuring we ­deliver cheap energy that is reliable in a changing environment.”

Mr Taylor said the capacity mechanism would encourage construction of new dispatchable power sources “alongside those record investments in renew­ables … We’ve seen what happens when there isn’t enough investment in dispatchable capacity, or when there’s a premature closure.

“In Victoria, when Hazelwood closed, overnight we saw more than a doubling of wholesale electricity prices,” he said.

The capacity mechanism was endorsed by the Australian Workers Union and the CFMEU, but Australian Industry Group chief executive Innes Willox said it was “impossible to evaluate, given its vagueness”.

“It could be palliative care for fading coal generators, or the foundation of investment in new clean dispatchable resources,” he said.

The Clean Energy Investor Group, an investor group backed by Andrew Forrest and banking giant Macquarie, savaged the plan. “It does nothing to address investor risk. That means investment in renewables will continue to face a significant risk premium in the Australian market compared to other markets,” CEIG chief executive Simon Corbell said.

Trevor St Baker, a co-owner of the Vales Point coal plant in NSW, rejected the idea it was about extending the life of coal stations and said the mechanism was about ensuring the power grid operated reliably: “This is not a ‘save the coal-fired generator businesses’. It is simply a refining of the National Electricity Market so it automatically procures the generation and system support services essential for the continued supply of reliable, secure and affordable power supply.”