The Coalition government has fast-tracked its plans for underwriting new “firm” generation, unveiling a range of different proposals that leave the way open for existing coal-fired generators to participate in the scheme.
Energy minister Angus Taylor on Tuesday released a discussion paper, calling for submissions within three weeks, ahead of a call for “expressions of interest” by January, and a formal tender in March.
The paper was released as part of a package of measures from the Morrison government, including a directive to the Australian Energy Regulator to recommend a “standard offer” for consumers that would seek to prevent inactive or lazy consumers from paying too much for their power.
That move is likely to set a maximum price for standard offers, and will also likely cause the biggest discounts to be removed as the energy retailers seek to protect their revenues and profits. There are fears that a standard offer set too low will reduce competition in the market.
There are also concerns about the same impact on the support for new generation which, like the proposal for a reduced standard offer, comes from the ACCC report into the energy market, along with a call to scrap subsidies for household solar.
The Taylor discussion paper says a range of measures are being considered, ranging from a “minimum” price for the “new” generation, a “contract for difference”, so-called “capacity” payments, or government loans. It is open to other suggestions.
But while the proposal is supposed to support “new” and “firm” generation that is not owned by one of the big market players, the document makes it clear that it is also open to “life extensions” for existing generators, which obviously includes coal and gas plants.
The document also makes it clear that the offer would favour generation that would struggle to get commercial finance elsewhere.
“The program will offer a level playing field to enable the best and lowest cost generation options to be supported — this includes consideration of ‘greenfield’ or ‘brownfield’ projects as well as upgrades or life extensions of existing generators,” the document says.
It looks like just the thing for an extension to an asset like the Vales Point coal generator in NSW, whose co-owner recently addressed the so-called Monash Forum of coal-supporting MPs at Parliament House.
Still, the document does note that the “firmness of the additional supply does not need to be provided through the supported generation project, but could be through any combination of generation, storage, demand response and financial contracts packaged through a retailer or other brokerage service provider.”
On this point it is interesting to note Snowy Hydro’s latest news, that it will be able to provide 900MW of new wind and solar capacity, “firmed” by its existing hydro assets, that will provide two terawatt hours of “renewable base-load” at a considerable discount to the cost of existing “base-load” and wholesale prices.
UK billionaire Sanjeev Gupta has also said such a mechanism could help to significantly reduce the cost of solar and storage – which could be far cheaper than existing coal prices.
In the end it will come down to the final design of the project, and the government will be able to frame any tender to fit the image of any generation that it may prefer.
And you can bet there will be heat from the far right of the Coalition, particularly as this might be the government’s final act before the next election, due by mid-May.
Taylor has made it clear that he thinks there is already too much wind and solar in the grid, and he and prime minister Scott Morrison have said their hearts are set on “fair dinkum” power generation, and repeated as much at a press conference earlier today.
In it, Morrison said the initiative was all about prices, and would not rule out coal.
“Whether it’s that or any other sort of energy-reliable supply to the market to get electricity prices down, that’s what we’re for,” he said. “We’re for lower electricity prices and for people generating more reliable power in Australia.”
ITK analyst David Leitch said his initial reaction to the document was that the process “seems incredibly rushed” and ill thought out considering the impact any investment may have for many years
“The process is neither explicitly competitive nor limited in scope, price is not mentioned in the eligibility criteria, nor is there any indication as to how many projects could go ahead.”
He also questioned why the ACCC is involved, considering it is not part of the Energy Security Board and its deliberations on the remains of the National Energy Guarantee and the proposed reliability obligation, or the AEMO work on its Integrated System Plan.
“The ACCC is not part of the ESB and it’s unclear why it’s involved in policy setting, or why the government is in so much of a hurry to adopt this recommendation. Snowy 2 is already in line to provide reliability,” Leitch said.
The government says it is considering the following conditions that must be met:
a) The project must be able to provide (either individually or in combination with other instruments) a firm electricity supply product which meets the needs of its customers
b) The project must demonstrate the lack of availability of financing or the extent to which financing costs are above those of other larger market participants
c) The project will be able move to Final Investment Decision within [X] years of the application date
d) The project would be unlikely to result in an increase in electricity sector emissions to a level that is more than minus 26 per cent of the sector’s 2005 levels by 2030
e) The project enhances market competition as a result of:
- Being owned by, contracted with and operated by participants with limited or no market share; or
- Otherwise, has contracts in place for most of the project’s capacity to supply electricity to commercial or industrial customers at a price that reflects cost.
f) The government says it will bring in independent advisors, and while the energy minister will make a recommendation, the final decision will be with the government. It hopes to have the contract in place by the end of the financial year.
The retail default price, and the latest version of the “retailer reliability obligation” will be presented to the COAG energy council at a meeting this Friday.
