Coal closure “interventions” are stifling investment in the very projects needed to replace them

The Queensland LNP government’s sweeping changes to renewables planning rules have delivered a major blow to wind developers in that state, but its embrace of coal and commitment to extend the life of coal plants is doing even more harm to the wind project pipeline – and not just in Queensland.

Developers have told a wind energy conference in Melbourne this week that coal plant extensions and uncertainty around the timeline for closure of Australia’s remaining coal generators are having a material impact on investment in new wind projects in Australia.

They include those backed by the federal government’s Capacity Investment Scheme (CIS), largely because of uncertainty about the state of the market, and the lack of firm contracts.

Queensland is not the only offender. Federal Labor, despite its ambitious renewables targets, has stopped short of setting an exit date for coal. And in New South Wales, Origin Energy was given the state government’s blessing to further extend the life of its Eraring coal plant out to 2029.

But Queensland’s unfettered support of coal power – in both policy and budget terms – over and above renewables, has added new levels of uncertainty for would-be investors in the roughly 18 gigawatts of new wind capacity the Australian Energy Market Operator wants installed by 2030 to keep the lights on.

“We definitely don’t have a capital issue in Australia. All we have is a certainty and a deliverability issue,” said Walter Schutte, Squadron Energy’s executive general manager of customer and energy markets, in a panel discussion on Wednesday.

“In terms of uncertainties… in many cases it’s coal extension that’s putting … downward pressure on market pricing, and so forth, which makes the investment decision very difficult.

“[Coal extension] is putting significant pressure on the revenue line of these projects in the sort of pre-FID phase, and so just having clarity around government’s policy around how that ongoing extension might occur, and the timing of that would be a really useful improvement in allowing us to sort of plan better,” Schutte said.

Iberdrola Australia’s executive general manager of energy markets, Stephanie Easton, says uncertainty around coal closures is one of the things she can “put her finger on” as causing a lot of worry and adding premium to investment decisions.

“Some of the uncertainties that we deal with that perhaps shouldn’t be as uncertain as they currently feel …would really be kind of certainty of coal closures,” Easton told the conference on Thursday.

“We’ve had a number of interventions stopping coal from closing in the last five years… Everything says we’re probably ready for coal unit closure, and yet I think there’s still a lot of people sitting there saying it probably won’t happen, and so that that uncertainty kind of needs to be priced in.”

For its part, the federal government says a key role of the Capacity Investment Scheme (CIS) has been to address some of the uncertainty over the timing of coal closures.

“The Capacity Investment Scheme is not intended to remove all risks from projects,” said Matthew Brine, deputy secretary of energy at the federal government Department of Climate Change, Energy, the Environment and Water (DCCCEW).

“It’s really focused on reducing financial risks, particularly those associated with policy uncertainty around the timing of the closure of coal-fired generators, recognising the impact this has on prices.”

Chrys Chandraraj, director of regulation and markets at EDF Power Solutions Australia, says the use of underwriting mechanisms to support the development of renewable energy to replace coal is becoming part of a vicious circle.

“Essentially coal is masking the value of firming energy and renewable energy, and I think that’s why we have these underwriting schemes, is essentially to bring forward uneconomic investments currently,” he told the conference on Thursday.

The value proposition of wind won’t be realised fully until until coal is out of the system, he says, “but you need it before you can let coal retire. So, I think that’s what we’re facing here.”

Danny Nielsen, senior vice president and country head of Australia and New Zealand for Danish wind giant Vestas says a “crunch” day will come when Australia has to quit coal, but until that time, the impact of coal extensions on the forward curve on prices is leaving investors “a little bit scared.”

“We can’t invest because the [market] prediction looks like that, and then …on top of that… we thought there was certainty when these plants would exit, so we’re in-between …the two points at the moment.

“There was a timeline, that timeline was extended, sending some signals to investment, bringing the forward [prices] down. And I think as soon as the first [coal plant] exits, you will start to see that… okay, now we are moving ahead again,” Nielsen said. 

A survey by the Clean Energy Investor Group released earlier this week found that less than 10 per cent of investors believed Australia will achieve its 2030 target of 82 per cent renewables.

The 2026 Integrated System Plan released by the Australian Energy Market Operator last month included a “constrained development” scenario that also suggested Australia would fall short of its target.

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