Energy ministers agree to fast-track big batteries and long duration storage

AGL torrens island b battery gas plant
The new Torrens Island battery, with gas plant in background. Photo: AGL

Federal and state energy ministers have agreed on a new mechanism that can fast-track the development of big batteries and long duration storage as the country seeks to accelerate its switch from coal to renewables.

The ministers met in Brisbane on Thursday to discuss a new mechanism that seeks to reward new zero emission technologies rather than the legacy fossil fuel plants that were seemingly favoured in previous proposals put forward by the Energy Security Board.

The so-called Capacity Investment Scheme (CIS) will provide a national framework to drive what federal energy minister Chris Bowen describes as “new renewable dispatchable capacity” and ensure reliability in Australia’s rapidly changing energy market over the next decade and beyond.

The scheme appears based – as foreshadowed by RenewEconomy on Wednesday – on the NSW renewable infrastructure plan, and will involve tenders for a revenue underwriting mechanism that help will unlock around $10 billion of investment in clean dispatchable power, essentially batteries and long duration storage.

Auctions and revenue floors

“It is more necessary that ever in these challenging times,” Bowen said in a media release.

“The 2022 winter energy crisis was a stark reminder of how vulnerable Australia’s energy market currently is to market shocks, due to the previous Government’s legacy of 4GW of dispatchable power leaving the grid over the past decade, and only 1GW replacing it.

“We need to turn that around.”

Like the NSW scheme, the CIS will involve regular auctions to determine a price for a “revenue floor”, which will provide some certainty for financiers to back a project.

The ministerial statement said the agreed revenue ‘floor’ will help cover project operating costs and debt repayments, with the Government paying the difference when revenues fall short, and a share of profits returned whenever revenues exceed an agreed ‘ceiling’.

Existing tenders to continue

The ministers say the CIS will complement, rather than overlap with existing state schemes, such as the NSW Electricity Infrastructure Roadmap. That means it will not alter competitive tenders currently underway.

The NSW government has been overwhelmed by interest in its first auction, and has flagged a second and third in 2023. It is not clear what that means for future tenders, and how these will dove tail with the national scheme.

The federal Labor government has set a 82 per cent renewable share as its de-facto target for 2030, in line with the “step change” scenario of the Australian Energy Market Operator’s Integrated System Plan.

States such as Victoria (95 per cent by 2035) and Queensland (80 per cent by 2035) have more formal targets, and all have proposed some form of target for energy storage.

All the states, and most of the industry apart from a couple of hardline coal generators, had vigorously opposed the design that the ESB kept serving up to the industry, first under Taylor’s guidance and then to Bowen.

Keep the lights on mechanism

Bowen was encouraged to see through the plan – Chris Bowen needs flexibility to avoid capacity market trap set by fossil fuel lobby – and the agreement reached on Thursday confirms both agreement among the states, and the dumping of the ESB’s ideological approach to the problem.

“The Capacity Investment Scheme is essentially a ‘keep the lights on’ mechanism,” Bowen said.

“Australian households, industry and the energy market are all moving with their feet towards more affordable renewable energy. The Capacity Investment Scheme will ensure the reliable power we need is delivered as this transition continues.”

“The energy market has been changing for some time – but federal leadership had been too hamstrung by cynical politics on energy to acknowledge it or plan for it. Australian jurisdictions today took another step to turn that around for households and businesses.”

The Government will release further details on the scheme in the coming months, with a view to the first auction occurring in 2023.

Queensland energy minister Mick de Brenni described the agreement for new “firmed renewables” as an “historic deal” after a decade of “LNP denial and delay”, and its push for a capacity market that would include coal and gas generators.

Coalkeeper is dead

“Angus Taylor and Scott Morrison’s Coalkeeper is dead,” de Brenni told journalists. “Australia’s energy transformation is our opportunity to bring manufacturing back to Australia.”

Ironically, though, the new mechanism is based on Coalition policy, albeit a well thought through policy from the NSW branch – led by state energy minister Matt Kean – rather than the ideological bollocks coming from Taylor’s office.

De Brenni says Queensland wants to make wind and solar components, battery components and hydrogen electrolysers as part of a national energy action plan, which will also support the Rewiring the Nation program that will inject $20 billion to support new transmission links and other infrastructure.

Stephanie Bashir, founder and CEO of Nexa Advisory described the deal as “fit-for-purpose” for the demands of the 21st century energy transition.

“Well-designed mechanisms that incentivise the cheapest form of new generation capacity, and reward investment in flexible generation types and storage, is exactly what the Australian energy market needs.

“Clean energy transition in Australia is critical to meeting our climate targets, ensuring energy security and supply stability, and controlling and abating cost of living pressures on households and business. The previously proposed ESB capacity mechanism would never actually solve supply and cost of living pressures.”

For more analysis, see: Coalkeeper killed off as Labor states embrace Matt Kean’s auction and underwriting plan

And: Adults are back in the room, with policy that paves the way for cheaper electricity

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