The Grattan Institute has become the latest body to voice concerns about the federal government’s plan to underwrite new “dispatchable” generation, widely seen as a last-ditch attempt to support investments in coal generation.
“Grattan Institute does not support an underwriting mechanism to encourage investment in the National Electricity Market (NEM),” a summary of its submission says.
“The Commonwealth and state governments should instead focus on establishing a stable climate-change policy and ensuring the NEM is well managed. Government intervention should be considered only if there is strong evidence that the market has failed, and even then only as a last resort.”
The Institute says there is no evidence of a market failure, and it joins the likes of The Australia Institute, the Clean Energy Council, former CEFC chief executive Oliver Yates and others in opposing the move.
The federal government is seeking to rush the program and is trying to lock in a contract by March, before the government goes into a mandatory caretaker period.
Yet details of the program remain vague, do not conform with ACCC recommendations, and appear designed only to encourage “base-load” or “24/7” power, none of which is needed in an emergency given the current oversupply in the grid.
Grattan Institute also warns that such decisions could compromise any future shift towards sensible climate policy.
“Government underwriting and ownership of electricity generation assets complicates the relationship between generators and sensible climate-change policy,” it writes.
“An underwriting program could reduce future governments’ willingness to increase the emissions-reduction target if such a move would be detrimental to the profitability of their underwritten assets.
Grattan argues that if it does go ahead, it should be limited to investors with little market share, with identifiable commercial customers, and only to new projects. All these measures were recommended by the ACCC, but tossed out by energy minister Angus Taylor in his rush to embrace existing coal or gas plants.
Grattan also questions the need for the measure as a means to address reliability issues.
“The Underwriting New Generation Investment consultation paper notes that the most recent Electricity Statement of Opportunities (ESOO) identified that the NEM would need an additional 1,160 MW of firming capability to enter the market in the next decade,” it notes.
“It is most likely that the market will meet this need. The gap could be met through private investment, distributed generation and storage (rooftop solar and batteries), or a maturing demand-response market.”
The proposed 4GW project combining wind, solar and storage near the existing Hunter Valley coal stations is a case in point.