One of the Morrison government’s flagship energy policies is stuck in parliamentary limbo, with the $1 billion Grid Reliability Fund, the key to the government’s electricity market plans, requiring legislation that is yet to be passed by parliament.
With sittings of federal parliament largely suspended, aside from urgent measures needed as part of the immediate response to the Covid-19 pandemic, the Morrison government may not be able to deliver the key components of its announced plan to reduce electricity prices and boost reliability.
This in turn will have broader impacts. The lack of progress in the fund’s creation means that the government’s prized Underwriting New Generation Investment (UNGI) program is also stalled, and that means private investment is also held back as investors wait to see if any competing projects get government handouts.
Prime Minister Scott Morrison announced the commitment to the Grid Reliability Fund in October last year, and government wanted to use the fund to financially support new electricity generation projects under the UNGI program. The fund was to be administered by the Clean Energy Finance Corporation.
When the fund was announced, finance minister Mathias Cormann said that necessary amendments to the CEFC’s legislation would be made to enable the body to administer the $1 billion fund. These are necessary to expand the CEFC’s scope to invest in additional technologies beyond renewables and energy efficiency, including gas generators, storage projects and network infrastructure.
Legislation will also need to be passed to authorise the allocation of the additional $1 billion in funding to the CEFC.
But these amendments have not yet been introduced to parliament. With parliamentary sittings effectively suspended as a result of the Covid-19 pandemic, there may be no clear pathway for the formation of the Grid Reliability Fund, nor the fulfilment of the UNGI program.
Federal energy minister Angus Taylor confirmed that the legislation necessary to implement the Grid Reliability Fund had been drafted, and would be considered as soon as it was feasible for the parliament to do so.
“The legislation needed to support the establishment of the Grid Reliability Fund has been completed and is ready to be considered by Parliament as soon as the legislative schedule allows,” Taylor told RenewEconomy.
“The CEFC continues to look at potential investments that will help support grid reliability, which will be further enhanced once the Grid Reliability Fund is established.”
It has been more than a year since prime minister Scott Morrison announced the first shortlist of gas, coal and pumped hydro projects lined up to receive federal government support under UNGI, and yet so far nothing has been delivered.
The UNGI program was created in response to a recommendation of the ACCC for the federal government to underwrite new electricity generation projects, particularly to facilitate small and medium industrial energy users to secure offtake agreements for affordable electricity supplies.
The measure was being pursued “as a priority” by the government, as an urgent response to a lack of generation capacity within the electricity market, and to drive down electricity prices.
But the lack of progress has prompted calls for the UNGI program to be scrapped altogether, as it works to impede private sector investment in new electricity generation infrastructure.
The proponents of the twelve shortlisted projects, as well as any similar prospective projects, are unlikely to progress their plans until they know the outcome of any potential underwriting decision from the federal government.
The Grattan Institute joined these calls in late 2019, saying that the UNGI program has had the opposite effect of bringing new investment into the market and has run counter to the program’s purpose.
Late last year, it was reported that as many as six projects would be signed off for funding under the UNGI program before Christmas. But as it turned out, just the two projects received approval, and nothing further has been announced in the months since.
In the days leading up to Christmas, federal energy minister Angus Taylor announced that two of the shortlisted projects had agreed to initial terms to secure UNGI funding.
These projects were the 220MW Dandenong gas generator proposed by the APA Group in Victoria, and the 132MW gas generator destined for Gatton in Queensland, proposed by Quinbrook Infrastructure Partners.
But neither of these projects have reached a final investment decision, with the federal government still finalising contractual negotiations with the two companies to agree on the terms of the underwriting funding.
Separately, the NSW government managed to lock in federal government support for three projects under the UNGI program as part of a bilateral deal struck between the state and federal governments.
Three NSW projects made on to Morrison’s initial UNGI shortlist, which included a gas generator in Port Kembla, a pumped hydro energy storage project in Armidale and an upgrade to the Vales Point coal-fired power station.
When queried, Taylor’s office was unable to confirm if or when any final announcements would be made around the shortlisted NSW projects. Taylor’s office said that assessments were ongoing and that all proposals were still under consideration. Taylor’s office would also not confirm whether the three shortlisted projects would secure funding in line with the bilateral deal.
Either way, a final investment decision may effectively be meaningless until the government can make the necessary amendments to the CEFC Act.
Progress on the remaining ten shortlisted projects has been even slower, and the government may be looking to buy time after unexpectedly finding itself in a position where it is unable to actually “underwrite” the shortlisted projects.
However, it is understood that the Morrison government has already indicated to Delta Electricity, which sought funds to upgrade the Vales Point coal-fired power station, has already been told privately that it has secured funding to the tune of $11 million to cover more than half the $20 million cost.
But any such arrangement to help extend the life of the Vales Point power station has not been announced publicly, and it may not be in a position to do so until relevant legislation is passed by parliament.
RenewEconomy and its sister sites One Step Off The Grid and The Driven will continue to publish throughout the Covid-19 crisis, posting good news about technology and project development, and holding government, regulators and business to account. But as the conference market evaporates, and some advertisers pull in their budgets, readers can help by making a voluntary donation here to help ensure we can continue to offer the service free of charge and to as wide an audience as possible. Thankyou for your support.