No “big bang” as ESB confirms rethink on CoalKeeper design

A suite of electricity market reforms designed to guide Australia’s transition to renewable energy has been approved by the federal government, but with the key concession that some of the recommendations – namely the controversial “CoalKeeper” capacity mechanism – needs more work.

The Energy Security Board on Monday said that National Cabinet had endorsed its Post-2025 reform recommendations for changes needed to the National Electricity (NEM) to integrate small and large scale renewable generation into the system.

“Following the agreement from Energy Ministers in late September, this Cabinet endorsement paves the way for further design development with stakeholders to ensure the NEM is fit for purpose up to 2025 and beyond,” the statement said.

But the ESB also stressed that some of the recommendations required “further detailed design” – in particular, it said, state and territory energy ministers had requested further work on a capacity mechanism.

The proposed creation of a capacity market to financially reward “dispatchable” generators was indeed highly unpopular with energy ministers – and with many other market participants and observers – for its potential to keep coal power stations open for longer and stymie investment in new solar, wind and storage projects. Hence the nick-name, CoalKeeper.

Energy ministers from the two largest states, New South Wales and Victoria, both pushed back strongly against the idea, and ACT energy minister Shane Rattenbury said the ACT would “adamantly oppose” the introduction of subsidies that would extend the lives of coal and gas plants.

Ultimately the energy ministers – united by a desire for the reforms to focus on zero emissions technologies – agreed to a list of principles to guide the detailed design work on a capacity mechanism.

At the top of this list is a direction to focus on affordability, reliability, security, and “continued emissions reduction” of electricity supply, as well as to provide a signal to value capacity that best supports the needs of the NEM.

This falls slightly short of Rattenbury’s call for any capacity mechanism to apply to zero emissions technologies, only – excluding its application to coal and gas plants. But at least ensures the addition of what the ACT minister described as “essential amendments” if further work is to be done by the ESB.

“It is vital that Energy Ministers are absolutely clear in their instructions to the ESB that we expect the market bodies to undertake any reform in a way that rapidly reduces emissions from Australia’s electricity sector,” Rattenbury said in September.

For its part, the ESB confirmed on Monday that some of the recommendations did require further detailed design, including on the congestion management approach for transmission as more and more renewables connect, which has its own unflattering nick-name: SolarStopper.

The statement also assured that all further design work would involve “deep consultation” with stakeholders and interested parties to address concerns and issues raised and make sure the future arrangements were fit for purpose.

“The ESB has received substantial input from a diverse range of stakeholders in developing these recommendations. We welcome the thoughtful feedback that has been received as part of the policy development phase and look forward to continuing engagement with stakeholders to now deliver these reforms”, ESB chair Kerry Schott said.

“With the rapid changes across the electricity system, we need to make sure that we have measures in place to keep the system secure, have reliable supplies, make the most of our abundant renewable resources and deliver affordable supply to customers as we transition.

“Delivering these reforms won’t happen overnight in a big bang, but there are some immediate needs to get on with.”