Three years on, Morrison’s electricity underwriting scheme still has nothing to show

More than three years since the Morrison government announced that it would underwrite the development of up to 12 new electricity generation projects, not one of those projects has materialised.

During a senate estimates hearing on Monday, officials from the Department of Industry, Science, Energy and Resources conceded that the government had not yet provided any financial backing under the Underwriting New Generation Investments (UNGI) program, in the three years since its creation.

Officials said they were still undertaking negotiations with 10 of the shortlisted projects and still had intentions of providing support, should those projects be found to “stack up” economically.

“[Under the] UNGI program, two projects of the original shortlist of 12 projects have withdrawn from the UNGI process. The remaining ten are still being worked through with respect to the proponents,” deputy secretary of the industry department, Sean Sullivan, told the estimates hearing.

“I think the government was very clear that any support under the program would be for projects that, that stack up financially.

“We continue to work with those proponents, and we’ve invested a huge amount of time and energy into trying to make those projects stack up and work with them in terms of the underwriting,” Sullivan added.

But officials conceded that none of the shortlisted projects had reached a “final investment decision,” and there were no clear timelines for when any of the projects might proceed to construction.

Scott Morrison and Angus Taylor first announced the UNGI program in late 2018 – before the last federal election – after pitching it as necessary to address “market failures” that had prevented investment in new “firm” generators. They also claimed it would deliver “a 25 to 30 per cent reduction in wholesale prices in each NEM region by 2021.”

In March 2019, the Morrison government announced a shortlist of 12 projects earmarked for support under the UNGI program.

The list featured five gas generators, seven pumped hydro energy storage projects, and the since cancelled upgrade to the Vales Point coal fired power station – amounting to 3,818MW of proposed projects.

Under the scheme, the federal government was to offer a range of support to help the projects progress to construction, including potential offers of finance or agreements to guarantee a minimum electricity price paid to the generators to reduce revenue risks.

The delay in providing any of these support measures has, in part, been caused by the Covid-19 pandemic, which necessarily diverted the government’s attention throughout 2020, but it has also been partly of the government’s own making.

The government had planned to finance these commitments through a promised $1 billion Grid Reliability Fund, which itself has failed to materialise after attempts to pass legislation creating the fund were derailed by the government’s own backbench, which wanted to divert the funding into coal and nuclear projects.

The concept for the UNGI scheme was adapted from a recommendation of the ACCC, which had called on the federal government to establish a mechanism to support small and medium industrial energy users to aggregate their demand and effectively underwrite the construction of new, low-cost and dispatchable electricity projects.

But the Morrison government saw the ACCC’s recommendation as an opportunity to use public resources to support investment in a range of its preferred technologies, culminating in the gas-focused UNGI program that omits the involvement of industrial energy users.

Early on, key investors and project developers warned the Morrison government that its intervention into the electricity market could cause investment to grind to a halt, as developers became hesitant to proceed with projects as they did not want to miss out on an offer of government support.

As a result, the only real achievement of the Morrison government’s UNGI program has been to put a dozen potential electricity generation projects into an indefinite limbo.

During the estimates hearings, officials also confirmed that no funding had been paid out of the $250 million CCUS hubs and Technologies Program, announced by the Morrison government last year, nor had the Australian Renewable Energy Agency provided funding under controversial new regulations that open up the agency to funding carbon capture and storage projects.