Market divide looms as states and power industry separate from ‘coal guardian’
Australia’s national electricity market is at risk of being ‘balkanized’ due to differences between state and federal governments over the form of new market rules that are said to be designed to facilitate the accelerated shift to a zero-emission grid.
State and federal energy ministers met on Friday under the banner of the “national cabinet” to discuss the proposals put forward by the Energy Security Council for the design of the post 2025 market.
But there are fundamental differences over the nature of these proposals, although – to the astonishment of most – they are still only loosely defined and may not take shape until the middle of next year.
The two major centers of concern are the concept of a “capacity market” and the proposed “physical reliability obligation of retailers” which many say would only funnel billions of dollars to coal generators. aging and unreliable. Few details have been released, but he is already dubbed the “coal keeper”.
The other major flashpoint concerns the so-called ‘congestion payments’ for transport infrastructure, but the renewable energy industry says the proposal is too similar to the discredited ‘Cogati’ model proposed in 2019 and is impractical. .
The frustration is immense. The Australian energy market operator has already published a 20-year master plan on how to decarbonize the main grid by around 2040, and is working on a new version that could speed that up until the mid-1930s. , in line with the latest scientific research that calls for rapid reductions in emissions over the next 10 years.
But the biggest obstacle to this roadmap is the lack of investment in transport and market rules that have not kept up with new technologies and are no longer suited to their purpose.
The reform of these major roadblocks was, or should have been, the primary and urgent responsibility of BSE. In the meantime, investment in new projects has all but come to a halt due to the uncertainty.
Campaigning and lobbying are intense. Last week, Federal Energy Minister Angus Taylor hosted an online forum bringing together CEOs of most of the major generation companies, hosted by the Energy Council of Australia, which largely represents traditional generators and broadly supports the new ESB proposals.
The idea of a “coal keeper” has been castigated by most of the industry, including some owners of coal generators and even the government company Snowy Hydro. Most fear that it will focus on protecting old coal and gas-fired power plants and not do what it should do: encourage investment in new flexible technologies.
A report released late last week said that if the proposed mechanism were modeled on Western Australia’s capacity market, it could cost up to $ 7 billion per year, or over $ 400. per household.
The Clean Energy Council also wrote a letter last week urging states to look beyond capacity markets and the PRRO, and the “congestion management model,” and said it also wanted to see more clarity on what is on offer for distributed energy resources, which includes rooftop solar, batteries and electric vehicles.
It also emerged that the CEOs of four companies with major investments in coal production – Delta, EnergyAustralia, Alinta and Origin – also wrote to ministers urging an “appropriate body” to draft new rules on the PRRO or alternatives by June 30 of next year.
Origin’s inclusion in the letter of support for the “coal keeper” was surprising, given its lukewarm response to the proposal in its official submission, and given that the owner of the country’s largest coal generator (the Eraring’s 2,800 MW facility in NSW had only said this week that “base load is complete” due to the increased flexibility required by the switch to renewables.
Taylor released a statement Friday evening that said little more about the meeting, other than that ministers agreed on the need for more design work on ‘dispatchability’ support mechanisms and a ‘dispatchability’ support package. final ‘of reforms would be presented to ministers at the end of September. , although this is not meant to include the fine details.
Murdoch’s Australian media newspaper said on Saturday that “Energy ministers support the coal plan”, but that seems to be more wishful thinking than reality.
It appeared that some states have already made it clear that they do not like the direction of the talks. NSW does not support the “coal guardian” as it has its own plans in place, as part of its renewable infrastructure roadmap, and does not see the point in doubling down.
Victoria is also hesitant – even though she has already made her own secret ‘capacity’ deal with EnergyAustralia’s Yallourn generator – and wants to ensure that any mechanism is designed to ensure that new capacity is built rather than building a moat. financial around aging and less and less reliable. generators.
Queensland has also expressed concern over the ‘congestion management’ system and is looking to its own models for renewable energy zones (as are other states).
Unless details and agreement are reached in subsequent meetings, energy analysts fear that the outcome of ESB’s work on market reform may be a fracture of the national electricity market rather than a strengthening. .
States have already had to go their own way with renewable energy and emissions targets, and guarantee agreements in recent years due to lack of interest from the coalition federal government. Any further division and “opt-in” or “opt-out” decisions and provisions regarding market reform could render the NEM impractical.
The market is disappointed that the BSE has not produced more detailed proposals despite several years of work on these reforms. Some blame Taylor’s meddling, while others point to the so-called “regulatory capture” where the discussion is dominated and led by detached industry executives in place.
There is now a big debate about who should take the reins of the market overhaul, and whether it should continue to be BSE, or some other entity such as the Australian Energy Market Commission.
The CEC said in its letter that it was disappointed that the BSE had not made further progress in the much needed reform of transport investments, and accused it of not addressing the root cause of the problem. – and to remedy the delays in investments in transport – during the last two years.
“CEC believes that AEMC is now much better positioned to play a more strategic and proactive role in the progressive and long-term review and design of the market,” he writes. (Given AEMC’s historically slow response to technological change, this may seem like a surprise, but the organization now has new leadership).
“The CEC would support increased funding and resources from existing market bodies and an approach to ensure continued collaboration and coordination, especially with regard to the DER where there is a very broad reform agenda that requires coordination and momentum.
And he added, “This approach should also address the growing lack of transparency and consultation inherent in the recently established National Cabinet Energy Subcommittee model.”
There has been a huge controversy over the secrecy and nondisclosure of the meeting of state energy ministers since the former COAG energy council was usurped by the ‘national cabinet’ model rolled out to the model. heads of state to deal with the Covid-19 response.
There has been a ruling that challenges this “trusted cabinet” approach, but it is being challenged by the federal government. In the meantime, little is disclosed.
Giles Parkinson is Founder and Publisher of Renew Economy, and is also the Founder of One Step Off The Grid and Founder / Publisher of The Driven, which focuses on electric vehicles. Giles has been a journalist for 40 years and is a former Business Editor and Associate Editor of the Australian Financial Review.