‘Exciting’ plan to pay Australian renewables providers for stable electricity supply

Jim Hunwick of Pinsent Masons said the Capacity Investment Scheme (CIS) was “exciting” and that the initiative would help to “drive and support investment in zero emissions generation and storage technologies.”

CIS is designed to fill any gaps in supply by covering generator costs when prices are low and recouping that money when prices are higher. The new revenue underwriting mechanism will unlock around AUS $10 billion (USD $6.7bn) of investment in clean dispatchable power to supply reliability and security.

It comes as the Australian energy market undergoes its biggest transformation since the industrial revolution. “This scheme will encourage the ideal mix of storage and renewable technologies needed in the system over the coming decade and will work alongside the National Energy Transformation Partnership and the Rewiring the Nation plan. Together, these policies will ease power prices and make energy cleaner and more secure,” Hunwick said.

According to the federal government, CIS will be available to all jurisdictions nationally and will be limited to zero emissions dispatchable generation and storge technologies. Where other state schemes already exist, the CIS is to be integrated with these to avoid duplication and ensure confidence in the market. Eligible projects will include those already eligible under existing state-based schemes as well as on-grid, public and private utility scale projects that achieve financial close from 8 December 2022 onwards. Open tenders will determine which projects gain CIS support.

The scheme will establish agreed revenue floors that would cover project operating costs, with the Commonwealth paying the difference when revenue falls short of costs, and a share of profits returned to government when generators exceed agreed revenue ceilings. Officials have indicated that the first auction to determine the floor and ceiling prices is expected in 2023.

As part of its legislated target of net zero emissions by 2050, the Australian government is targeting a 43% reduction on 2005 level by 2030. Meeting the government’s target will mean boosting renewable energy production to 82% of the nation’s electricity supply. With at least five of Australia’s coal-fired power stations set to close before the end of the decade, Australia needs to install 45 GW of new supply by 2030, including about 36 GW from renewable generation like solar and wind.

Hunwick said: “The Australian Energy Market Operator (AEMO) has forecast that about 9 GW of new firming capacity – from pumped hydro, batteries, and lower-emissions gas generation – will be necessary by 2030 to unlock those renewables, though the figure is expected to rise to 60 GW by 2050. the CIS will accelerate new investment and encourage the precise mix of storage and renewable technologies that is over the next ten years. Further details on the scheme’s implementation are expected to be released in the coming months, with a view to having the scheme operational by the second half of 2023.”