The Mechanism of Energy Supports Old and New Sources | Western magazine

Coal-fired power plants and new renewable assets would be eligible for payments under a proposed “capacity mechanism” submitted to energy ministers.

Generators would receive a “capacity payment” and customers would pay no more for the same service, according to the plan prepared for federal Energy Minister Chris Bowen and his state and territory counterparts.

Australia’s energy ministers, faced with immediate threats of blackouts and the need for a longer-term plan for the national power grid, urged officials to complete reforms that were on the drawing board. drawing for years.

While some argue that only new resources should be eligible under the new program, the Energy Security Council of Regulators says existing generators should not be excluded, meaning coal plants and utilities of gas are awaiting subsidies.

The draft document seen by the AAP indicates that a significant amount of coal-fired electricity will become uneconomical this decade, and power replacement would require the equivalent of another Snowy 2.0 to be connected each year from here 2030.

Regulators also recognize that renewables in large businesses and industrial premises provide a growing share of the National Electricity Market (NEM) supply, and the plan proposes that they receive capacity payments.

Battery storage is also growing strongly, as are new technologies and software to measure and manage demand.

Regulators want to better integrate these “demand-side” assets, saying they could provide efficient resources to the capacity mechanism and benefit customers large and small.

Energy Security Council Chair Anna Collyer said the mechanism will be a key tool to ensure the reliability of electricity supply during an unprecedented period of transition.

“It’s not a new concept, most markets around the world already operate markets that explicitly value capacity, but it’s a big change for the NEM,” she said.

A draft capacity mechanism prepared last year under the previous federal government was labeled “CoalKeeper” by some, and dismissed as going too far to extend the viability of aging coal plants.

Most market participants expect all coal generation to cease by 2043.

At the same time, electricity demand is expected to at least double by 2050.

The draft plan says the scale of investment to maintain supply reliability over the coming decades is “dramatic”.

The National Electricity Market was established in 1988 with a market-based design that aimed to stimulate private investment. Some say it failed and should be dropped.

The report to ministers concedes that “the incentives to invest may not be sufficient” when uncertainty is high, as it is now.

Most new investment over the next few decades is expected to be in wind and solar, collectively known as variable renewable energy, which are identified as the cheapest next-generation sources.

However, maintaining a secure and reliable electricity supply is more difficult in a system dominated by variable renewables.

The Energy Security Board said it was aware of concerns that the capacity mechanism could cause customers to pay more for the same level of service.

“This is not the intention and will be avoided through careful design,” the board said.

An important principle for energy ministers is the pursuit of emission reductions in electricity supply.

But that would not affect a state or territory’s power to determine which assets can participate, under the draft plan which is due to come into effect on July 1, 2025.

Under the proposed approach, the Australian Energy Market Operator would hold capacity auctions, award contracts and make payments to producers who would pass on the higher costs to energy retailers.

This centralized model would make the operator responsible for forecasting, purchasing sufficient capacity and determining demand.

“That leaves less of a chance,” the document says.

Australian Associated Press