Green energy backers attack capacity market proposal, saying we ‘shouldn’t be paying to keep coal and gas’

Renewable energy advocates are urging state and federal governments to avoid extra payments to coal- and gas-fired power plants to ease Australia’s energy woes, warning they could derail the move away from fossil fuels.

Federal Energy Minister Chris Bowen is leading the charge for a so-called capacity market, which would pay energy providers to be available when the system needs them, typically during periods of stress on the grid.

The bid comes amid one of Australia’s worst ever energy crises, in which wholesale electricity prices have soared to record highs on surging coal and gas costs and there have been fears of widespread blackouts.

While acknowledging the need for a fix for the national electricity market, renewable energy backers argue a capacity market is the wrong option.

Greens leader Adam Bandt says the capacity proposal, which has been put forward by government adviser the Energy Security Board, risks undermining the shift to carbon neutrality.

‘Wind and solar, not coal’

Mr Bandt said the scheme would involve paying fossil fuel-fired generators to provide capacity when governments should be providing incentives for clean energy sources needed to replace coal and gas.

Adam Bandt speaks at Parliament House.
Greens leader Adam Bandt has argued against anything that would give extra money to coal and gas plants.(ABC News: Marco Catalano)

“The public shouldn’t be paying to keep coal and gas in the system,” Mr Bandt said.

“Every dollar spent keeping coal and gas in the system for longer pushes out new investment in renewables and storage.

“When South Australia needed to firm its capacity, they built the world’s biggest battery in under a month.

“It’s not difficult to see that with vision and leadership from government, renewables and storage can be the answer to the problems created by unreliable coal and gas.”

One proposal favoured by some in the renewable energy industry is a target for storage investment in Australia.

The idea has been formulated by the Victoria Energy Policy Centre (VEPC), which has suggested a capacity market would be incapable of underpinning the investment needed for an electricity system running on renewable energy.

In a report, the centre said the absence of a carbon price in Australia meant the biggest cost in the electricity system was not being properly counted.

It said a capacity market would be hobbled by the same flaw.

Storage target a ‘better fix’

Instead, the centre called for the federal government to channel its efforts into the need for storage capacity that could help to deal with the fluctuations in output from renewable energy sources.

It cited the renewable energy target as a template for the scheme, which has driven much of the investment in wind and solar over the past 20 years.

“The requirements for investment in new storage capacity by 2050 are very large [of the order of $90 billion].

“With technologies still changing rapidly and the time profile of future storage needs uncertain [as it is tied to the closure of existing power stations] there is a real risk of under-provision through existing mechanisms or poor policy decisions as crises emerge.”

Aerial view of rows of solar panels on red soil from directly above.
Investment in renewable energy is booming, but experts agree that flexible back-up is needed.(ABC News: Michael Franchi)

Pointing to the federal government’s flagship energy policy – the $20 billion rewiring the nation fund – the VEPC warned of the Commonwealth getting involved in parts of the industry where its help was not required.

The centre noted that private investors already had “considerable interest” in building new solar and wind plants as well as transmission lines.

But it said there was far more trepidation about investing in storage assets, largely because of uncertainty about the timing of coal-fired power plant exits.

“An important role for RNC could be to establish a market-based mechanism to facilitate provision, by the private sector, of adequate storage capacity,” it said.

Coal exit plan ‘essential’

Tristan Edis, who runs the research and advisory firm Green Energy Markets, agrees a capacity market will be more likely to hinder than help the transition to renewable energy.

Mr Edis said one of the most important things governments at a state and federal level could do was provide a clear timeline and plan to manage the departure of coal from the system.

“The capacity market as has been outlined so far by ESB may help delay exit but doesn’t do anything to coordinate the timing of exit with entry or facilitate entry of capacity before the exit of capacity,” Mr Edis said.

“That’s the crux of the potential problem we have at present.”

Mount Piper Power Station
The Mount Piper power station in NSW is expected to be one of the last coal plants to close.(Supplied: EnergyAustralia)

Mr Bandt said state and federal energy ministers should look to the Australian Capital Territory for guidance on how to handle the transition.

Under arrangements put in place last decade, the ACT sources an equivalent of 100 per cent of its energy needs from renewable sources.

“The lesson from the ACT could not be clearer – go 100 per cent renewables, break up with fossil fuels and reap the benefits of cheaper, cleaner, reliable energy,” Mr Bandt said.

Despite the comparison, observers have pointed out the territory still relies on New South Wales as a backstop for its power.

NSW gets more than 70 per cent of its power from coal.