Power companies switch off support for key clean energy proposal

Power companies switch off support for key clean energy proposal

A key reform the federal government says is urgently needed to modernize the electricity grid and boost the take-up of clean energy has been plunged into uncertainty after both major fossil fuel and renewable power companies hit out at the plan.

The Energy Security Board (ESB), the Commonwealth’s policy adviser, is receiving pushback, including from Origin Energy and AGL, over a proposal to direct payments to companies to run generators or store power to back up renewables when the sun isn’t shining and wind isn’t blowing.

Major power companies are questioning ESB’s proposal for a payment scheme to encourage more investment in clean power. Credit:AP

The ESB has proposed that the so-called “capacity mechanism” be technology neutral, allowing plants powered by coal, gas or renewables to receive the payments. This has sparked concerns from some major power companies that incumbent fossil fuel generators would be propped up at the expense of investment in clean energy, or that consumers would pay higher bills than necessary.

It recently published industry feedback on the proposal, ahead of a meeting with state energy ministers on Friday at which the federal government will seek to speed up the creation of a capacity mechanism.

“Importantly, the capacity mechanism should not be viewed as a means of staving off coal closures, but work alongside a credible framework to help facilitate and manage orderly exits,” coal plant owner Origin said in its submission to the ESB’s capacity mechanism.

Another coal plant owner, AGL, said it was “particularly concerned at the potential for the proposed design to result in excessive costs for energy customers” and to dampen incentives for clean energy investment.

The ESB’s proposal is also opposed by clean energy companies, whose investment will be needed to deliver on the $300 billion required over the coming decade to expand the grid and link it to distant wind and solar farms as they replace coal plants.

However, some experts, including Grattan Institute energy director Tony Wood and former ESB chair Kerry Schott, are backing the ESB’s proposal, arguing the design can be shaped by energy ministers to prioritize clean power over coal.