However, some experts, including Grattan Institute energy director Tony Wood and former BSE president Kerry Schott, support the BSE proposal, arguing that the design can be modeled by energy ministers to prioritize clean energy over coal.
Wood said that while the BSE discussion paper argued that coal should be eligible for capacity payments, it sought guidance from energy ministers on the rate of emissions reductions that will decide whether plants of coal were eligible for payments and how much net power was contracted.
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Key energy ministers for the East Coast electricity market, NSW Energy Minister Matt Kean and Victoria’s Lily D’Ambrosio, oppose the inclusion of coal in the capacity market. D’Ambrosio also wants to exclude gas plants, but Kean has argued that fast-starting gas plants will be useful during the energy transition.
“The carbon cap imposed by ministers on the capacity mechanism needs to be strong enough for states to agree to it,” Wood said. “This would be imposed on AEMO (the Australian Energy Market Operator) as a requirement that when it contracts capacity (power generation) it is consistent with that target.”
Federal Energy and Climate Change Minister Chris Bowen has said a capacity mechanism is urgently needed and the scheme should focus on clean, distributable energy such as batteries and pumped hydro.
The capacity mechanism will be crucial to the federal government’s goal of 82% clean energy by 2030. Energy reforms have become much more difficult due to cost-of-living pressures that weigh on voters’ minds. Household energy bills have soared in recent months amid a global energy crisis.
Representing renewable companies, the Clean Energy Council and the Clean Energy Investor Group said the capacity mechanism should not include coal but instead focus on a scheme that drives investment in clean, distributable energy.
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Both have argued that a separate scheme should be imposed to ensure the forecast exit of coal power from the grid by 2042, due to competition from cheaper renewables, is managed smoothly, such as state governments reaching agreements with plant owners to fund their ongoing operations until it can be safely replaced by large-scale renewable storage.