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A sweeping energy scheme worth many billions of dollars aimed at keeping the lights on will be rolled out by the Albanese government amid mounting warnings from key agencies that coal-fired power is shutting down quicker than it’s being replaced by renewables.
The government has set a target to dramatically raise renewables to 82 per cent of the energy mix by 2030, which it forecasts will reduce the cost of electricity generation so far that public funds are needed to underwrite new wind and solar plants.
The Albanese government is launching a new scheme to reach its renewable energy goal, underwriting private companies to build new projects to boost energy supply.Credit: AP
It is also pledging to speed project approvals under national environmental laws and requires states to do their same with their planning processes.
Known as the National Capacity Investment Scheme, clean energy sources will be funded by the Albanese government while fossil fuels are barred.
State and federal governments agreed in December to start work on the reform to underwrite clean power projects.
Cheaper renewables are already undercutting the profits of coal plants with seven of the remaining 14 coal plants on the eastern seaboard due to shut within 12 years.
The Australian Energy Market Operator has warned of increased blackout risk starting this summer and continuing into coming years, driven by a lack of replacement power and a forecast shortfall of gas supply.
As renewables investors may be reluctant to fund projects if it means power bills could be too low to generate an attractive return, the government will share the risk by setting a floor and ceiling price on their earnings.
If the price of energy generation drops below the floor, the government will pay the energy company, but if their profits break through the ceiling, the company shares its profits with the government.
All the power generators in the energy grid now can produce a total of 65 gigawatts of power. The government is aiming to add another 32 gigawatts by 2027, with the first bids under a reverse auction starting in April.
The federal government and the states have been unable to agree on the role of fossil fuels in the grid, with Victoria refusing to accept the inclusion of gas.
The new scheme strikes a compromise, with the federal government targeting renewables while the states can decide how to guarantee enough back-up from fossil fuels when needed.
The federal government will invest in batteries, pumped hydro and other renewable projects to supplement the output from wind and solar farms when the sun isn’t shining and the wind isn’t blowing. It will not support coal or gas plants.
Funding for half of the 32 gigawatts on offer is contingent on states boosting power supply to an agreed level of reliability, to ensure there are no blackouts or shortages.
Victoria has cut deals with the owners of two coal plants, Yallourn and Loy Yang A, to keep them running until there is enough replacement capacity. NSW is in discussions with Origin Energy to do the same with its Eraring coal plant.
Bowen said the scheme would deliver a “reliable, cleaner, more affordable electricity and a system Australia can count on”.
The cost of the scheme will be counted in the budget but not published, due to commercial in confidence considerations.
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