Will long-term boost to energy capacity stop exit from coal? Debate is red hot

One of Australia’s most experienced energy advisers has downplayed concerns that a plan by state and federal energy ministers to overhaul the electricity market could prolong the coal-fired power industry.

Ray Challen, who was Western Australia’s energy coordinator between 2012 and 2017, said fears about a so-called capacity market wrecking Australia’s switch to renewable energy were misplaced.

WA is the only state in Australia with a capacity market, in which electricity generators are paid to be available when the system needs them.

“It’s an absolute red herring,” Mr Challen said.

“If anyone is going to be build capacity in the market in response to capacity payments, they’re going to be building renewable plant or energy storage, pumped hydro or batteries.

“At the very worst, they’re going to be building fast-response gas-fired plant.”

A keen pilot, Ray Challen is WA’s former top energy advisor/energy coordinator.(ABC Midwest and Wheatbelt: Samille Mitchell)

The comments from Mr Challen were backed by Kerry Schott, who until last year was the senior adviser to state and federal governments as the head of the Energy Security Board.

Ms Schott said the rest of the developed world was moving towards capacity markets to deal with the influx of renewable energy, which would eventually push out all fossil fuels.

“It’s to replace the situation where there’s a wind drought, or it’s not sunny, like in the winter when you get a still day.

“It just basically makes a payment, gives some reward, to firm plant to be available.

“The capacity market is really just an insurance exercise.”

A woman stands on stairs.
Former head of the Energy Security Board (ESB), Kerry Schott.(Four Corners: Harriet Tatham)

At a meeting on Wednesday, state and federal energy ministers resolved to develop “at pace” a capacity mechanism for the National Electricity Market, which services about 10 million customers across the east coast.

Under the NEM’s current model, generators are only paid for the electricity they produce.

Energy retailers bail out amid price stress

But amid a wholesale price shock that has forced some retailers to bail out of the market and led to warnings of energy poverty and distress among vulnerable households and businesses, there have been claims the system is broken.

In a sign of the stress, consumer advocacy One Big Switch released a statement today showing 10 smaller retailers had shut up shop to new customers in recent weeks.

Joel Gibson, the campaign director at One Big Switch, said the retailers had exited the market in response to the biggest wholesale price hikes in living memory and that cheap deals were “disappearing by the day”.

Johanna Bowyer, a lead analyst at the Institute for Energy Economics and Financial Analysis, said a capacity market was a bad idea because it would effectively subsidize coal-fired power plants.

Ms Bowyer said this would extend the life of coal-fired power in Australia and hurt the country’s transition towards carbon neutrality by 2050.

She also suggested a capacity market would saddle consumers with unnecessary costs.

“The proposal in its current form does include paying coal and gas-power plants,” Ms Bowyer said.

Profile of a professional, smiling young woman with clear bright eyes.
Johanna Bowyer researches trends in the national electricity market, energy policy and decarbonisation at IEEFA.(Supplied: IEEFA)

“So, there’s concern that that proposal might actually delay decarbonisation by keeping the coal and gas power plants in the system for longer.”

According to Ms Bowyer, a better alternative to the proposed capacity mechanism was a renewable electricity storage target to boost the supply of batteries and pumped hydro projects.

Electricity storage capable of providing long-duration supplies is considered essential to replace coal-fired power, which currently provides most of the base-load capacity in the system.

But Ms Schott said until hydrogen made from renewable energy was viable, batteries and pumped hydro were incapable of substituting the capacity of coal, which currently provided more than 60 per cent of the electricity consumed in the NEM.

In the meantime, she said gas was going to be crucial to keeping the lights on by stepping in when the sun wasn’t shining and the wind wasn’t blowing.

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