Recommendations by industry experts to incorporate a capacity mechanism into Australia’s renewable energy transition could leave the door open for the continued existence of coal-fired power plants.

Releasing its findings this week, the Energy Security Board (ESB) was tasked with advising energy ministers on shaping the National Electricity Market (NEM) as it transitioned to renewable energy.

One of the recommendations of the ESB was to develop a capacity mechanism; a system that enables power plants to be available for generating electricity when needed, and be paid to do so beyond what is actually generated and sold.

“The introduction of such a mechanism is intended to increase government and community confidence that resource adequacy will be delivered by the market reducing the need for interventions,” the ESB said. 

Although the ESB has not designated a specific approach for establishing a capacity mechanism, critics say the federal government’s track record in supporting outdated power generators strongly pointed to a fixed outcome. 

“The proposed ‘capacity market’…will see the Morrison Government blowing billions in handouts for polluting, failing coal companies to keep operating regardless of whether they’re contributing to our electricity system,” senior campaigner at Greenpeace Australia Pacific, Glenn Walker said. 

“This plan will see public funds wasted to increase pollution and send energy prices soaring, while slowing the rollout of clean energy like wind and solar, which are the cheapest forms of energy generation in Australia.” 

However, the ESB says its approach would “support the orderly exit of thermal plants as they retire from the system.”

It pointed to overseas examples of capacity markets in The UK and France, although these were introduced in 2014 and 2017 respectively when the prospects for renewable power were significantly different than today. 

Chief executive of national employer association Ai Group, Innes Willox called the ESB’s suggestion for a capacity mechanism “impossible to evaluate given its vagueness.”

“The ESB’s final recommendations for NEM reform are long awaited — and will remain so for a while longer, given the considerable work remaining to define key elements of the package,” he said.

Mr Willox said support, or not, for a capacity mechanism should depend whether it ultimately emerges as “palliative care for fading coal generators or the foundation of investment in new clean dispatchable resources.”

However he noted in the past two years of NEM reform consultation there had been no “groundswell of support” for a capacity mechanism.

The ESB will work with energy ministers and industry to develop the detailed design of a capacity mechanism for ministers’ agreement in mid-2023.

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