Australia mulls paying for standby thermal power plants

Australia's Energy Security Board (ESB) has recommended paying coal- and gas-fired power plants to be on standby, so they are available to cover peak periods of demand or supply disruptions in the transition to a low-emissions electricity grid.

The ESB this week released its draft proposal for a capacity mechanism, which will act as a strategic reserve for significant events in the National Electricity Market (NEM). The NEM accounts for more than 80pc of Australia's total electricity demand, covering most of the country, except Western Australia and the Northern Territory.

The ESB recommends that coal- and gas-fired power plants be paid to be available when needed, as well as for any electricity that they produce from mid-2025 to ensure a smooth transition to net zero emissions by 2050. The release of the draft reports follows the prospects of blackouts on the east coast that forced the Australian Energy Market Operator to [take control of power supplies from electricity generators] (https://direct.argusmedia.com/newsandanalysis/article/2341809) and suspend the spot market on the NEM on 15 June.

Some states, including Victoria, have argued that coal- and gas-fired power plants should not be included in the capacity market, with all funds directed to renewable electricity sources. But the turmoil in the NEM has led others to conclude that fossil fuels need to be included to limit blackouts and enable a smooth transition to net zero. The ESB has recommended that states be given the final say on which power plants are included in the capacity mechanism. There is no timeline for when the state and federal energy ministers must decide on these recommendations.

Many state governments have renewable energy targets of 50pc by 2030. The ESB said that the capacity mechanism that includes fossil fuels could enable a quicker and more orderly transition to net zero in a lower risk setting. It expects electricity demand to double over the next 30 years in the NEM and argues that stability and certainty are needed to encourage more investment in the sector.

Australia's new prime minister Anthony Albanese called the ESB draft proposal a sensible insurance scheme for the energy system. Albanese last week deepened Australia's 2030 greenhouse gas reduction target to 43pc of 2005 levels from the previous federal government's 26-28pc.

By Jo Clarke