Competition watchdog to investigate potential gaming of energy market

Energy Minister Chris Bowen is leading talks on introducing a so-called “capacity mechanism” to shore up the troubled grid. The policy aims to reward assets such as big batteries and pumped hydro that can be on standby and available to support renewables through all weather conditions.

But industry is now warning further increases in power bills could cripple businesses if state and territory governments splinter the national electricity market by adopting differing models for managing their transitions from fossil fuels to renewables.

On Monday Bowen said it could be left up to state governments to decide whether they wanted to include existing coal- or gas-fired generators in their jurisdictions’ schemes.

Victoria has said it would not back payments to coal and gas. NSW is open to gas but not coal, while Queensland has indicated it would support payments to both gas and coal-fired plants.

“The grid is in different states of development. “Queensland’s coal-fired power stations are younger than Victoria’s for example,” Bowen said. “It’s appropriate that states can implement this in a way that is suitable for their needs, but it will need to be within that national framework, and it will complement our emissions target.”

The Energy Users Association of Australia, a group representing some of the nation’s largest corporate energy users, including Woolworths, BlueScope Steel and building material supplier Brickworks, warned differing state-by-state rules risk driving up bills and inflating costs for customers.

“To have states going it alone, you tend to get an over-investment into what should be shared resources… it’s not an economically efficient way forward,” Energy Users Association chief executive Andrew Richards told The Age and the Herald.

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“If you run a business that stretches across multiple jurisdictions then you are dealing with multiple programs and layer upon layer of costs, and it gets very difficult.”

Power industry leaders welcomed the draft plan for a capacity mechanism, which was released by the Energy Security Board (ESB) on Monday. The board said it was preferable for “all capacity types” to be allowed to bid under the scheme to guarantee supply.

The Australian Energy Council, which represents the nation’s largest generators and retailers, said the scheme should support existing plants and encourage investments in new projects. The group’s chief executive, Sarah McNamara, urged against allowing state-by-state variations.

“We would be concerned if there are jurisdictional carve-outs to the mechanism, which could lead to it being much less effective in supporting the energy transition,” she said.

Origin Energy welcomed the progress on a universal capacity mechanism for the market that “also allows flexibility for states to navigate their own preferences and specifications”.

“Recent events in the market have underscored the need to move with urgency to establish a mechanism that rewards dispatchable capacity, as this will be important to support reliable supply as the energy transition accelerates,” Origin said.

“We look forward to working through the detail of the mechanism through the consultation process.”

EnergyAustralia managing director Mark Collette said the tight east coast energy market conditions underlined the “importance of planning for the retirement of existing generators as we bring online newer energy forms”.

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“We support a capacity mechanism that would help combat elevated levels of volatility by stabilizing supply, and most importantly, energy prices,” he said.

EnergyAustralia, the third-largest Australian power company, on Monday said it had returned to service both units at its Mt Piper coal-fired power station in NSW. At the company Yallourn power plant in Victoria, two out of three units were operating, with a fourth expected to return by the end of the week.

“Once this unit returns, we will need to take another unit offline for maintenance,” Collette said. “We will liaise closely with the Australian Energy Market Operator on appropriate timings.”

A capacity mechanism was first proposed under the former Coalition government by the Energy Security Board under the former chair Kerry Schott.

Sceptics of the proposed reform, including environmental activist groups and the federal Greens, fear the policy will be designed to favor existing fossil fuel generators, dubbing the “coal keeper” proposal.

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Greens leader Adam Bandt said the ESB’s proposal should be ripped up and done again because it was designed for a “broken” electricity market designed to favor existing large-scale electricity generators.

“It’s time now for a rewrite, not for a propping up of this broken system that hurts people and businesses. And that benefits only the coal and gas generators, ”Bandt told the ABC on Monday.

Bowen said the ESB’s proposal was sound, and warned Bandt he could be sidelined from negotiations.

“The Greens can have their position, but those in charge of implementing this are the ones who will get on with the job of delivering a capacity mechanism,” Bowen said.

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