Power plan confusion

OEM risks mixed signals in renewables transition: AGL

A scheme that would allow state governments the right to intervene and delay the closure of coal power stations would distort market signals to would-be developers and complicate the energy transition, according to AGL Energy.

The warning from the country’s second largest electricity and gas retailer underscores the complexity of timing Australia’s energy transition.

The federal government has set an aggressive target of having renewable energy generate more than 80 per cent of the country’s electricity by 2030, but there is widespread acceptance that not enough zero-emission sources of power are being built.

Without sufficient sources of replacement energy, there would be a heightened threat of blackouts and price rises.

In a bid to mitigate the threat, state and federal governments are considering a scheme that would give those that opt in special powers to amend the closure dates, known as the Orderly Exit Management (OEM) Framework. Currently owners and operators of coal power stations simply have to give a notice period of 3½ years before closure.

But AGL said the OEM risks being counterproductive.

“AGL considers further assessment is needed to ensure that, collectively, the market is not being presented with mixed incentives,” AGL said in a submission to the NSW state government, which is leading efforts to implement the scheme.

AGL is the latest to warn of unintended consequences of the OEM, echoing the sentiments of the Australian Energy Council, which represents electricity and gas companies, and the Clean Energy Council. All are concerned about manipulating the timing signals. Currently electricity companies will look to develop new renewable energy sources as old generation assets such as coal reach the end of their lifespans.

But AGL said timing signals could also be distorted by Labor’s recently announced Capacity Investment Scheme (CIS) – which guarantees developers a minimum return on new solar and wind projects.

The scheme is the centrepiece policy of federal Energy Minister Chris Bowen, who hopes that removing revenue uncertainty will spur a rapid deployment of new renewable energy deployments.

The CIS guarantees developers a minimum return – but AGL said the policy could hasten the pressure on coal generators and exacerbate their retirement – which in turn could force the use of the OEM.

The Australian Energy Market Operator last year warned that without urgent deployment of renewable energy projects, the country would face a decade of unreliable electricity supplies.

Works, however, remain hamstrung by opposition to transmission lines.