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Australia’s CEFC calls for power market shake-up

The renewables financier says future fossil-fuel generation projects are unlikely to get private sector finance at an acceptable cost.

Australia’s electricity market rules need to be updated to reflect the growing share of renewables in the country’s power mix, the Clean Energy Finance Corporation said in a paper released this week. 

At present, the system remains tilted in favour of high-emissions thermal power, despite strong recent growth in renewables generation, an increase supported by falling costs and efforts to meet the nation’s carbon reduction commitments. 

In the review, the state-run renewables financier argues that “high levels of renewable penetration are technically feasible and are consistent with maintaining energy security”. However, managing a growing share of renewables in the power mix requires a strengthened transmission system and a range of dispatchable generation and storage technologies. 

The CEFC said policies should support early investments in renewables and storage to anticipate upcoming coal plant closures. “If ageing coal-fired generation capacity is withdrawn before new renewable energy capacity is available to meet the shortfall, prices are likely to be higher and more volatile,” the organisation noted. 

The financier’s review shows that new fossil-fuel generation in Australia would be unlikely to find private sector finance at an acceptable cost. A large chunk of coal-fired capacity is being withdrawn from the market, with nine such plants totaling more than 3.5GW closed since 2012. The Australian Energy Market Operator, the country’s industry watchdog, projects that up to 15.5GW of coal-fired capacity may be withdrawn in the next 20 years under a neutral economic growth scenario. 

There is currently no new coal-fired capacity among proposals registered with the AEMO. Instead, some have proposed developing new gas-fired schemes in the country. The CEFC said it is challenging to find long-term domestic gas supply agreements to support such investments, due to projected increases in gas prices over the next 15 years. 

Helping Australia reduce its emissions will need significant injections of liquidity in the market, and whatever the technology, the transition will involve higher economic costs than business as usual, said the institution

The country aims to have about 23.5 percent of its electricity generation sourced from renewable sources by 2020.