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Time restraints, a need for clearer policies on carbon restraints, and reducing costs for consumers are just some of the concerns the Clean Energy Council (CEC) has in response to the Energy Security Board’s (ESB) new high-level design paper for a capacity mechanism.

The ESB capacity mechanism has been discussed as a possible solution to the recent unfolding gas crisis across Australia’s east coast.

The CEC has written a submission to the ESB, suggesting a range of ways the scheme could be more effectively implemented, and proposing a package of alternative reforms and policies that industry believes could accelerate investment in new clean energy generation and capacity.

“We welcome the ESB’s acknowledgement that the rapid pace of change in the National Electricity Market makes it critical to bring forward investment in renewable energy, storage and transmission to reduce cost and maintain a reliable energy supply for consumers,” said Clean Energy Council Chief Executive, Kane Thornton.

“Clean energy investors’ primary concerns with the proposed capacity mechanism relate to its inherent complexity, the long duration that it would take to design and implement the mechanism, and the fundamental challenge for any single mechanism to both facilitate the managed exit of existing generation and incentivise new generation,” Mr Thornton said.

The CEC believes these challenges create significant industry concern that a capacity mechanism could in fact further undermine investment signals for new clean energy generation at a time when we need to rapidly accelerate investment in renewable energy, energy storage and transmission infrastructure.

The CEC said they acknowledge that some of these concerns may be addressed through the detailed design of the capacity mechanism.

“On that basis, we welcome the ESB’s acknowledgment of the need for policy makers to provide clear direction in relation to carbon constraints in the mechanism,” the CEC said in its recent statement.

Either excluding coal and gas generation from the scheme or applying an emissions intensity factor could help to address this risk of undermining investment signals for new capacity.

While the ESB has stated its intent to have the mechanism operational by 1 July 2025, past experience shows that such a fundamental market redesign will take at least ten years to be completed. The CEC is concerned this lengthy time will impede efficient investments in the meantime,

The clean energy industry will continue to work closely and collaboratively with the ESB to explore the detailed design of a capacity mechanism and the extent to which these concerns can be addressed.

However, the industry believes that there is also a range of more effective alternatives or measures that could complement any future capacity mechanisms and would give more immediate confidence to investors in new clean energy generation or energy storage.

These measures include a capacity reserve, targeted and transparent measures to manage fossil fuel exits, refinement to the recently introduced retailer reliability obligation or stronger policy support for clean energy generation.

In addition, the CEC said a storage target could be rolled out quickly to provide the firming capacity needed to complement variable renewable generation and supply crucial system services such as system strength and inertia. Storage can also drastically improve the economics of transmission by acting as a ‘shock absorber’ that allows much more power to flow across the grid to consumers.

“If Australia is to achieve its recently increased emissions reduction target, it is imperative that we accelerate the deployment of renewable generation immediately. After a decade of inaction that has already left us way behind where we should be, Australia can’t afford to waste any more time on trying to fundamentally redesign the market,” Mr Thornton said.

“These more immediate reforms will help drive much needed investment while avoiding the protracted debate and complicated design of a capacity mechanism that brings with it significant inherent risks.”

The ESB will continue working with stakeholders on developing the final design. The ESB will develop a draft detailed design by the end of the year with a final recommendation due to Ministers early in 2023.

The full CEC submission on the draft ESB capacity mechanism can be found here.

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