Origin Energy has detailed the one key mechanism that will be critical to many of its investment decisions in the years to come.
A key recommendation of the ‘National Electricity Market (NEM) wholesale market settings review’ released in December, dubbed the ‘Nelson Review’, was the introduction of an instrument to support longer-term financing and investment.
This takes the form of the Electricity Services Entry Mechanism (ESEM), poised to supersede the Capacity Investment Scheme by incentivising longer-term investment in projects essential to the energy transition.
According to international law firm Allens, the Nelson Review acknowledges that while developers have no shortage of solar and wind projects and large electricity buyers are eager to ink short-term contracts and power purchase agreements (PPA), risk-averse investors are concerned about returns beyond a short-term timeline.
This “tenor gap” is what the ESEM would look to bridge, with auctions carried out to deliver contracts for years 8 to 15 of a project’s operation, as originally tabled.
Origin chief executive officer Frank Calabria sees the ESEM as a key instrument for the company’s investment decisions moving forward, particularly for gas-fired generation, which he said can provide firming support beyond the “six, eight hours” of storage batteries are currently capable of.
“But they’re (gas-fired assets) likely over time to be less frequent, so they will need to be supported by a well-constructed mechanism that rewards capacity appropriately,” he said during an investor call. “It’s not getting in the way of people bringing storage on like us and others, but that becomes, I think, a key ingredient.”
Calabria said current financing structures weren’t holding Origin back from advancing opportunities, but “at the moment, making a large gas-fired peaking (sic) … would need a form of support that rewarded capacity over time”.
The ESEM is still very much in working progress. An implementation roadmap for the scheme is set to be published this month, with the goal of bringing the ESEM online next year.
While Origin posted a 45 per cent drop in statutory profit to $557 million in the first half of the 2025–26 financial year (FY26), free cash flow increased by $187 million to $705 million.
The company’s energy division was a clear winner, with electricity gross profit increasing by $102 million to $840 million, “reflecting the lagged benefit of higher wholesale costs flowing into retail customer tariffs”.
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