The Federal Government has proposed that energy companies should be required to give a longer period of notice for the closure of electricity generators.
Federal Minister for Industry, Energy and Emissions Reduction, Angus Taylor, has written to the Australian Energy Market Commission (AEMC) to ask for a change to the National Electricity Rules to extend the notice period from 3.5 years to a minimum of five years.
The reform aims to ensure that the energy sector has enough time to build new projects to replace exiting capacity, with the lead time required to construct most forms of new generation far exceeding the current 3.5 year notice period.
“It is critical to ensure there is a pipeline of projects that can be delivered to replace existing capacity, keep the system reliable and secure, and keep power prices down for Australian households, businesses and industry,” Mr Taylor said.
“If accepted, the rule change will increase notice of closure requirements to five years to allow adequate lead time for new capacity to be built to replace exiting generation, and to prevent potential gaming of notice of closure requirements by market participants.
“This is a sensible change, and necessary to ensure the National Electricity Market (NEM) remains reliable and secure.
“Without this rule change, there is a risk that retiring capacity is not replaced in time or is only able to be replaced with inadequate or inefficient options that are available in short timeframes, risking the reliability, affordability and security of the system.”
The proposed new rule also includes a new definition of ‘longer-term mothballing’, within notice of closure arrangements. A longer-term mothballed plant will be defined as a generator that will be unable to dispatch for nine months or longer over a 12-month period.
These generators would be subject to the same notice period that applies to permanent closures, to avoid potential gaming where generators could mothball a plant indefinitely without providing any notice or date of an intended closure.
Seasonal mothballing, defined as a generator not being available to dispatch electricity into the NEM for less than nine months over any 12-month period, would not be subject to notice of closure requirements.
The new rule would also prohibit speculative notices of closure when the generator has no actual intention to close the plant on the specified date.
“This rule is intended to prevent generators from engaging in behaviour that could create uncertainty in the market and act as a deterrent to new investment,” Mr Taylor said.
Under the proposed rule, the Australian Energy Regulator (AER) would investigate any notice that it suspects to be speculative, using its existing investigative and information-gathering powers.
Longer notice periods: not that simple
The Australian Energy Council’s Chief Executive, Sarah McNamara, said generators are already required to provide an indicative retirement date which is published by the market operator.
“Whilst they may look initially attractive, long firm notice requirements have complex and potentially counterproductive impacts,” Ms McNamara said.
“For example, they may force a generator to publish a firm date long before the operational circumstances of the plant are clear. As conditions change, inevitable adjustments will occur, that in turn can lead to a loss of confidence in the information.
“It should be recognised that generators, like any business operation, are subject to many unknowns and risks that such a rule cannot address. For example, plants may have physical failures or may be required to unexpectedly cease operations due to health & safety or environmental regulations. Company directors also have obligations under the Corporations Act 2001 in relation to operations that have become unexpectedly uneconomic.
“All of these issues would limit the effectiveness of such a rule.”
The AEC said the Energy Security Board, in its Post-2025 Market reform work, is separately considering these matters in depth.
“We look forward to raising these issues in the rule change consultation,” Ms McNamara said.