Capacity Investment Scheme to power Australian energy market transformation

The Albanese Government today received endorsement from State and Territory Energy Ministers to establish a Capacity Investment Scheme (CIS).

The Capacity Investment Scheme will provide the national framework needed to drive new renewable dispatchable capacity and ensure reliability in Australia’s rapidly changing energy market over the next decade and beyond.

This new revenue underwriting mechanism will unlock around $10 billion of investment in clean dispatchable power to support reliability and security as the energy market undergoes its biggest transformation since the industrial revolution.

It is more necessary than ever in these challenging times.

The global energy market is under unprecedented pressure, as a result of Russia’s illegal invasion of Ukraine. In Australia, this has been exacerbated by 10 years of division, inaction and policy uncertainty on climate and energy under the Liberals and Nationals.

The 2022 winter energy crisis was a stark reminder of how vulnerable Australia’s energy market currently is to market shocks, due to the previous Government’s legacy of 4GW of dispatchable power leaving the grid over the past decade, and only 1GW replacing it.

We need to turn that around.

The Capacity Investment Scheme is about ensuring Australian households and businesses can count on the increasingly renewable energy they use being available when they need it.

It will help ensure that in future, Australia has an ongoing supply of cheap, renewable, domestically produced energy, regardless of global conditions.

By accelerating new investment, this scheme will encourage the ideal mix of storage and renewable technologies needed in the system over the coming decade.

Progress on this critical reform is well overdue.

Open tenders will determine the projects to gain CIS support, which will help decrease risk for investors and spur more investment.

An agreed revenue ‘floor’ will help cover project operating costs and debt repayments, with the Government paying the difference when revenues fall short, and a share of profits returned whenever revenues exceed an agreed ‘ceiling’.

Energy Ministers’ support builds on consultation from the Energy Security Board’s proposed approach last December and constructive collaboration between all Ministers on the scale of the task ahead.

The CIS will complement rather than overlap with existing State schemes such as the NSW Electricity Infrastructure Roadmap, and therefore not alter competitive tenders currently underway.

The Scheme will work alongside the National Energy Transformation Partnership underway, and the Rewiring the Nation plan – these policies will work in unison to ease power prices and make energy cleaner and more secure.

Minister for Climate Change and Energy Chris Bowen said jurisdictions had been working hard to deliver solutions to the reliability challenges in a rapidly changing global energy market:

“The Capacity Investment Scheme is essentially a keep the lights on mechanism. Australian households, industry and the energy market are all moving with their feet towards more affordable renewable energy. The Capacity Investment Scheme will ensure the reliable power we need is delivered as this transition continues.”

“I thank my state and territory counterparts for endorsing the Capacity Investment Scheme today. By working collaboratively, the Commonwealth and jurisdictions are delivering the best possible outcomes for all Australians,” Minister Bowen added.

“The scheme will create construction and operations jobs in clean energy projects, especially in the regions.” he said.

“The energy market has been changing for some time – but federal leadership had been too hamstrung by cynical politics on energy to acknowledge it or plan for it. Australian jurisdictions today took another step to turn that around for households and businesses.”

The Government will release further details on the scheme in the coming months, with a view to the first auction occurring in 2023.