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31 August 2023
Department of Climate Change, Energy, the Environment and Water
Submitted via: Consultation Hub
Public Consultation - Capacity Investment Scheme
Alinta Energy welcomes the opportunity to make a submission in response to the Public
Consultation on the Capacity Investment Scheme (CIS).
Dispatchable generation capacity is essential for a successful transition to support the increased penetration of intermittent generation in achieving government-set emission reduction and renewable targets. This is particularly the case through prolonged periods with low or non-availability of renewable resources, which cannot be covered by short-term storage, and would otherwise impose both significant economic losses arising from power outages and higher long-term energy costs on consumers.
Our recommendations are focussed on delivering outcomes that maximise the potential for the CIS to assist in the delivery of an efficient, secure and reliable grid, at lowest cost supported by a range of complementary technologies, beyond just short-term storage.
Alinta Energy recommends the Australian Government:
1. Provide separate funding tranches for long duration storage and fully
dispatchable projects that can provide dispatchable power generation for
more than 8-hour periods and for short/medium duration storage projects
(less than 8-hour)
2. Utilise the CIS to tender a broad portfolio of dispatchable capacity projects
in terms of associated technologies to ensure the advantages of
diversification are available.
3. Remove the requirement for projects to be operational by 2030 and the 6GW
cap on dispatchable capacity.
4. Amend the eligibility requirement for zero scope 1 emissions to zero CO2
scope 1 emissions
In the following sections, we provide our views on various aspects of the CIS, to encourage clean dispatchable capacity projects in the long-term interest of energy consumers. It is critical that CIS projects support grid reliability to fill expected gaps and provide stability services to avoid blackouts and associated economic loss.
Our overarching recommendation on design of the CIS is the need for additional flexibility and tailored tendering options for various projects and technologies. The CIS needs to account for individual project characteristics and benefits that different technologies can provide in terms of reliability, stability and security services to the grid. It also needs to account for development timeframes associated with projects that are complex, capital
intensive and face a challenging development regime in terms of regulatory approvals, supply chain issues, labour market conditions and global competition.
If the CIS is designed in an inflexible manner, it risks encouraging only a small subset of technologies for dispatchable capacity into the market. This could potentially lead to issues around technology clustering and localisation issues (among other unforeseen risks), and to an inefficient allocation of Commonwealth funding, ultimately resulting in higher consumer prices with lower grid reliability.
Recommendation 1: Alinta Energy recommends the Australian Government provide separate funding tranches for long duration storage and fully dispatchable projects that can provide dispatchable power generation for more than 8-hour periods, and for short/medium duration storage projects (less than 8-hour)
The technologies that can deliver long duration storage and fully dispatchable renewable electricity vary from short/medium duration storage technologies in numerous aspects, including (but not limited to) scale, total investment, complexity, infrastructure build, labour requirements, supply chain issues and development period. The economics and commerciality of such projects is significantly different to short/medium duration storage technology-based projects, therefore requiring a different support structure to encourage deployment and private investment.
Alinta Energy recommends the adoption of measures to add flexibility to the tender structure for the procurement of capacity. While the approach to underwriting agreements for an agreed revenue ‘floor’ and ‘ceiling’ may work for some dispatchable capacity projects, for other projects a flat capacity payment will be more suitable. A flat capacity payment can significantly de-risk high risk projects, particularly those that provide long duration dispatchable capacity, and provide the revenue stream confidence required by proponents to acquire capital. We encourage the government to consider allowing both mechanisms of revenue support to be made available under the CIS.
Recommendation 2: Alinta Energy recommends the Australian Government utilise the CIS to tender a broad portfolio of dispatchable capacity projects in terms of associated technologies to ensure the advantages of diversification are available.
A portfolio approach to supplementing capacity enables different technologies to leverage their respective strengths, with the resultant synergies ensuring the most effective and efficient outcomes for consumers. For example, both pumped hydro and biomass-fired generation can provide synchronous generation capabilities, critical for network security, which batteries are not able to provide.
In addition, unlike storage options, biomass-fired generation does not require an external generation source, which may be constrained by periods of low supply and/or high demand, the circumstances under which additional capacity is required. Instead, the duration of biomass-fired generation is only constrained by its supply-chain capabilities, which may extend for weeks or months.
A portfolio approach will also minimise issues around technology localisation, supply chain issues, a tight labour market, and global competition associated with any technology.
Recommendation 3: Alinta Energy recommends the Australian Government remove the requirement for projects to be operational by 2030 and the 6GW cap on dispatchable capacity.
Requiring projects to be operational by 2030 risks excluding various technologies that have longer lead times. For example, the consultation paper notes that pumped hydro projects have a development time frame of greater than five years. This does not leave any leeway for delays in the tender process, reaching final investment decision (FID), regulatory processes, or supply chain and procurement issues. It also provides no leeway for unforeseen issues, such as those experienced by other major projects in Australia, including Snowy Hydro 2.0. Whilst the timeframe may align with the current setting of the
Australian Government’s financial budget caps, it also poses a risk of limiting the CIS to only promoting short-term storage. This is inefficient and will ultimately impose additional long-term costs on the consumers and potentially fail to achieve the reliability levels required for a stable grid.
Similarly, the 6GW limit for capacity in the consultation paper is the outcome of static modelling that will not account for either a dynamic and fast changing energy market, or project delays (particularly transmission but also generation/storage) which would significantly impact model inputs. It would be prudent for the Australian Government to be flexible with respect to the size of the scheme given these variable market and project factors. Removing the 6GW cap would also allow a broader range of long-duration technologies to bid with confidence for the tender, without the concern that sufficient capacity remains in the tender to accommodate large scale projects.
Recommendation 4: Alinta Energy recommends the Australian Government amend the eligibility requirement for zero scope 1 emissions to zero CO2 scope 1 emissions.
This eligibility requirement is inconsistent with the Australian Government’s intent to have biomass eligible for CIS participation. Biomass and other clean fuel technologies such as landfill biogas and biomethane projects have trace amounts of N2O and CH4 associated with its combustion, consistent with a zero CO2 eligibility requirement, but not zero scope 1 emissions.
In the section and table below, Alinta Energy has provided views on specific sections of the consultation paper.
Consultation Question 2: The Department is seeking feedback on the commercial model’s applicability to pumped hydro energy systems.
Alinta Energy Response:
To establish a predominantly renewable energy system (comprising 80-90% renewable sources), a fundamental requirement is the presence of dependable electricity generation and storage capacity that complements the variable nature of renewable sources. Equally vital is the capacity's dispatchability, as it must offer reliability and security services to the grid, encompassing functions including Frequency Control Ancillary Services (FCAS),
Inertia, System Strength, Voltage Control, and System Restart.
These challenges are already evident, with the integration of substantial quantities of
Variable Renewable Energy (VRE), specifically solar and wind, into the National Electricity
Market resulting in increased supply volatility. This volatility has resulted in voltage control
requirements that have, to date, been delivered by thermal generators, many of which have either retired or scheduled to do so over the coming decade.
Pumped Hydro Energy Storage (PHES) presents a multifaceted solution, not only providing energy storage but also frequency regulation, voltage and reactive power management, system restart services, as well as the maintenance of inertia and grid stability. Additional to these services is PHES's capability to harness excess VRE generation during peak production periods, thereby minimising curtailment, optimizing resource utilization, and mitigating network congestion. Finally of note is PHES's efficacy during prolonged phases of low renewable resource availability, as it can ensure sustained energy supply over extended durations, a feature that sets it apart from short-term storage technologies.
However, PHES is a complex and capital-intensive technology, subject to a demanding development regime encompassing regulatory approvals, supply chain issues, labour market conditions, and global competition. The economic and commercial dynamics of
PHES projects differ markedly from short-term duration storage technologies.
Consequently, a distinct support structure is imperative to encourage deployment and encourage private investment.
Therefore, it would be prudent for the Australian Government to include a flat capacity availability payment model for PHES projects under the CIS. Such a model holds the potential to mitigate project risks and provide the revenue stream confidence required by proponents to commit capital.
This strategic approach would enable the Australian Government to incentivise projects utilising diverse technologies, thereby capitalising on their respective strengths. This approach would ensure that synergies arising from this technological mix translate into the most effective and efficient outcomes for energy consumers. Adopting a portfolio strategy would also minimise issues around technology localisation and development challenges associated with any singular technology.
Page Text in paper Alinta Energy comment
6 Long-term Alinta Energy considers that long-term forecasting should
forecasting of the extend well beyond 2030. We acknowledge the
required generation Australian Government’s focus on dealing with grid
and storage buildout requirements by 2030, however this does not provide a
in each Australian meaningful signal for projects that offer long duration
jurisdiction dispatchable capacity. Many of these projects cannot be
brought to market by 2030 due to long development
timeframes, particularly in the current tight market
conditions and supply-chain issues globally. A
requirement to connect by 2030 will exclude many
projects that are likely to be critical in maintaining the
security and reliability of the grid in next decade.
12 MW of medium The derating factor should be adjusted for long duration
storage equivalents storage or full dispatchable renewable technologies and
using derating factors not only considered in terms of storage. For example,
biomass fired generation is only limited by fuel supply in
terms of its storage and dispatchable capacity.
13 Unit costs are The Australian Government should exercise caution in
expected to decrease accepting this statement as true or setting its modelling
over time as expectations based upon it. In general, energy projects
technology costs costs are rising globally, despite the reduction in
decline and learning technology costs. Global supply chain issues, inflation,
rates reduce the cost increased labour costs, and increases in other
of new capacity infrastructure costs, has led to cost blow outs in many
Australian projects. Additionally, the best development
sites for projects are generally developed/utilised first,
leaving lower output sites for subsequent projects.
16 … have a fuel source This eligibility requirement is inconsistent with the
(e.g., hydrogen) or Australian Government’s intent to have biomass eligible
storage fuel source for CIS participation. Biomass and other clean fuel
(e.g., BESS) that technologies such as landfill biogas and biomethane
contributes to zero projects have trace amounts of N2O and CH4 associated
scope 1 emissions with its combustion, consistent with a zero CO2 eligibility
requirement, but not zero scope 1 emissions.
16 In some It will be essential that any demand response
circumstances participation from industrial participants does not lead to
demand response self-generation of electricity from fossil fuels for the
projects can period.
contribute to the
objectives of the CIS
and may be
considered eligible
17 Land tenure – This is a problematic requirement for large capital-
projects are expected intensive power generation projects. Usually these
to be able to projects require capital commitments/financing
demonstrate secure arrangements to be in place prior to FID, which would
access to land before then lead to land acquisition in the form of ownership,
participating in a CIS lease or options to lease. A successful CIS tender will
tender. often be an essential part for FID.
We recommend the Australian Government amend this
requirement and consider a Board (or equivalent)
endorsed project plan with an identified site as evidence
of the project proponent’s commitment, particularly when
considering long duration dispatchable capacity projects.
24 There will be It is critical that CIS contracts allow for slippage in project
termination rights for milestones due to regulatory delays in
the Commonwealth planning/approvals, and for other unexpected delays
where specific (such as arbitration/legal, transmission build out,
milestones are not connection etc) that are not the fault of the project
achieved. proponents.
24 Term of the support Alinta Energy recommends that the term of support is
period (during determined by the economic life of the project. This is
commercial particularly critical for capital intensive long duration
operation) will be as
determined for each projects, to both reduce risk and improve its
tender process. attractiveness to private capital.
25 … strict abatement Alinta Energy seeks greater clarity on what an abatement
regime will apply regime would look like for unscheduled outages. It is
where a project is not common for large mechanical components to incur
available at the unforeseen issues, despite the best possible operations
capacity (other than and maintenance regime, leading to unscheduled
scheduled outages. It would be prudent to provide an allowance,
maintenance) based on industry standards, in CIS contracts where
appropriate. 97 per cent availability may not be
appropriate for many projects.
Thank you for your consideration of our submission. If you would like to discuss this further, please contact Karan Sharma at karan.sharma@alintaenergy.com.au.
Yours sincerely
Graeme Hamilton
General Manager, Government & Regulatory Affairs
