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To: DCCE E&W
From: Australian Coal Energy Council
Date: 03/18/2024
The Australian Coal Energy Council (ACEC) was founded in 2023 to represent the interest of major coal generators and coal mines in Australia, including their investors and workers. We link community and industry in a group that seeks to provide a balanced view on the energy transition. Our key principle is that jobs and investor returns are just as important as science in decision making.
The ACEC supports the current CIS design.
The ACEC supports action on climate change when it does not impose costs on industry or consumers. We congratulate the government for avoiding implementing any form of carbon pricing. This would unnecessarily impose climate externalities on some of the most valuable businesses in Australia. Similarly we support the government in not legislating the CIS that might cause investment uncertainty for the future maintenance of coal generation.
Together, these decisions mean that government has flexibility in if and when to pursue targets going forward. The CIS also does not lock future governments into delivering targets. It can help reduce the number of prospective renewable projects in the pipeline. This places the risk of new project developments firmly with developers rather than consumers. Developers will be less likely to speculate on projects as they may not be required.
Limiting the number of projects under development can reduce stress on regional communities that continue to support major cities. For example we note that Queensland regional communities have always cross-subsidised city’s power because they host most of the existing and proposed new electricity infrastructure. We strongly believe that consumers who are subsidising power for others should have the greatest say.
The CIS is a complex scheme and this has trade-offs. It will be challenging for experienced investors but will help reduce the risk of new international businesses entering the Australian market. This can prevent disrupting the currently well functioning market.
Beyond the CIS more legislative action can be done to ensure that capital expenditures on coal generators are continued. We observe Australia’s peak energy lobbying group found that vital fossil fuel projects are impacted when “numerous, well-funded organisations…frequently challenge decisions by regulators on the basis that the decisions do not have sufficient regard to climate change and other environmental risks. The challenges, although mostly unsuccessful, create considerable delay and expense for energy projects, at a time when the energy transition
can ill-afford further delays and even higher expenses” [see: NEO Submission - Australian
Energy Council.pdf]
Impact on wholesale prices
Through subsidising new entrant projects the CIS will reduce wholesale prices. Internal modelling by the ACEC suggests that market prices could drop to 30% below the new entrant cost of a wind farm.
The CIS will also stop businesses from green washing by buying “green” energy. Under the CIS voluntary action will be pointless. Households or businesses buying green energy will simply be doing the government’s self-appointed job for them. Any customers with long-term green energy contracts should immediately seek to use a change of law provision in their contracts to re-sign for electricity from lower cost coal generation. The governments' CIS will ensure there is no market premium for renewable energy. Consumers should not pay existing investors whose assets no longer have additional value.
Together these issues will require significant payout by government to new projects. This can reduce the likelihood that these projects will compete with existing generators to contract with customers. We estimate that 23 gigawatts of renewables at $30 per megawatt-hour subsidy per year will require two billion dollars per year in government support.
Impact on existing investors
Under normal circumstances subsidising new entrant renewable capacity would create major risks to coal business. It would lead to the risk of early coal closures or the loss of significant market revenues for those businesses.
However, we are confident that the government will use the Orderly Exits Management (OEM) framework to support existing coal generators remain in the market. The grid cannot be operated reliably without coal units. If the government allows any coal unit to close, then any future black outs will be the fault of that government. The government will need to take all the responsibility for those blackouts.
Therefore the CIS will protect new renewables, and the OEMs will protect existing coal.
Meanwhile wholesale prices to consumers will drop. Taxpayers and existing renewable businesses will share the cost. This protects vulnerable households and we expect the CIS will work as intended.
Conclusion
We believe that the CIS will work as intended. Governments should avoid setting binding or legislated targets. Those targets would commit Australia to decarbonising and risk many renewable projects entering the market before coal stations decide to close. Instead the CIS allows the government to keep the current pace of renewable development until more analysis can be done. For example renewable targets could be aligned to when coal power stations suffer major failures and would take too long or be too expensive to rebuild.
Regards
Ray Gant
ACEC Policy Manager
