CoalKeeper is dead but Chris Bowen’s New Energy Scheme is secret like Dan Andrews’

by Zacharias Szumer | Dec 21, 2022 | Energy & Environment, Latest Posts

In early December, the nation’s energy ministers met to drive the final nail into the coffin of Scott Morrison’s much-maligned “CoalKeeper” scheme, agreeing to a totally new scheme to support clean energy storage. Zacharias Szumer delves into the arcane world of energy transition.

As Queensland Minister for Energy Mick de Brenni proclaimed after the recent meeting of the nation’s energy ministers: “Angus Taylor and Scott Morrison’s CoalKeeper is dead”.

Like ‘CoalKeeper’, the government’s new Capacity Investment Scheme will underwrite dispatchable power to support the entry of more intermittent renewables into the grid. Unlike CoalKeeper, it will only support low-carbon dispatchable power like batteries and pumped hydro and, therefore, won’t face accusations of propping up coal-fired power longer than it would otherwise exist. 

Bowen keeps it secret

Federal Minister for Climate Change and Energy Chris Bowen has said that further details on the Capacity Investment Scheme will be developed in the coming months. However, from the scant detail released so far, it looks like the scheme will de-risk private investment in a similar way to many state government programs.

In the last five years, Victoria has backed several large renewable energy projects, selected through two rounds of “reverse auctions”. In contrast to an auction for a house, bidders in a “reverse auction” compete to offer the lowest price. 

Winners receive contracts with the government that guarantee them a set price when they start supplying power to the grid. As such, they don’t have to take their chances in the volatile electricity market. 

Under these contracts, if market prices drop below an agreed level, the government makes up the difference. Conversely, if they go above the agreed level, the companies pay the state government the difference. In this way, they socialise some of the risk for investors and some of the profit for government. 

For obvious reasons, these agreements are called “contracts for difference” and there’s plenty that both sides of politics have found to criticise about them. The economic right has denounced them as an unfair subsidy in the electricity market. The left has objected to the state underwriting private investment instead of simply building renewables itself. 

Victoria hides contracts

However, the ability of either side to make an informed critique of the Victorian program is stymied by the fact that there’s no way to find out how much profit is being socialised, or loss subsidised, by the state government. The contracts themselves are commercial-in-confidence and although their total value is included in the state’s financial reports, this figure is mixed in with all the other assets on the state’s balance sheet. 

The state government says the contracts need to be confidential to ensure value for money. Purportedly, if companies knew the result of deals struck with their competitors, they would be advantaged against the government in negotiations. The government says that the contracts are monitored by the Victorian Auditor-General’s Office to make sure they represent value for money.

ACT favours transparency

While the public has to take the auditor-general’s word on the overall bang for buck, there’s no doubt that the agreements have been value for money in the last year. Given skyrocketing power prices, the state government will most certainly be raking it in. By how much, we just can’t tell. (If someone can, we highly encourage them to get in touch with MWM).

In contrast, the Australian Capital Territory is supporting renewables through a similar scheme in which the finances are public. Since mid-2014, ACT electricity consumers have paid $293m to generators when prices were low. Over the same period, they’ve received around $94.5m when prices were high.

Nearly all of that $94m has come back since April of this year and, as a result, while electricity prices in most other areas of Australia are going up, ACT prices are heading in the opposite direction.  

“As we have been progressively entering into long-term renewable supply contracts over the past decade, the ACT has effectively hedged against future price increases,” ACT Chief Minister Andrew Barr crowed to the territory’s Legislative Assembly back in June. 

The ACT’s system is slightly different to Victoria, in that the cost reduction or increase flows directly through to power bills. In Victoria, the payments to or from renewable companies come from Treasury’s coffers. Given the direct financial liability of households, it’s understandable why there’s more transparency in the ACT system. 

However, not everyone thinks that the lack of transparency is justified.

Canberra pokes Victoria on secrecy

In a recent Twitter thread, I asked the ACT’s former Deputy Chief Minister Simon Corbell whether he thought Victoria’s lack of transparency was justified. According to him, a lack of confidentiality “has not affected competitive tension in the ACT”. Instead, the ACT’s transparency “drives competition on price for future auctions and shows whether or not the scheme is operating as expected”, said Corbell, who now serves as chief executive of a peak body for renewable companies.

MWM reached out to several other energy system experts, but none were willing to publicly comment on the lack of transparency. Off the record, one said “this is a difficult issue and there are good arguments both ways. I imagine that, as the market develops, there will be greater public disclosure. But I can understand why things are as they are now – the supply-side is not big.”

Another said he supported increased transparency but “won’t make public commentary on it at this point.”

Nationalisation the twilight for auctions?

With Victorians recently giving the Andrews Labor government a clear electoral mandate to revive the State Electricity Commission (SEC) as a renewables company, there may not be another round of reverse auctions. The 4.5 GW of capacity planned under SEC projects is far more than the roughly 1.5 GW of capacity commissioned under both auctions. 

However, even if Victoria moves away from the reverse auction model, the program’s existing contracts will remain in effect for another decade. If prices remain high, this will be a good hedge for the government. If they drop, not so much. Under the contracts, the state government’s ultimate liability is capped, however this figure is also confidential.   

The Andrews government offered all Victorian households $250 in energy bill relief in 2022, and has pledged to offer another round in 2023. This gives the state government an argument that it’s using the profits of VRET contracts to help keep bills down. However, given the program’s financial secrecy, there’s no way to know how $250 compares to whatever the government is making through the contracts.   

In terms of transparency or payment structure, it’s not yet clear whether the federal Capacity Investment Scheme will look more like the ACT or Victorian program. Minister Bowen’s office was contacted for comment but did not respond before publication.  

Coalition sidelined, fossil outrage as Labor strikes deal on Energy Relief bill with Greens

Zacharias Szumer is a freelance writer from Melbourne. In addition to Michael West Media, he has written for The Monthly, Overland, Jacobin, The Quietus, The South China Morning Post and other outlets.

He was also responsible for our War Power Reforms series.

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