Boost for new investment will help deliver 82% renewables target while maintaining reliability
The Australian government’s recently announced expansion of its Capacity Investment Scheme (CIS) will play a key role in achieving its 82% renewable energy target by 2030, supporting the majority of new renewable capacity required.
The first tranche of winning NSW projects under the CIS would be enough to ensure the reliability standard is met after the planned closure of the Eraring coal-fired power plant.
IEEFA/ITP modelling shows that it is not necessary to keep Eraring open beyond its planned closure in 2025, and that propping Eraring up would undermine the financial viability of the remaining coal generators.
EMBARGOED TO 14 DECEMBER 2023] (IEEFA Australia): The Australian government’s Capacity Investment Scheme is set to play a key role in helping achieve 82% renewables by 2030 and ensuring coal-fired power plants such as Eraring can close on schedule.
IEEFA worked with ITP Renewables’ openCEM energy market modelling tool to analyse the requirements for new renewable generation capacity, system reliability outcomes and coal-power utilisation factors under a number of scenarios. In a briefing note released by IEEFA today, the modelling reveals that an impending surge in new renewable energy generation will help meet the government’s energy transition targets, without any disruption to reliability.
“Our modelling found that achieving the government’s 82% renewable energy target by 2030 will require an additional 36 gigawatts (GW) of new large-scale renewable generation capacity,” said Johanna Bowyer, Lead Analyst for Australian Electricity at IEEFA. “The government’s recent expansion of its Capacity Investment Scheme (CIS) will support the delivery of most of those new capacity requirements.”
Under the changes to the CIS, announced on 23 November, the federal government will underwrite 23GW of variable renewable generation by 2030 (along with 9GW of storage), accounting for most of the of new large-scale renewable generation capacity required. The remaining 13GW would need to come from other sources, creating an important role for state government initiatives such as the NSW Electricity Infrastructure Roadmap, which has a goal of 12GW of renewables by 2030.
Meanwhile, there is already 11GW of new large-scale capacity committed to come online in the next seven years, primarily split across wind, solar and energy storage. With the government’s expansion of the CIS set to unlock huge amounts of investment in large-scale generation, the case for postponing the exit of coal-based generators such as Eraring becomes ever more tenuous.
Calls to keep Eraring open are largely based on concerns over system reliability. However, NSW projects that won backing under the first CIS auction should already be enough to uphold reliability standards after Eraring’s planned closure, once they come online. The modelling from IEEFA and ITP provides further reassurance, showing that reliability would be maintained even if no new renewables build-out (other than what is already committed) is allowed till financial year 2027 – one year after Eraring’s planned exit.
The surge in new renewable generation will also put downward pressure on wholesale power prices. This should help alleviate any potential price rises as Eraring exits, as will demand-side measures such as energy efficiency, demand flexibility and distributed energy resources (DER).
While there is no need to keep Eraring open beyond 2025, postponing its exit could have an adverse impact on the other coal-based generators still operating. The influx of new renewable generation will mean coal power stations will run much less. This will challenge their profitability. IEEFA and ITP’s modelling finds that a number of coal power stations would suffer severely low capacity factors that would threaten their financial viability, particularly if the NSW Government intervened to delay Eraring’s exit.
“Essentially, propping up Eraring is like robbing Peter to pay Paul, with other coal power stations left vulnerable,” says Bowyer. “What this modelling illustrates is that no matter which way we cut this, there isn’t space left in the market for Eraring after 2025. Given that the first CIS auction was overwhelmed with bids, if the NSW Government wanted some additional insurance to safeguard reliability, it would be better off running another auction as soon as possible.
“The Australian government’s Capacity Investment Scheme is set to play a key role in ensuring adequate new renewable generation capacity comes online as coal-fired power stations leave the system.”
Read the briefing note: The approaching surge of renewables and storage leaves no space for Eraring
Media contact: Anna Antoine [email protected] 0478 125 735
Author contacts: Johanna Bowyer [email protected]
About IEEFA: The Institute for Energy Economics and Financial Analysis (IEEFA) examines issues related to energy markets, trends, and policies. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy. (ieefa.org)