If Australia is to meet its emissions reduction targets, the retirement of coal power stations is one of the biggest steps we can undertake.

Unless we have reliable, long duration sources of energy to replace coal, base-load generation, governments will keep coal open for longer than necessary, which will also delay the further deployment of renewables.

In an energy system that will be increasingly dominated by renewables, giving state governments the peace of mind to allow the closure of aging coal power stations is going to be easier said than done.

We have already seen this in Victoria, and in May this year the NSW government secured a two-year extension to Eraring Power station, the biggest coal power station in the National Energy Market (NEM).¹

This is why the Federal Opposition’s announcement on Monday 15 October that it would include gas in the Capacity Investment Scheme is a sensible one. The Energy Users Association of Australia also supports this idea, recognising that gas is a critical enabler of a least cost transition to net zero.

As APA has previously highlighted, including gas in a capacity scheme would fill an existing policy gap in our energy framework.

While a great deal of work has been done on the important job of building electricity transmission and connecting renewables, an important piece of the net zero puzzle continues to be overlooked – that is, the alternative source of reliable, dispatchable power when the wind isn’t blowing, and the sun isn’t shining.

Until storage solutions like batteries, pumped hydro or compressed air storage become economically viable and can provide the long term, deep storage we need, we must look elsewhere to ensure that power is available 24/7.

That gap will be filled by gas powered generation (GPG), which will run infrequently but will be essential for backing up renewables during renewable ‘droughts’.

The Federal Government’s May 2024 Future Gas Strategy and the Australian Energy Market Operator’s June 2024 Integrated System Plan (ISP) both recognise the very important role that flexible GPG will play in backing up renewables and storage on the pathway to net zero. In fact, the ISP clearly stipulates that:

“Renewable energy connected by transmission and distribution, firmed with storage and backed up by gas-fired generation is the lowest cost way to supply electricity to homes and businesses as Australia transitions to a net zero economy.”

And we can already see this playing out in South Australia. 

South Australia is a world leader in renewable energy, but the low wind generation in April this year offers a clear example of how important GPG will be as coal power stations are retired across the country.

For three consecutive days in the middle of April, there was little wind across South Australia. GPG stepped up to fill the gap, providing over 60 per cent of the state’s power needs at peak times when the sun went down, and solar generation went to zero.

Gas stepping in to fill the gaps is not an uncommon occurrence. South Australia closed its last coal power station in 2016, and since then there have been many occasions where periods of low wind and solar required GPG to provide long duration dispatchable generation.

This is why including gas in a capacity scheme would fill an obvious gap in the policy framework.

Over the past 12 months, Australia’s energy ministers have commenced policy development processes to support various generation projects across the NEM.

In November 2023, the Australian Government announced an expansion of the Capacity Investment Scheme (CIS) to a total of 32 GW of capacity. The Commonwealth and State Governments are now in the process of rolling out the CIS framework across jurisdictions.

In December 2023, energy ministers announced the development of an Orderly Exit Management (OEM) Framework to support the exit and compensation of coal generation across Australia. Draft legislation was published in June 2024.²

The CIS and OEM frameworks are expected to provide financial support to renewables and coal through the energy transition.

However, despite the need for at least 12GW of new GPG to support the increase in renewables and provide security to the NEM, there has been no policy development to support investment in GPG.

In 2022 the Energy Security Board (ESB) recognised that the NEM’s in-built investment signals may not be sufficient to encourage investment in enough generation to maintain a reliable system.

Given its increasingly important role as coal retires from the NEM, government policy must support long term investment in new GPG.

Consistent with the ESB’s findings, the Federal and State governments need to consider whether alternative policy arrangements, such as long-term availability or capacity payments, are needed to support this.

Again, South Australia is leading the way.

AEMO’s 2024 Electricity Statement of Opportunities reports that six of South Australia’s gas power stations are expected to close in or before 2034.³ Faced with these closures, South Australia has introduced legislation that would help establish a capacity scheme that will ensure secure, reliable and affordable electricity supply for South Australia.⁴

Including GPG in the CIS or a similar capacity scheme could help extract other jurisdictions from having to keep coal power stations open for longer than necessary. In March 2024 Energy Ministers announced a review of the NEM which could provide another avenue for a capacity scheme to be established.

Keeping coal power stations open for longer than necessary will increase the risk of jurisdictions missing their interim emissions targets.

The right policy settings for GPG, and the bringing online of critical new gas reserves, will go a long way in helping reduce the risk of this happening and will help accelerate the roll out of renewable energy, not delay it.

¹ https://www.nsw.gov.au/media-releases/nsw-government-secures-two-year-extension-to-eraring-power-station

² https://www.energy.gov.au/energy-and-climate-change-ministerial-council/working-groups/system-planning-working-group/orderly-exit-management-framework-draft-exposure-bill-and-rule-june-2024

³ AEMO, Electricity Statement of Opportunities, August 2024, p48

⁴ South Australia, Statutes Amendment (Budget Measures) Bill 2024, August 2024