The Minerals Council of Australia (MCA) welcomes the opportunity to comment on the public consultation paper Underwriting New Generation Investments.
The MCA supports the policy intention behind the government’s proposed approach.
As the MCA has consistently argued, there is a need to ensure adequate supplies of continuous dispatchable power available 24/7 at long run sustainable prices. The National Electricity Market (NEM) is facing serious challenges from the erosion of baseload power generation capacity, with this tightening of supply/demand balances driving price outcomes which are adversely impacting Australia’s industrial sector and households.
The lack of investment in power generation capable of delivering low-cost power 24/7 reflects what is now an unmanageable policy risk for investors in long life assets in the power generation sector. This risk has been caused by repeated pivots and a lack of consensus in energy and climate change policy by successive governments for well over a decade.
The policy intent of the Underwriting New Generation Investments aims to address this by securing private sector investment in new power generation which meets the needs of Australian industry – that is low cost and reliable.
The expanded range of financing options is supported.
The goal should be to support private sector investment which is technology neutral and delivers the capacity required for reliable and secure supply at a long run price that is sustainable for electricity producers and consumers. The closure of a substantial proportion of existing baseload plant in the near future underscores the importance of providing the policy stability to enable investors to deliver the right type, size and timing of generation capacity required for reliable, affordable and secure electricity supplies at lowest cost.
By offering a range of potential financial and risk management instruments (including options, swaps, futures and contracts for difference, government loans or capacity payments) it is likely a greater range of project proposals could be brought forward.
However, caution needs to be taken not to further undermine the energy only nature of the NEM, particularly where mechanisms limit price discovery and transparency.
Baseload power will continue to be critical for Australia.
A balance of energy technologies and technical capabilities, including baseload and dispatchable power generation, is critical in providing low cost reliable power. It ensures a supply/demand balance and efficient mix of technical capabilities to deliver the full range of ancillary services crucial for grid reliability and security at lowest sustainable cost.
Ensuring that investors are able to replace Liddell Power Station’s capacity with a technology mix that will maintain reliability and security at lowest sustainable cost must be the immediate focus.
If the policy settings are unable to do this, the close of Liddell Power Station may well increase prices and the fragility of the power supply system in NSW, increasing the reliance on transmission of generation from elsewhere in the grid to meet demand. Wholesale prices are already rising in expectation of its close.
Australian industry needs clean, reliable, adequate and secure energy supplies at the lowest long-run sustainable prices and meet emission reduction targets to remain competitive in Australia.
Reliable and affordable energy is central to our economy. Australian businesses consume around 70 percent of total energy consumption, with mining and resources representing around 12 per cent of demand.
Any policy approach should lower investor risk (and therefore cost) through stability, clarity and technology neutrality. Consideration should be given to the unintended consequences of policy mechanisms, in particular the risk that a decrease in policy certainty and price transparency will further undermine or distort investment signals.
Meeting Australia’s current Paris Climate Change Commitment of 26-28 per cent reduction in greenhouse emissions and supporting the competitiveness of Australian business and industry will require stable energy policies that minimise investor risk and deliver an adequate, reliable and secure supply at lowest sustainable cost.
Technology neutrality and competitive markets should underpin the policy.
In designing the Underwriting New Generation Investment program, governments should adopt a technology neutral approach.
The policy should support positive investment decisions on projects which ensure a system wide supply/demand balance and technical capability that delivers the needs of Australian industry.
Need for contracts issued under Underwriting New Generation Investments to be respected.
The policy involves the creation of government contracts. These need to be transparent on price and quantity, and honoured by any future government. Without this, private sector investors will be wary of investing in any projects which may be proposed and the risk of market distortion increases substantially.
READ THE FULL SUBMISSION: 181112 MCA Submission Underwriting New Generation Investments.pdf