Big energy companies believed the ESB’s design for a capacity mechanism was complex and could push up prices, while clean energy companies believed it would extend the life of coal and gas.
Ms Schott, the chairwoman of the Net Zero Emissions and Clean Economy Board for the NSW government, said the other key outcome of Friday’s meeting – embedding emissions reduction in the National Electricity Objective – would probably require a renewable or clean energy target for the electricity sector .
Renewable energy target
This would ensure any move to boost capacity as coal and gas exit the grid would be paired with the Albanian government’s new 43 per cent emissions reduction target by 2030, and the goal of 82 per cent renewables by the end of the decade.
“I think they will probably agree on an emissions target, which will effectively be a renewable energy target,” Ms Schott said.
“If you look at the national and state targets for emissions, they are not that far off. There is a need for a big increase in renewables, particularly in the big states of NSW, Victoria and Queensland.”
Ms Schott said coal would probably be the big loser out of any scheme because it just couldn’t stay in the game while emissions reduction targets were ratcheted up.
Dylan McConnell, a research fellow at the Climate and Energy College at the University of Melbourne, said Friday’s energy meeting was a “pretty stunning rejection” of the capacity mechanism proposed by the ESB.
“What you might end up seeing is states going their own way on coal closure, but a more nationally consistent approach with whatever comes next in terms of incentivising capacity,” he said.
“Though the inclusion, or not, of gas might make a new mechanism hard to get consensus on.”
Grattan Institute energy program director Tony Wood said it seemed inevitable that there would need to be a separate mechanism to drive down emissions in the electricity sector.
“The target could be realized by recasting the existing Renewable Energy Target as a clean energy target to operate alongside whatever capacity mechanism emerges from the work of the senior officials,” he said.
“A less direct, but less politically difficult, approach would be to impose the emissions target as a constraint on the capacity mechanism.”
Mr Wood said the politicians were clearly getting frustrated with the slow pace of the ESB’s work on the capacity mechanism, saying at least the politicians and bureaucrats would not only drive its delivery but also own the final result.
Energy Minister Chris Bowen said it was “bizarre” that the electricity sector, which accounts for 33 percent of Australia’s carbon emissions, did not already have an emissions-reduction objective.
“It will certainly make it easier to get transmission up, certainly make it easier for energy companies to make sensible decisions about renewables,” he told the ABC’s Insiders program on Sunday.
“It puts it [emissions reduction] in the heart of their [regulator’s] decision-making. It should have happened a long, long time ago and has finally happened now under a new government.”
Mr Bowen said he would release a discussion paper on the Albanian government’s planned overhaul of the safeguard mechanism, which requires big emitters to keep their emissions below historical levels.
“You don’t reduce your emissions if you don’t reduce the biggest emitters covered by the facilities in the safeguard mechanism,” he said.