Capacity Investment Scheme boosted from 6GW to 32GW

From Cornwall Insight Australia’s Energy Market Alerts service

Last Friday, the Commonwealth announced a major boost to the Capacity Investment Scheme, with the scheme now expected to deliver 32GW (combination of 9GW firming capacity and 23GW renewable generation) – up from 6GW. Cornwall Insight Australia has released an Energy Market Alert on the updated scheme.

Context for change

Since the release of the initial scheme in August 2023, the prognosis for meeting the national renewable energy target of 82% by 2030 has worsened considerably. Namely, stalled renewable investment, supply chain constraints, connection bottlenecks, less favourable financial conditions, and a lack of transmission capacity have all contributed to the deteriorating context.

Scheme changes:

This deteriorating context has prompted the Federal Government to act by boosting the ambition for the Capacity Investment Scheme by:

  • Increasing the target of the scheme from 6GW to 32GW, comprised of 9GW firming capacity and 23GW of renewable generation. The government expects this to ‘unlock’ $40b in private investment.
  • The first auction will commence in April 2024, to be followed by a new auction every six months until 2027
  • Projects eligible must not be regarded as ‘committed’ as of 23 November 2023
  • The new schemes provide incentives for states to streamline approval processes by providing them a greater share of capacity auctions
  • The boosted scheme will also require bilateral Renewable Energy Transformation Agreements between the Federal Government and the states/territories. Presumably, CIS funding will be tied to delivery by the states of these agreements

Key impacts:

Impacts of the scheme outlined in the alert include:

  • Financing boost will surely progress renewable project development
  • Replacement for RET
  • Carrot and stick for states
  • Moving costs (and risks) from consumers to taxpayers
  • Risks of picking winners
  • Small generation excluded
  • New project development is one part of the problem – other problems remain
  • ‘Chicken and egg’ between private and public financing
  • Solar favoured over wind?
  • Renewables-only reflect political reality
  • Role of the Victorian SEC

Next steps:

The next auctions are expected to be released in April 2024, followed by auctions every six months until 2027.

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