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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.

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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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