The CIS aims to encourage more investment in clean electricity generation and reduce the risk of price ‘shocks’ in the Australian energy market. The government will tender through the scheme for clean renewable generation and storage projects to fill expected reliability gaps, with pricing underwritten by the CIS. This price guarantee will cover generator costs when the price of electricity is low and recoup that money when prices are higher.

Since our previous article, tenders for the first phase of the CIS in New South Wales have been received. The Commonwealth government has agreed to underwrite investment for up to an additional 550 megawatts (MW) of capacity, in addition to the 380MW of capacity already committed by the state government under its energy infrastructure roadmap. Tender arrangements for Victoria and South Australia will be announced by October 2023, and further details on the national roll-out of the scheme are expected by the end of the year.

What aspects of the scheme does the consultation cover?

The Department of Climate Change, Energy, the Environment and Water (DCCEEW) is now seeking feedback on the proposed design and delivery of the CIS (516KB / 26-page PDF). The consultation will close on 31 August.

The DCCEEW is also intending to host a series of online forums ahead of the consultation closing date, details of which will be posted on its consultation hub and CIS webpage.

Relationship between CIS and existing policies and frameworks

The DCCEEW is seeking to ensure that the CIS supports, and does not undermine, existing state- and federal-level energy policies and frameworks.

It is seeking feedback on the implications of the CIS on the energy market, and how the scheme can be designed to jointly mitigate risks and achieve its key policy objectives. It is also keen to understand how the CIS will interact with the existing state-based Reserve Capacity Mechanism in Western Australia. A separate consultation paper on this issue is expected to be released shortly.

Eligibility requirements

Feedback is being sought on proposed eligibility requirements for participation in a CIS tender, including:

• imposing minimum storage duration requirements as an eligibility threshold;
• requiring projects in the National Electricity Market (NEM) to be registered with the Australian Energy Market Operator (AEMO), and to have a registered capacity equal to or greater than 30MW;
• requiring evidence of secure land tenure, an understanding of the planning pathway and approvals required for development, construction and operation of the project, and a viable proposed grid connection;
• excluding projects that already receive certain Commonwealth, state or territory revenue support; and
• recipients providing clear evidence of the technology to be used and project delivery risks.

Final eligibility requirements will likely vary across tenders and jurisdictions to ensure compatibility of the CIS with existing state and territory schemes and policies.

Capacity and reliability needs for the CIS are based on modelling derived from AEMO forecasts over a 10- and 30-year horizon, as well as consultation with state and territory governments. The DCCEEW is seeking feedback on its modelling methodology. It is also seeking feedback on how eligibility and assessment criteria for the CIS could be adapted in future to reflect matters such as changes and maturity in technology.

Evaluation and assessment of projects

The DCCEEW is seeking feedback on the merit-based selection criteria for project suitability. Currently, projects are assessed in two stages:

• on technical, commercial and social licensing merits – including consideration of the proponent’s capabilities, the project’s benefits to the local community and employment opportunities. Projects considered to have merit on these grounds are then required to submit final pricing bids;
• on pricing – based on the project’s contribution to system reliability at minimal cost to taxpayers.

Commercial structure of the underwriting scheme

The commercial structure of the CIS underwriting scheme – the CIS Coverage Plan – aims to support for scheme’s broader goals of grid reliability, consumer affordability and investor certainty, while working within existing frameworks and markets.

While the terms of underwritten agreements entered into with project owners may vary across projects, these will generally include:

• a conditions precedent regime, with a right for the Commonwealth to terminate the agreement where these are not satisfied by an agreed ‘sunset date’;
• the right for the project to participate in the wholesale contracts markets;
• a regime for the net revenue floor and net revenue ceiling for the project;
• milestones for key project matters including provision of performance security, financial/commercial close, construction, commissioning and commercial operation;
• a regime for payment from the Commonwealth to the project owner;
• performance requirements on CIS-supported generators to support market capacity; and
• the right for the Commonwealth to terminate the agreement for breach by the project owner, prolonged force majeure events or for convenience.

The DCCEEW is seeking feedback on all aspects of the commercial structure of the CIS, including the required size and structure of performance requirements to deliver the scheme’s objectives and whether the same commercial structure could also be applied to pumped hydro energy projects.