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Higher power prices a risk under government gas plan, expert warns

Energy experts warn electricity prices will rise and private investment in energy projects will fall if the federal government delivers its plan to support private gas projects.

The Senate environment legislation committee is inquiring into Energy and Emissions Reduction Minister Angus Taylor’s proposed legislative changes to Australia’s key clean energy agency, which would make it responsible for a $1 billion scheme to underwrite private energy projects.

The existing law bars the Clean Energy Finance Corp (CEFC) from investing in conventional fossil fuels and loss-making projects. The proposed amendments would enable the CEFC to administer the Grid Reliability Fund, which was set up in 2018 to underwrite private energy investments. It has shortlisted five gas, one coal and six renewable energy projects.

Andrew Stock, a former Origin Energy senior executive and an original CEFC board member who is now a member of the Climate Council lobby group, said the scheme, known as the Underwriting New Generation Investment program, enabled the government to back loss-making projects, which would discourage private investment.

“If the government intervenes in the market you can guarantee the private sector will sit on its hands and wait to see what happens,” Mr Stock told the inquiry. “That will ensure higher prices for electricity, because we will get under-investment in preparation of [power plant] closures and that will almost certainly bring price shocks.”

Mr Stock said outside the inquiry that government backing for “individual, favourite projects that aren’t profitable, which seems to be what happens in [the underwriting program], is a risk to other investors”.

Energy giant AGL is evaluating plans for a 250 megawatt gas peaking plant at Newcastle. A final investment decision is planned for early 2021.

Prime Minister Scott Morrison and Mr Taylor last month set a “dispatchable capacity investment target” of 1000 megawatts of electricity in NSW by the end of April 2021. They warned if private industry didn’t commit, government would build its own gas-fired power station.

UBS energy analyst Tom Allen said on Tuesday the government’s plan would hurt private industry investment, particularly power giant AGL’s planned Newcastle gas-fired power station.

“The federal government’s plan … is a negative read-through for AGL, which is trying to make a final investment decision on its new gas-fired peaking plant,” Mr Allen said. “It remains a very challenging policy landscape for AGL.”

Mr Taylor has said the underwriting program will support “firm generation capacity” or dispatchable power – energy that can be quickly deployed into the grid to fill gaps during peak demand such as when solar and wind supplies are low.

A spokesman for Mr Taylor said he disagreed with Mr Stock’s comments. Mr Taylor told Parliament in August his changes would not divert the CEFC’s existing $10 billion allocation but would create a “trusted counter-party to investments, allowing the CEFC to support private sector involvement”.

Last week’s federal budget revealed an $8.7 million Commonwealth grant is planned to go to Delta Electricity for turbine upgrades at the Vales Point coal-fired power station. Delta is required to submit a grant application to the Grid Reliability Fund, which will be assessed by the federal Energy Department.

The Australian Industry Group told the Senate inquiry the proposed changes would enable the CEFC to use the Grid Reliability Fund to support a wider range of power supply to improve the reliability of the grid as more and more renewables entered the market, but that government should also insert guidelines to ensure an overall reduction in greenhouse gas emissions.

Source: Sydney Morning Herald