Australia's CIS – new support for clean dispatchable projects (Part 1)

What you need to know

• Aiming to bring forward $10 billion of new investment and 6 GW of clean dispatchable capacity by 2030, the Australian Government has for the first time provided details of the framework for the Capacity Investment Scheme (CIS) and is inviting feedback from the public.
• The CIS seeks to enhance the future reliability of the country's electricity markets and mitigate the risk of price shocks by providing certainty for financiers and investors. 
• Projects that stand to benefit from financial support offered under the scheme are likely to take the form of battery and other storage projects (with specific reference made to hydrogen) as well as other non-variable clean dispatchable capacity projects.
• To be rolled out in all Australian States and Territories, the CIS will set reliability targets for each jurisdiction and identify projects to support through competitive tenders.
• The CIS will offer long-term Commonwealth underwriting agreements linked to revenue, with projects being paid below a 'net revenue floor' and the Commonwealth being paid above a 'net revenue ceiling'.
• A Victorian/South Australian tender will be announced in October 2023. Support in NSW has previously been announced.
• Feedback on the public consultation paper must be submitted by Thursday 31 August 2023. Online stakeholder forums will be held throughout August.
• In this Part 1, we summarise the key design, delivery and eligibility elements. In Part 2, we will explore the proposed terms of the revenue underwriting instrument.

First details of the CIS released

The Commonwealth Government has released a public consultation paper for the CIS, providing the first details on the CIS' core design, implementation and terms of financial underwriting.

In this Part 1, we summarise the key CIS design, delivery and eligibility elements. In Part 2, we will explore the proposed terms of the revenue underwriting instrument.

Feedback on the approach and design of the CIS must be submitted by 5:00pm AEST Thursday 31 August. Feedback can be given online here or through online stakeholder forums to be held throughout August 2023.

Core design

The CIS aims to bring forward $10 billion of new investment and 6 GW of clean dispatchable capacity by 2030. Key features of the CIS will include:

1. Transparency: Long term forecasting of generation and storage required in each Australian jurisdiction
2. Reliability: Competitive tenders to achieve capacity targets
3. New investment: Financial underwriting by providing a long-term revenue safety net, with upside profits to be shared with the Commonwealth
4. Affordability: The Commonwealth will bear the costs of the CIS

The CIS is a Commonwealth scheme that will be available in all Australian States and Territories, and is intended to work alongside existing national and State/Territory schemes.

The CIS will support new projects by providing support where revenue falls below an agreed floor. In turn, projects will be required to pay the Commonwealth a percentage of revenues above an agreed ceiling.

Source: Capacity Investment Scheme – Public Consultation Paper (August 2023), Australian Government Department of Climate Change, Energy, the Environment and Water.

Setting reliability targets

The CIS will develop a reliability target to guide the allocation of the 6 GW of dispatchable capacity across Australia, based on bespoke modelling that utilises the AEMO Integrated System Plan and the Electricity Statement of Opportunities.

Jurisdictional targets will be consistent with forecasts of the total capacity required in each jurisdiction between 2026-2030 to meet overall needs, subject to CIS financial budget caps.

The targets are expected to initially be expressed in terms of medium storage (4 hour) capacity in MW, and will be updated annually.

Delivery through tenders

The CIS will be implemented through a series of competitive tenders to be rolled out progressively from 2023 to 2027, aiming to meet jurisdictional reliability needs between 2026 to 2030. Reliability targets will be converted into specific tender targets. Tenders may cover one or more jurisdictions.

CIS tenders will focus on projects that adopt mature technologies, and may prescribe target commissioning dates.

For each tender, it is expected the Commonwealth will set tender objectives, the MW capacity target and the financial budget. AEMO will run the tenders and recommend projects for support. The Commonwealth will make the final contracting decisions.

The MW capacity size of a tender may be constrained to ensure it remains within the allocated financial budget.

The first CIS tenders are expected to involve:

1. NSW: The previously announced partnership in NSW, providing support for up to 550 MW of firmed capacity; and
2. Victoria / South Australia: Tender arrangements are due to be released in October 2023. This tender is expected to require commissioning by 2027 and for projects to be capable of dispatching at full capacity for a minimum duration, with greater financial value attributed to longer duration storage.

Tender requirements – who can participate

Expected key proponent and project eligibility criteria is as follows:

1. Status: Projects that achieved financial close prior to 8 December 2022 are not eligible
2. Ownership-agnostic: Both publicly and privately owned projects are eligible
3. Zero-emissions technology: Projects must have a fuel (e.g. hydrogen) or storage fuel (e.g. BESS) source that contributes to zero scope 1 emissions (e.g. wind, solar, green hydrogen, biomass and CSP)
4. No thermal generation: Projects using thermal generation sources (e.g. coal and gas) are not eligible
5. Dispatchable only: Projects must be dispatchable. Variable renewable energy projects that are not dispatchable (e.g. supported by a storage component) are not eligible
6. Grid charging for BESS: Storage projects must be capable of only charging from the grid
7. Stand-alone or co-located storage: Storage projects that are stand-alone or are physically co-located with generation are eligible
8. No VPPs, but potentially some demand response projects: Depending on the circumstances, demand responsible projects may be eligible, however virtual power plants are not eligible
9. No other government revenue support: Projects that already, or will, receive Commonwealth or State/Territory revenue support are not eligible. Certain government support will not be considered revenue support (e.g. public ownership, CEFC investment, ARENA grants, LGCs etc)
10. AEMO registration: Projects must be registered with AEMO and intend to participate in central dispatch
11. At least 30 MW: NEM projects must be at least 30 MW. The threshold is expected to be lower in WA
12. Land tenure: Projects must secure access to land before participating in a CIS tender
13. Planning: Projects must demonstrate an understanding of expected planning pathway and approval requirements for development, construction and operation
14. Connection: Projects must demonstrate an understanding of the grid connection process, viability of proposed connection and evidence of NSP engagement

Authors: Bree Miechel, Partner; Robert Gough, Senior Associate; Galen Maxwell-Leone, Graduate.