Aussies face new power station capacity charge on electricity bills

Aussie households could soon spot a new charge on their electricity bills should Energy Ministers agree to a proposal for a new capacity payment to power companies, according to a recent report from the Institute for Energy Economics and Financial Analysis (IEEFA) and Green Energy Markets.

The report says that with Australia’s Federal Energy Minister’s support, the Energy Security Board (ESB) wants consumers in the national electricity market (NEM) to start making capacity payments to generators.

This means that Aussies would not only pay power plants for the electricity they generate, but they’d also pay for the full capacity of the power plant, regardless of how often it’s required. 

“The ESB’s new proposal will require electricity consumers to pay primarily conventional generators such as coal and gas plants for what they could produce if the plant was operating at its full level of capacity, regardless of whether or not, or how often, the generator uses all of its capacity to produce electricity,” said report co-author and IEEFA electricity analyst, Johanna Bowyer.

But why?

The ESB and Federal Energy Minister Angus Taylor said the new payment is necessary as many coal-fired power stations are becoming financially unfeasible, and if they were to suddenly exit, it could result in blackouts. 

“While it is true that several coal power plants are facing financial difficulties, our analysis finds that reliability is not at threat by the level of likely coal power plant exits over the next ten years,” said Bowyer.

“Thanks in part to actions of the Federal Government, there is a flood of dispatchable capacity entering the NEM. This covers a range of controllable sources of power from hydro to batteries, bioenergy, gas and even some small coal power plant upgrades.”

The cost on consumers:

The report found that if the scheme went ahead, this new charge could cost consumers in the NEM as much as $2.9 billion to $6.9 billion a year (based on the range of capacity market prices shown in Western Australia’s electricity market).

This means that households in the national electricity market could see their electricity bills go up by about $182 to $430 a year.

“By way of comparison, the cost increase faced by New South Wales, Victorian and Queensland consumers from the carbon price was between $112 to $150,” explained Bowyer.

“Based on the Western Australian capacity payment experience, consumers could be facing a new charge which is potentially more than double that of the carbon price.

“Even at the lower end of capacity prices paid in the West Australian market, the cost on power bills would still be 21% greater than the carbon cost faced by Queenslanders, 30% higher for South Australians, 41% greater for New South Wales households, and 62% higher for Victorians.”

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