A working group advising on Australia’s post-2030 Capacity Investment Scheme has agreed on firming price caps, establishing the critical revenue ceiling that will determine whether new batteries, pumped hydro, and gas peakers can earn enough to justify construction after the current auction rounds expire. The decision locks in the economic parameters for the next wave of dispatchable capacity needed to replace retiring coal plants, giving developers and financiers the first concrete view of revenue certainty beyond the decade.
How the Capacity Investment Scheme Evolves Beyond 2030
The Capacity Investment Scheme (CIS) is the Commonwealth’s primary instrument for underwriting new renewable generation and firming capacity in the National Electricity Market (NEM). Since its 2023 launch, the scheme has run sequential tenders – renewables first, then firming – offering revenue floors through contracts-for-difference that top up wholesale earnings when prices fall below a strike price. The current mandate targets 23 GW of new capacity by 2030, split roughly 9 GW of firming and 14 GW of variable renewables.
What happens after 2030 has been an open question since the scheme’s design paper acknowledged the need for a “post-2030 framework” but left pricing architecture unresolved. The working group – comprising representatives from the federal Department of Climate Change, Energy, the Environment and Water (DCCEEW), AEMO, state energy ministries, and industry nominees – has been meeting through 2024 to define that framework. Their agreement on firming price caps is the first binding output.
Firming price caps function as the maximum strike price the scheme will offer for dispatchable capacity contracts. They cap the Commonwealth’s fiscal exposure per megawatt-hour of firming delivered, while simultaneously setting the highest revenue certainty a developer can lock in. If the cap is too low, projects cannot cover capital costs plus risk-adjusted returns; if too high, the scheme overpays relative to market alternatives. The agreed level – not yet public but understood to be calibrated against long-run marginal cost of new-entry peaking plant – becomes the anchor for every financial model assessing a post-2030 battery, pumped hydro, or gas project.
This is distinct from the renewables price cap, which governs variable generation contracts. Firming resources face different cost structures: higher capital intensity for storage, fuel and carbon risk for gas, and revenue dependence on scarce high-price intervals rather than volume. The working group’s separation of the two caps reflects that economic reality.
Why Firming Price Caps Determine the Speed of Coal Exit
The NEM’s reliability outlook hinges on the timing of coal retirements versus firming additions. AEMO’s 2024 Integrated System Plan (ISP) step-change scenario shows 14 GW of coal capacity exiting by 2035, with Eraring (2.9 GW), Bayswater (2.6 GW), and Loy Yang A (2.2 GW) among the largest. Replacing that energy and, critically, its synchronous inertia and capacity credit requires firming resources that can deliver during multi-day renewable droughts – not just four-hour batteries.
If the firming price cap supports only short-duration storage, the scheme will procure gigawatts of capacity that contribute little to reliability during extended low-wind, low-sun periods. That points to a structural risk: the cap level effectively chooses the technology mix. A cap set near the levelised cost of a four-hour lithium-ion battery (roughly A$150-180/MWh on current estimates) will not underwrite eight-hour storage, pumped hydro, or hydrogen-ready peakers without supplementary revenue streams. Developers of longer-duration assets will either stay out of the scheme or bid at the cap and absorb the shortfall – reducing the probability of financial close.
By comparison, the current CIS firming rounds have seen strike prices cluster around A$120-140/MWh for battery projects, with pumped hydro proposals notably absent. If the post-2030 cap does not materially exceed that range, the scheme risks locking in a firming portfolio dominated by short-duration storage just as the system’s duration needs grow. That would force AEMO to rely more heavily on the Reliability and Emergency Reserve Trader (RERT) or market cap events to manage reliability – an outcome the CIS was designed to avoid.
My assessment: the cap must be at least 20-30% above current battery strike prices to attract duration diversity. Anything lower effectively signals that the Commonwealth expects the wholesale market’s energy and frequency control ancillary services (FCAS) revenues to fill the gap – a bet on price volatility that many project financiers will not underwrite.
Who This Affects
- Storage developers: The cap sets the maximum contracted revenue per MWh; projects with levelised costs above that threshold cannot rely on CIS support and must chase merchant revenues or state-based schemes (e.g., NSW LTESA, Vic REZ contracts).
- Gas peaker proponents: A cap that accommodates open-cycle gas turbine economics (including carbon compliance costs under the Safeguard Mechanism) keeps thermal firming eligible; a lower cap effectively excludes new gas, shifting the firming task entirely to storage and demand response.
- Utility planners and retailers: Contracted firming volumes under the post-2030 CIS will appear in AEMO’s capacity outlook, reducing the need for bilateral offtakes or RERT procurement – but only if the cap delivers actual projects, not just expressions of interest.
- State governments: NSW, Victoria, and Queensland each run parallel underwriting schemes; a federal cap that is too low creates arbitrage where developers bypass CIS for state tenders, fragmenting national planning and duplicating administrative cost.
What to Watch Next
- Public release of the cap value and methodology: The working group’s report to energy ministers – expected before the December 2024 Ministerial Council meeting – will reveal whether the cap is a single number or a tiered structure by technology or duration.
- Interaction with the Capacity Investment Scheme’s “revenue cap” mechanism: The CIS includes a clawback when wholesale prices exceed a ceiling; the firming price cap and revenue cap together define the full revenue envelope. Any change to the revenue cap design for post-2030 will shift project economics as much as the strike price.
- AEMO’s 2025 ISP update and the next Electricity Statement of Opportunities (ESOO): If reliability gaps widen under the step-change scenario, political pressure will mount to raise the cap or add a “reliability premium” adder for long-duration assets.
- First post-2030 tender timetable: The scheme’s governance rules require tenders to be announced 18-24 months before contract start. A 2025 tender for 2027-28 delivery would be the earliest test of whether the cap attracts sufficient bids.
Bottom line: The firming price cap is not just a budget parameter – it is the de facto technology selection mechanism for Australia’s post-coal firming fleet. If it does not explicitly reward duration, the CIS will procure the wrong shape of capacity, and the market will pay the difference in reliability events.
Read the full report at RenewEconomy
Original source: RenewEconomy (Australian clean energy news)
Note: facts and figures attributed above to RenewEconomy (Australian clean energy news) reflect that outlet's original reporting. Broader context, cross-sector connections, and forward-looking scenarios reflect independent analysis by our editorial team.
About this article: Drafted by Energy Ai with AI-assisted research and writing based on public reporting, then reviewed under our editorial process before publication.
Leave a Reply