Opinion: AUSTELA response to Capacity Investment Scheme consultation on its Design Implementation Paper
Overview
AUSTELA welcomes the Capacity Investment Scheme and the government’s focus on addressing capacity challenges in the coming years, particularly of the long-duration dispatchable capacity that will be critical in keeping the lights on as coal plants are retired over the next decade.
The underlying principle expressed in the Implementation paper is that projects will be assessed via a cost benefit analysis, not simply the lowest bid on floor price for energy. This is a good principle, but it will be important to give developers certainty as to the metrics to be used.
The key merit criteria articulated in Section 4.4, being the contribution to; a) System reliability; b) Delivery of renewable energy and c) Additional system benefits, are entirely appropriate.
Concentrating Solar Thermal Power (CSP) systems are recognized as excellent contributors to each of these areas of concern. They incorporate long duration energy storage (typically around 15 hours) as a matter of course. They collect solar energy using low-cost mirror fields so add additional renewable generation, rather than simply storing electricity already generated. Additionally, through their steam turbine driven synchronous generators, they contribute all the system benefits that a dispatchable generator with inertia brings in the same way the gas turbines have done traditionally.
A recent study commissioned by the Australian Solar Thermal Research Institute and completed by Fichtner Engineering and ITP Thermal (see attached report1) show this combined generation and storage capacity can offer the lowest LCOE for long duration dispatchability.
While we acknowledge much of the detail will be mapped out in individual tenders, there are issues that must be fixed in the Implementation Design Paper if the CIS is to attract long-duration dispatchable capacity into the National Electricity Market.
- As they stand, the two different CISA contract types ‘Generation’ and ‘Clean Dispatchable’ do not appear to adequately recognise the full benefits of technologies like CSP, which offers generation and dispatchable capacity in one system, as well as inherent system strength benefits.The paper is unclear as to whether a CSP project would be considered under the Generation or Clean Dispatchable category, this appears to indicate that the team have not yet considered it explicitly as a key technology option. While the Paper acknowledges hybrid projects, it states that they will bid into ‘Generation’ contracts. It is not clear that CSP fits the current definition of hybrid projects. Section 4.6 implies that Energy from Waste and Biomass projects would be considered as ‘Clean Dispatchable’. CSP is not mentioned but shares similar characteristics to those technologies.
As such, the current contracts risk missing out on the benefits and low-cost electricity offered by CSP , which are ideally suited to meet the Merit criteria outlined on page 28. We therefore propose addressing this problem by creating a new Hybrid CISA that recognises a single system can be both generator and dispatchable capacity. Such a hybrid CISA could follow from allowing such a project to simultaneously bid into Generation and Clean Dispatchable tenders with one response.
- The Paper does not yet define how different durations will be valued or rated according to their usefulness i.e. would a project with 8hrs dispatchable capacity be twice as valuable as a project with 4hrs? AUSTELA is keen to input into the rating mechanism as it is developed and we believe a clear, transparent and consistent mechanism will be critical to attract investment and strong responses to tenders.
- With the above in place, the CIS should ensure that tenders are structured to ensure that a significant share of contracts are awarded for dispatchable capacity with 8+hrs of storage as soon as possible. While system needs in the short-term can be met by short- duration battery storage, the strongest and most cost effective electricity system will have a mix of technologies, with different capabilities, and it is important we see investment in long-duration dispatchable capacity sooner rather than later, so that supply chains can be developed efficiently.
1 Kretschmann J, Lovegrove K, Klump F, Zapata J and Puppe M. The Australian Concentrating Solar ThermalValue Proposition - Dispatchable Power Generation, Process Heat and Green Fuels. Prepared by Fichtner andITP for the Australian Solar Thermal Research Institute. October 2023.
On face value, CSP perfectly meets the merit criteria the CIS (p.28) is looking for. It offers system reliability, delivery of renewable energy (during the day and overnight) and additional system benefits through system strength and restart services. It is a key part of a least cost emissions free electricity system, it also has the potential to support local communities thanks to the ongoing jobs it requires. A greater share of project value stays in the region, and in Australia compared to imported components.
By including our proposed changes, the CIS can help Australia realise these benefits and derisk the energy transition through the deployment of long-duration dispatchable CSP alongside other technologies, from PV and wind to BESS and pumped hydro.
Background on AUSTELA and CSP
AUSTELA is an industry association, representing companies that are involved in solar thermal power generation. Its members includes Australian companies and Australian subsidiaries of international companies.
Solar thermal technologies take their energy from the sun and - unlike solar PV - store the energy as heat rather than converting it to electrons immediately. Concentrating Solar thermal Power (CSP) generation systems operate with an array of mirrors that concentrate the sun’s heat and store it in a medium (typically molten nitrate/potassium salts). The heat – to around 600˚ Celsius – can be stored for many days and used to drive a steam turbine which produces electricity via a synchronous generator whenever needed, day or night. Typical systems have tanks with enough salt to run the power block in the absence of sun for 15 hours or more. CSP systems can also provide clean industrial process heat which typically displaces gas-powered heat in manufacturing.
While the renewable energy sector has been dominated by wind and PV, the imperative for reliable dispatchable renewable generation – to balance variable generation – makes CSP an ideal technology option to include in electricity grids. While relatively small in uptake to date, CSP has a 30-year track record and currently around 6.5GWe of installed capacity in more than 100 utility scale plants around 2 the world. Spain is the past leader in utility-scale CSP and China is currently building 28 CSP projects.A recent key example is the Noor Energy project in Dubai, a 700MW CSP project hybridised with 250MW of solar PV.
AUSTELA regularly comments on the mix of future renewable energy technologies, energy system design and market rules and incentives. We brief ministers, senior departmental officeholders and regulators and continue to be available to the CIS team as it designs this critical mechanism for the energy transition.
Responses to specific questions
Cadence of tender schedule and products
Q: We welcome feedback on the proposed scheduling approach, including views on alternative options:
Would your organisation benefit more from a 6-monthly cycle of simultaneous tenders for both generation and clean dispatchable products, or would an alternating 12-monthly cycle (consisting of one tender every six months?
A: We favour a 6 month cycle of simultaneous tenders for both generation and clean dispatchable rather than an alternating 12 month cycle.
As they stand, the two different CISA contract types ‘Generation’ and ‘Clean Dispatchable’ do not appear to adequately recognize the full benefits of technologies like CSP, which offers generation and dispatchable capacity in one system, as well as inherent system strength benefits.
The paper is unclear as to whether a CSP project would be considered under the Generation or Clean Dispatchable category, this appears to indicate that the team have not yet considered it explicitly as a key technology option.
In its current form, simultaneous tenders could potentially lead to more bids from CSP projects, as, thanks to its inherent generation and storage capacity, a CSP project could bid for both Generation and Dispatchable Capacity CISAs.
CSP’s strength is in its ability to provide new Generation and Dispatchable Capacity, as well as offering system services. On its own, CSP is likely to lose out to lower-cost forms of generation or dispatchable capacity. This would see the NEM miss out on a technology that offers renewable generation and storage capacity 24/7, as well as the lowest LCOE over long-durations, according to modelling by Fichtner and ITP Thermal.
We therefore propose addressing this problem by creating a new Hybrid CISA that recognises a single system can be both generator and dispatchable capacity. Such a hybrid CISA could follow from allowing such a project to simultaneously bid into Generation and Clean Dispatchable tenders with one response. Thus the cycle of simultaneous tenders is a better starting point to facilitate such an approach.
Incentives for participation in the contracts market
Q: We welcome feedback on risks to contract market liquidity and whether the design elements outlined in this section are sufficient to preserve incentives to participate in the contracts market.
A: These seem reasonable. Austela has no strong views on this point.
Generation support mechanism
Q: Would the proposed Eligible Wholesale Contract requirements present a significant barrier to your organisation participating in the wholesale contracts market with a generation project with a CISA?
A: These seem reasonable. Austela has no strong views on this point.
Q: Would the proposed negative price provisions present a significant barrier to any renewable capacity business model considered by your organisation? Could these provisions have any negative impact on project NEM bidding behaviour?
A: These seem reasonable. Austela has no strong views on this point.Special Purpose Vehicle requirement
Q: Would the proposed Special Purpose Vehicle requirement present a major barrier to your organisation's business model for renewable capacity and clean dispatchable capacity projects?
A: This sounds reasonable, most CSP project globally are structured in this way, so there is no reason it would be a barrier for project proponents.
Alternative options to preserve incentives for generators to participate in wholesale contracts markets
Q: We welcome feedback on the alternative options to preserve incentives to participate in wholesale contracts markets, including:
- Whether an option structure would be of value for the generation CISA
- Views on the inclusion of Eligible Wholesale Contract revenue into the net revenue calculation vis-à-vis the volumetric exclusion of Eligible Wholesale Contract revenue
- Views on the potential requirement for the Project Operator to physically deliver any GreenProducts to the Australian Government
A: These seem reasonable. Austela has no strong views on these points.
Merit and eligibility criteria
Q: We welcome feedback on the proposed eligibility and merit criteria.
A: In regards eligibility we note that:
- The definitions of eligible technologies are to mirror the definitions under the Renewable AEnergy (Electricity) Act and agree that this is appropriate.
- A minimum registered capacity of 30MW is proposed. This is appropriate and is in line with the minimum size that is likely to be contemplated by developers of CSP plants.
- The requirement that land tenure would need to be established and grid connection being progressed seems reasonable.
- Timing and delivery dates seem reasonable as they discussed. We would warn against any further changes to that thinking that lead to shorter time frames that could be realistically delivered by a CSP project for example. It should be noted that longer duration energy systems in general take longer to build and commission than battery projects, so timing requirements should always be considered from the context of potential perverse incentives.
- Participation in other schemes such as CEFC funding or ARENA grants are not expected to be counted as revenue support. This is correct and important. Technologies like CSP that do not yet have a track record in Australia are going to require such support in a synergistic manner.
In regards merit assessment we note that:
The underlying principle expressed in the Implementation paper is that projects will be assessed via a cost benefit analysis, not simply the lowest bid on floor price for energy. This is a good principle, but it will be important to give developers certainty as to the metrics to be used.
The key merit criteria articulated in Section 4.4, being the contribution to ; a) System Reliability; b)Delivery of renewable energy and c)Additional system benefits, are entirely appropriate.
Concentrating Solar Thermal Power (CSP) systems are recognized as excellent contributors to each of these areas of concern. They incorporate long duration energy storage (typically around 15 hours) as a matter of course. They collect solar energy using low cost mirror fields so add additional renewable generation, rather than simply storing electricity already generated. Additionally, through their steam turbine driven synchronous generators, they contribute all the system benefits that a dispatchable generator with inertia brings in the same way the gas turbines have done traditionally.
A recent study commissioned by the Australian Solar Thermal Research Institute and completed by Fichtner Engineering and ITP Thermal (see attached report) show this combined generation and storage capacity can offer the lowest LCOE for long duration dispatchability.
It is noted that the three merit criteria will be considered both in Stage A and Stage B.
The approach to Stage A appears to be appropriate, however we would advocate that the three merit criteria be given a high weighting, and not be overshadowed by the other areas of interest raised in section 4.4.2.
In regards Stage B, Financial Value assessment, we note again that the intention is that projects will be assessed via a cost benefit analysis, not simply the lowest bid on floor price for energy. While supporting this principle, we argue that greater certainty and transparency is needed for this aspect.Developers of CSP projects (and other dispatchable technologies) can configure future projects with varying durations of energy storage and varying sizes of solar fields compared to the power block.They need some clear signals of how a project is to be measured for its impact on the value assessment in order to design the most attractive project.
The Paper does not yet define how different durations will be valued or rated according to their usefulness i.e. would a project with 8hrs dispatchable capacity be twice as valuable as a project with 4hrs? AUSTELA is keen to input into the rating mechanism as it is developed and we believe a clear, transparent and consistent mechanism will be critical to attract investment and strong responses to tenders.
Participation of hybrid projects
Q: Would the proposed approach enable the better participation of hybrid projects in CIS tenders?
More work needs to be done to define hybrid projects and to recognise technologies that inherently offer generation and dispatchable capacity.
As they stand, the two different CISA contract types ‘Generation’ and ‘Clean Dispatchable’ do not appear to adequately recognize the full benefits of technologies like CSP, which offers generation and dispatchable capacity in one system, as well as inherent system strength benefits.
The paper is unclear as to whether a CSP project would be considered under the Generation or Clean Dispatchable category, this appears to indicate that the team have not yet considered it explicitly as a key technology option. While the Paper acknowledges hybrid projects, it states that they will bid into Generation' contracts. It is also not clear that CSP fits the current definition of hybrid projects.Section 4.6 implies that Energy from Waste and Biomass projects would be considered as Clean Dispatchable. CSP is not mentioned but shares similar characteristics to those technologies.
As such, the current contracts risk missing out on the benefits and low-cost electricity offered by CSP, which are ideally suited to meet the Merit criteria outlined on page 28.
CSP’s strength is in its ability to provide new Generation and Dispatchable Capacity, as well as offering system services. On its own, CSP is likely to lose out in a head to head floor price competition with wind and PV. It would also loose in a floor price competition with pure electricity storage options if the extra value of its added generation is not recognized. This would see the NEM miss out on a technology that offers renewable generation and storage capacity 24/7, as well as the lowestLCOE over long-durations, according to modelling by Fichtner and ITP Thermal.
Furthermore, to maximise value CSP projects globally are often co-located with PV. This combination is used in Dubai at Noor Energy 1 and achieved a record low CSP LCOE at the time of US$7c per kwh.
Q: Would your organisation consider bidding for separate clean dispatchable capacity and generationCISA for the components of a hybrid? Would the proposed schedule that includes simultaneous clean dispatchable capacity and generation tenders (detailed in section 1.1.3) support this option?
A: As noted above, CSP projects inherently provide both new generation and clean dispatchable capacity. As such CSP project developers would indeed be expected to bid for provision of both if this were presented as a clear possibility.
We therefore propose addressing this problem by creating a new Hybrid CISA that recognises a single system can be both generator and dispatchable capacity. Such a hybrid CISA could follow from allowing such a project to simultaneously bid into Generation and Clean Dispatchable tenders with one response. Thus the cycle of simultaneous tenders is a better starting point to facilitate such an approach.
Simultaneous tenders could potentially lead to more bids from CSP projects, as, thanks to its inherent generation and storage capacity, a CSP project could bid for both Generation andDispatchable Capacity CISAs.