The Safeguard Mechanism is Australia's primary policy for regulating and reducing greenhouse gas emissions from the country's largest industrial facilities. Our submission to the Department of Climate Change, Energy, the Environment and Water's (DCCEEW) contends that its review of the Safeguard Mechanism presents one of the most substantial opportunities for a definitive and enduring market signal for new renewable energy generators seeking to enter the market.
The National Electricity Market's coal fleet is ageing and becoming less reliable while repeated extensions to coal closure dates are weakening renewable energy investor confidence and delaying the replacement capacity needed, a cycle that risks sudden closures like Hazelwood’s, which drove an 85% rise in Victorian wholesale prices.
The Australian Energy Market Operator's Integrated System Plan and CSIRO’s GenCost both identify firmed renewables as the least-cost replacement for coal, but the planned Electricity Services Entry Mechanism (ESEM) only sends entry signals for new capacity and none for coal exit. Our proposal is to extend the Safeguard Mechanism to electricity, with the aim of firming already announced coal station closure dates.
The Safeguard Mechanism already applies predictable, declining facility baselines to large industrial facilities, but grid-connected electricity remains under a non-binding sectoral baseline. Extending a baseline-and-credit architecture to electricity could create both entry signals for firmed renewables and exit signals for ageing coal, supporting an orderly transition at least-cost for consumers.
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