The Commonwealth has launched the Capacity Investment Scheme (CIS), a national framework in which the Federal Government expects to unlock around $10 billion of investment and add 6 gigawatts to support electricity grid reliability and security.
On 29 June 2023, the Federal and NSW Government announced a partnership in which the CIS will increase the firmed capacity in the current NSW Firming Infrastructure Tender Round (Round 2) from 380MW to 930MW through Commonwealth funding that will underwrite the additional investment. As a result, the CIS is expected to deliver almost 1 gigawatt of additional grid-scale dispatchable generation and storage such as batteries, pumped hydro or other dispatchable capacity in New South Wales.
Likely Implementation
The CIS will likely increase the number of project approvals for Firming Long-Term Energy Service Agreements (LTESAs) in Round 2 and other than tender documents already submitted, no further documentation will be required by bidders.
The Government is yet to provide further guidance on how the CIS will be implemented in future tenders. However, as the focus of the CIS is on firmed renewables and more than 3.3GW total capacity in NSW was submitted during NSW’s LTESA Round 2 (bids were due on 21 May 2023) (Round 2), future tenders may follow a similar format to Round 2 with open tenders for LTESAs containing a revenue underwrite with an agreed revenue floor and ceiling.
A CIS tender in South Australia and Victoria will be announced by October 2023.
The Department of Climate Change, Energy, Environment and Water will commence its industry consultation process in the coming weeks after which further details of the scope and design of the CIS will be announced.
Key Features of the Firming LTESA
The key features of the NSW Firming LTESA include:
| Structure | An underwriting annuity (capped) with a 10 year tenor (or can bid shorter) |
| Firming LTESA Products | Firming supply model: Provides an option for a revenue top up during annuity periods to support the development of the project. |
| Demand response model: Makes periodic payments to the long term energy service operator as consideration for it bidding an amount of demand side capacity into the NEM wholesale demand response. | |
| Quarterly Annuity Payments | Quarterly Annuity Payments by the Scheme Financial Vehicle (SFV) to LTES Operator with an Annual Reconciliation Payment made to the extent net revenue during a period is less than the expected shortfall spread across the period capped at the net revenue threshold. |
| Good Faith Requirement | LTES Operator must during each Annuity Period operate, contract, bid and dispatch the Project in Good Faith having regard to any Offtake Contract entered into by LTES Operator and in accordance with market signals as if it were a standalone project and not operated as part of a portfolio. |
| Availability Rebate | Payable by LTES Operator for failure to achieve Equivalent Availability Threshold in an Annuity Period. |
| Storage Capacity Rebate | Payable by LTES Operator to SFV for LTES Operator’s failure to provide the Storage Capacity in an Annuity Period. |
| Performance Event Rebate | Payable by LTES Operator to SFV for LTES Operator’s failure to respond to a LOR Load Shedding (Actual LOR3 Event) in an Annuity Period. |
Potential Eligibility Criteria
The CIS is expected to support firming projects including battery storage and pumped hydro but will exclude gas power projects.
Any eligible projects that have reached Final Investment Decision since December 2022 are eligible for support under the CIS.
If future tenders follow the minimum eligibility criteria of Round 2, the projects will be required to have:
- a minimum storage duration or run time of 2 hours; and
- either be geographically located in a prescribed sub-region (e.g., the Sydney-Newcastle-Wollongong sub-region in Round 2) or if situated outside the sub-region, demonstrate firming asset contribution to meeting the requirements of the Energy Security Target in the sub-region.
Potential bidders must also satisfy the additional proponent and project eligibility criteria, as well as project and financial value merit criteria. For more information on the criteria for Round 2, see the guidelines here.
How HSF can help
HSF has a market leading full service renewable energy team. We have helped our clients win LTESAs. We can advise on all legal aspects of your renewable energy or energy storage project.
This article was written by Gerard Pike (Partner), Samuel Goodear (Graduate) and Fiana Ly (Clerk).
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The articles published on this website, current at the dates of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action.