Australian government to underwrite renewable energy capacity

Rows of solar panels face skywards at the Greenough River Solar project near the town of Walkaway
Rows of solar panels face skywards at the Greenough River Solar project near the town of Walkaway, about 350 km (217 miles) north of Perth October 10, 2012. Australia switched on its first utility-scale solar farm on Wednesday, bringing the country a small step closer to achieving ambitious renewable energy use targets that traditional coal and gas power producers are now fighting to soften. REUTERS/Rebekah Kebede (AUSTRALIA - Tags: ENERGY BUSINESS ENVIRONMENT)

MELBOURNE, Dec 8 (Reuters) - The Australian government has agreed to underwrite new wind and solar farms backed by energy storage, in hopes of unleashing investment at least A$10 billion ($6.7 billion) to stabilise the grid as coal-fired plants retire.

The long-awaited pact with states will not include payments to coal-fired plants, which had been a major stumbling block in talks between the federal government, regulators and states about a plan for stable power supply.

"This is a sensible, carefully designed mechanism which will unleash investment in clean, dispatchable energy right across Australia, firming our grids, providing that extra capacity as more and more old power stations leave the grid," Energy Minister Chris Bowen said.

He said the government would hold tenders for the capacity and agree floor and ceiling revenue for the projects. If revenue is below the floor, the government will pay the difference, and if the ceiling is exceeded, it will share in the profits.

An earlier proposal by regulators for a "capacity mechanism" was scrapped as several states opposed payments to coal-fired plants, dubbed "coal keepers", to stabilise the grid, fearing that would extend the life of dirty power.

The agreement on a capacity investment scheme came a day before Prime Minister Anthony Albanese and state leaders meet to discuss urgent action to cap coal and gas prices, which feed through to power prices.

The government is looking to prevent power prices rising by 56% over the two years to June 2024 and gas prices rising by 44% over the same period, as forecast in its first budget.

Bowen said the government and states, especially New South Wales and Queensland which are reliant on black coal production, were working closely together to agree on ways to cap coal prices without hurting the states' coffers.

New South Wales Treasurer Matt Kean said his state was not seeking compensation for lost royalties under a coal price cap, but was seeking federal assistance for households.

Reporting by Sonali Paul; Editing by Himani Sarkar and Clarence Fernandez

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