EXPLANATORY STATEMENT
Issued by the authority of the Minister for Climate Change and Energy
Industry Research and Development Act 1986
Industry Research and Development (Capacity Investment Scheme Program) Amendment Instrument 2024
Purpose and Operation
Section 33 of the Industry Research and Development Act 1986 (the Act) provides a mechanism for the Minister to prescribe programs, by disallowable legislative instrument, in relation to industry, innovation, science or research, including in relation to the expenditure of Commonwealth money under such programs.
The Minister for Industry and Science has delegated the Minister’s power under subsection 33(1) to the Minister responsible for administering the Climate Change Act 2022 under subsection 33(6) of the Act to prescribe the Capacity Investment Scheme Program (the Program).
The statutory framework provided by section 33 of the Act enables a level of flexibility to provide authority for Commonwealth spending activities in relation to industry, innovation, science, and research programs. This allows the Government to respond quickly and appropriately to the need to implement innovative ideas and pilot programs on an ongoing basis and as opportunities arise. Prescribing programs in legislative instruments provides transparency and parliamentary oversight of Government programs and spending activities, whilst reducing administrative burden on the Commonwealth.
Once a program is prescribed under section 33 of the Act, subsection 34(1) allows the Commonwealth to make, vary or administer arrangements in relation to activities under the prescribed program. Arrangements may include contracts, funding agreements or other arrangements, and may provide for money to be payable by the Commonwealth to one or more third parties. The power conferred on the Commonwealth by subsection 34(1) may be exercised on behalf of the Commonwealth by a Minister or an accountable authority of a non-corporate entity, or by their delegate (under section 36).
The Program was prescribed in the Industry Research and Development (Capacity Investment Scheme Program) Instrument 2023 (the Principal Instrument), and initially involved a trial tender to be conducted in 2023-2024 to underwrite projects in Victoria and South Australia for 600 MW of 4-hour equivalent or 2400 MWh of clean dispatchable capacity, ahead of the national implementation of the Program. The trial complemented the Commonwealth’s direct funding to New South Wales (NSW) for an initial partnership to increase firming infrastructure in NSW by a further 550 MW under the NSW Electricity Infrastructure Roadmap.
The Industry Research and Development (Capacity Investment Scheme Program) Amendment Instrument 2024 (the Amendment Instrument) amends the Principal Instrument to enable the Program to be implemented nationwide and to extend the Program to include renewable capacity, as announced by the Australian Government on 23 November 2023 under the National Energy Transformation Partnership (NETP).
The Program is a national framework aimed at encouraging new investment in renewable capacity such as wind and solar, as well as clean dispatchable capacity such as battery storage. This is designed to build a more reliable, affordable, and low-emissions energy system and reduce market volatility in Australia’s rapidly changing energy market.
The Program will be implemented through a series of competitive tenders with the objective of:
- delivering an additional 32 GW of capacity nationally by 2030, comprising 23 GW of renewable capacity and 9 GW of clean dispatchable capacity;
- filling expected reliability gaps as ageing coal power stations retire; and
- assisting in delivering the Australian Government’s 82% by 2030 renewable energy target.
It is expected that tenders will be held approximately every 6 months extending to 2027. The first of these tenders is expected to commence in April/May 2024.
It is anticipated that separate tenders will be held for the Wholesale Energy Market (WEM) in Western Australia. The Australian Government is in the process of developing tender arrangements for the WEM, however it is expected that a dedicated WEM tender under the Program for clean dispatchable capacity will commence mid-2024. Options to support the delivery of the Australian Government’s 82% by 2030 renewable energy target in the Northern Territory are also being considered separately.
In addition, jurisdictional allocations may be subject to the results of the Australian Government’s negotiation of Renewable Energy Transformation Agreements (RETAs) with State and Territory governments. The RETAs are designed to provide a favourable enabling environment for the projects supported by the Program and to achieve shared objectives with States and Territories in the renewable energy transformation. The tender guidelines for future tenders will provide further details on indicative tender sizes and jurisdictional allocations.
The design of the tenders is expected to align generally with the tender design and assessment processes outlined in the earlier Victoria and South Australia trial tender guidelines.
The tenders are expected to allow for hybrid projects, which at this stage are expected to be defined as co-located renewable generation and energy storage assets where both assets share a common connection point. However, projects that combine multiple generation assets (e.g., wind and solar) alone, or multiple energy storage assets (e.g., Battery Energy Storage Systems (BESS) and pumped-hydro) alone, that share a common connection point are not expected to be considered a hybrid project. Instead, these projects will be treated as either a single generation or clean dispatchable project for tender assessment and contracting.
Projects selected through tenders may be offered long-term Commonwealth underwriting agreements for an agreed revenue ‘floor’ and ‘ceiling’ thereby decreasing financial risks for investors and encouraging more investment in capacity. The underwriting agreement provides revenue support where a project’s net revenue falls below an agreed floor. In turn, to ensure value for money, the underwriting agreements will also require that projects pay a proportion of net revenue to the Commonwealth where net revenue exceeds an agreed ceiling. The length of the underwriting agreements is expected to extend for 15 years.
Alternatively, the Commonwealth may indirectly underwrite projects by providing funding to a State or other entity to underwrite the project.
Authority for funding provided through the Amendment Instrument comes from Outcome 1 as set out in the Portfolio Additional Estimates Statements 2023-24, Climate Change, Energy, the Environment and Water Portfolio at page 16 and in the Mid-Year Economic and Fiscal Outlook 2023-24 at Appendix A page 220. This funding authority is due to terminate on 30 June 2043.
The financial implications of funding under the Program are not for publication due to commercial-in-confidence sensitivities as well as to ensure that the tender process is competitive and provides the Australian Government value for money. Disclosure of amounts of funding, including the total amounts available for the Program, would have a significant impact on the Australian Government’s ability to achieve this objective and would risk de-incentivising bidders to submit bids that offer the best possible value for money.
The Program will be delivered by the Department of Climate Change, Energy, the Environment and Water (the Department) in conjunction with delivery partners engaged from time to time over the duration of the Program. Delivery partners may be engaged to assist with the following, but not limited to the tender process, assessment of project bids, recommendations for selection of projects and the execution and administration of underwriting agreements with the successful projects.
The Australian Energy Market Operator (AEMO) was engaged for the initial Victoria and South Australia tender. The Department is investigating other options for tender delivery and contract management of projects associated with future tenders, including using the Clean Energy Regulator.
Recommendations made for successful projects arising from the tenders conducted under the Program will be further assessed by the Capacity Investment Scheme Project Board. The Project Board will include senior Department officials, specialist technical advisors, and legal and governance advisors, as deemed appropriate. The Project Board will make the final project recommendations to the Minister or Minister’s delegate (who would be a Senior Executive Service employee from the area of the Department responsible for administrating the policy areas related to the Program).
The Minister or delegate will be the decision maker, at least where the Commonwealth is directly underwriting projects. Both successful and unsuccessful applicants will be informed in writing.
Tenders will be conducted in accordance with the requirements of the Commonwealth resource management framework, including the Public Governance, Performance and Accountability Act 2013.
As the tenders will support the implementation of policy decisions made by the Australian Government, the Program will not be subject to merits review. Merits review of the Program would not be appropriate due to the allocation of finite resources between competing applicants. If merits review were available, it may affect an allocation made to another party by overturning the original decision and would therefore be unsuitable for this program. The Administrative Review Council has recognised that it is justifiable to exclude merits review in relation to decisions of this nature (see items 4.11 to 4.19 of What decisions should be subject to merits review?).
Persons who are otherwise affected by decisions or who have complaints about the Program will be able to provide feedback to the Department. The Department will investigate any complaints about the Program in accordance with its complaints policy and procedures. If a person is not satisfied with the way the Department handles the complaint, they may lodge a complaint with the Commonwealth Ombudsman.
Project bids made under tenders will be assessed according to eligibility and merit criteria which will be published in the Program and tender guidelines. The eligibility and merit criteria will vary according to the nature of the tender depending on, for example, whether the tender incorporates renewable energy and/or clean dispatchable storage.
The eligibility criteria will include requirements specifying a project’s contribution to zero emissions. In this regard, it is expected that to be eligible, projects must be either a clean dispatchable, renewable generation resource, or hybrid and be consistent with the broader emissions reduction objectives of the Australian Government. For clean dispatchable projects, projects that are virtual power plants, demand response or other virtual aggregation and flexible loads may be eligible in future tenders under the Program. However, for all projects, projects which use native forest wood waste will not be eligible.
All projects will be required to have a capacity equal to or greater than 30 MW. This will ensure that supported projects adequately contribute to reliability, whilst balancing the costs associated with evaluation of bids under the tenders.
Proponents and projects will need to be compliant with applicable State and Commonwealth law and may be asked to produce evidence of compliance. All proponents and projects under tenders will be required to demonstrate appropriate security of land tenure and grid connection.
For clean dispatchable energy tenders, eligible projects must not have reached ‘committed’ status, as defined by AEMO, before 8 December 2022. For renewable generation tenders, projects must not have reached ‘committed’ status before 23 November 2023.
Projects will be required to reach commercial operation date (COD) by a date nominated but may reach the COD at an earlier time. Tenders may have different targeted COD dates, and this could constrain eligibility in some circumstances.
Tenderers may be required to provide a bond, and/or other form of security, as part of the tender process. In addition, an underwriting agreement may require the counterparty to provide a bond, and/or other form of security, which can be called upon if the project does not reach COD. This is intended to ensure that proponents act in good faith and commit to project delivery. It also allows efficiencies for the Commonwealth in delivery of the Program.
Eligible project bids will be further assessed according to merit criteria which will be outlined in the tender guidelines and may vary according to the nature of the tender. Successful projects will be expected to perform strongly against all the merit criteria.
Statutory preconditions to the making of the Amendment Instrument
Subsection 33(2) of the Act prescribes statutory preconditions for the making of a legislative instrument under subsection 33(1) of that Act. Subsection 33(2) provides that a program may only be prescribed under subsection 33(1):
to the extent that it is with respect to one or more legislative powers of the Parliament; and
if it is not a program to subsidise the extraction of coal or natural gas.
For the purposes of paragraph 33(2)(a) of the Act, the ‘Statement of the Relevance and Operation of Constitutional Heads of Power’ section of this Explanatory Statement outlines the extent to which the Program is with respect to one or more of the legislative powers of the Parliament.
For the purposes of paragraph 33(2)(b) of the Act, the Program is not a program to subsidise the extraction of coal or natural gas.
Statement of the Relevance and Operation of Constitutional Heads of Power
For the purposes of subsection 33(3) of the Act, the Amendment Instrument specifies that the legislative power in respect of which it is made is the following:
External affairs power
Section 51(xxix) of the Constitution gives the Commonwealth Parliament power to make laws with respect to ‘external affairs.’ The external affairs power supports legislation implementing Australia’s international obligations under treaties to which it is a party. Australia has obligations relevant to this legislative instrument under the following treaties:
the United Nations Framework Convention on Climate Change done at New York on 9 May 1992 ([1994] ATS 2) (UNFCCC), particularly Article 4;
the Kyoto Protocol to the United Nations Framework Convention on Climate Change done at Kyoto on 11 December 1997 ([2008] ATS 2) (Kyoto Protocol), particularly Article 10;
the Paris Agreement done at Paris on 12 December 2015 ([2016] ATS 24) (Paris Agreement), particularly Article 4.
The UNFCCC includes a range of obligations for Australia to take domestic actions that reduce Australia’s emissions of greenhouse gases. Relevantly, it provides that parties shall:
formulate, implement, publish and regularly update national and, where appropriate, regional programs containing measures to mitigate climate change by addressing anthropogenic emissions by sources and removals by sinks of all greenhouse gases not controlled by the Montreal Protocol on Substances that Deplete the Ozone Layer done at Montreal on 16 September 1987 ([1989] ATS 18]), and measures to facilitate adequate adaptation to climate change (see Article 4.1(b));
promote and cooperate in the development, application and diffusion of technologies, practices and processes that control, reduce or prevent anthropogenic emissions of greenhouse gases in all relevant sectors including energy, transport, industry, agriculture, forestry and waste management sectors (see Article 4.1(c)); and
adopt national policies and take corresponding measures on the mitigation of climate change, by limiting its anthropogenic emissions of greenhouse gases and protecting and enhancing its greenhouse gas sinks and reservoirs (see Article 4.2(a)).
The Kyoto Protocol includes obligations for Australia to take action to reduce emissions. For example, Article 10(b) requires parties to formulate, implement and report upon climate change mitigation and adaptation programs.
The Paris Agreement was entered into by the parties to the UNFCCC to enhance its implementation. Under the Paris Agreement, Australia has a ‘nationally determined contribution’, comprising a 2030 emissions reduction target of 43% below 2005 levels and net zero emissions by 2050. Australia’s greenhouse gas emissions reduction targets, which reflect its nationally determined contribution, have been legislated in the Climate Change Act 2022. Relevantly, Article 4.2 of the Paris Agreement provides that ‘[e]ach Party shall prepare, communicate and maintain successive nationally determined contributions that it intends to achieve’ and that ‘[p]arties shall pursue domestic mitigation measures, with the aim of achieving the objectives of such contributions’.
The Amendment Instrument will support the reduction of greenhouse gas emissions through encouraging new nationwide investment in clean dispatchable capacity and renewable capacity.
Power to grant financial assistance to States (s 96)
Section 96 of the Constitution empowers the Commonwealth Parliament, until it otherwise provides, to ‘grant financial assistance to any State on such terms and conditions as the Parliament thinks fit’. Section 51(xxxvi) of the Constitution empowers the Commonwealth Parliament to make laws with respect to ‘matters in respect of which this Constitution makes provision until the Parliament otherwise provides’. Together, these sections empower the Commonwealth Parliament to make laws with respect to the granting of financial assistance to the States.
Funding provided under the Amendment Instrument may be provided to a state government or an agency, authority or instrumentality of a state government involved in the Program.
Further details on the Amendment Instrument are set out in Attachment A.
Authority
Section 33 of the Act provides authority for the Amendment Instrument.
Consultation
In accordance with section 17 of the Legislation Act 2003, the Attorney-General’s Department and the Department of Industry, Science and Resources have been consulted on the Amendment Instrument.
The Department of Finance, the Department of the Prime Minister and Cabinet, the Department of Climate Change, Energy, the Environment and Water, the Department of the Treasury, the Attorney-General’s Department and the Department of Foreign Affairs and Trade have been consulted on the Program. States and territories, as well as industry have also been consulted on the Program, through consultation and design papers, multiple webinars, and industry consultation sessions.
As the Program has undergone extensive consultation, it was considered unnecessary to undertake additional consultation in relation to the Amendment Instrument.
Regulatory Impact
The Department has worked with the Office of Impact Analysis to undertake an assessment on the impact of a Capacity Investment Scheme which incorporates the impact of the Program. (OIA reference number: OBPR22-02601).
Other
The Amendment Instrument is compatible with the human rights and freedoms recognised or declared under section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011. A full statement of compatibility is set out in Attachment B.
ATTACHMENT A
Details of the Industry Research and Development (Capacity Investment Scheme Program) Amendment Instrument 2024
Section 1 – Name of Instrument
This section provides that the title of the instrument is the Industry Research and Development (Capacity Investment Scheme Program) Amendment Instrument 2024 (the Amendment Instrument).
Section 2 – Commencement
This section provides that the Amendment Instrument commences the day after it is registered.
Section 3 – Authority
This section provides that the Amendment Instrument is made under section 33 of the Industry Research and Development Act 1986 (the Act).
Section 4 –Schedules
This section provides that the Industry Research and Development (Capacity Investment Scheme Program) Instrument 2023 (the Principal Instrument) is amended in accordance with the Schedule to the Amendment Instrument.
Schedule 1 – Amendments
Item 1 – Section 5
This item amends the description of the Program in section 5 of the Principal Instrument for the purposes of subsection 33(1) of the Act.
The amendment to subsection 5(2) of the Principal Instrument allows the Program to be implemented nationwide and extends the Program to include both clean dispatchable capacity projects and renewable capacity projects, or a combination of both types of projects. The amendment also permits the Commonwealth to either directly or indirectly underwrite a project. Indirect underwriting may include the Commonwealth providing funding to a State or other entity to underwrite the project.
The amendment to subsection 5(3) of the Principal Instrument clarifies that the purpose of the program is to encourage new investment in renewable generation capacity and clean dispatchable capacity to support a reliable, affordable, and low-emissions energy system.
This item inserts a new subsection 5(4) after subsection 5(3). Subsection 5(4) provides that applicants for underwriting support may be required to provide a bond or other form of security as part of the application process. The purpose is that if a bond or form of security is required, it may be called upon if the project does not reach commercial operation date or if a successful project through a tender does not commit to an underwriting agreement. This is intended to ensure that applicants act in good faith and commit to project delivery. It also allows efficiencies for the Commonwealth in the delivery of the Program.
Item 2 - Section 6
This section specifies that for the purposes of subsection 33(3) of the Act, the powers of the Parliament to make laws with respect to the following are specified:
a) external affairs (within the meaning of paragraph 51(xxix) of the Constitution), as that power relates to measures to give effect to Australia’s obligations under one or more of the following: the Kyoto Protocol (particularly Article 10); the Paris Agreement (particularly Article 4); and the United Nations Framework Convention on Climate Change (particularly Article 4);
b) matters in respect of which the Constitution makes provision until the Parliament otherwise provides (within the meaning of paragraph 51) (xxxvi) of the Constitution), together with section 96 of the Constitution (financial assistance to States).
ATTACHMENT B
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Industry Research and Development (Capacity Investment Scheme Program) Amendment Instrument 2024
The Industry Research and Development (Capacity Investment Scheme Program) Amendment Instrument 2024 (the Amendment Instrument) is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview of the Legislative Instrument
The purpose of the Amendment Instrument is to extend the Capacity Investment Scheme program (the Program) nationally and to include renewable capacity, as announced by the Australian Government on 23 November 2023. The Program is a national framework aimed at encouraging new investment in renewable capacity such as wind and solar, as well as clean dispatchable capacity such as battery storage. This is designed to build a more reliable, affordable, and low-emissions energy system and reduce market volatility in Australia’s rapidly changing energy market. The Program will be implemented through a series of competitive tenders with the objective of:
- delivering an additional 32 GW of capacity nationally by 2030, comprising 23 GW of renewable capacity and 9 GW of clean dispatchable capacity;
- filling expected reliability gaps as ageing coal power stations retire; and
- assisting in delivering the Australian Government’s 82% by 2030 renewable energy target.
Human rights implications
The Amendment Instrument does not engage any of the applicable rights or freedoms.
Conclusion
The Amendment Instrument is compatible with human rights as it does not raise any human rights issues.
The Hon Chris Bowen MP
Minister for Climate Change and Energy