Nexa Advisory’s response to ESB’s Capacity Mechanism Design Paper

Industry participants and key stakeholders support a ‘capacity mechanism’ that would enable the clean energy transition process and ensure stability of the national energy market.

They strongly and have consistently opposed the design of the capacity mechanism put forward by Energy Security Board (ESB). And recommend designs previously suggested by industry and stakeholders that would:

  • incentivise new generation capacity.
  • reward investment in flexible generation types and storage, such as batteries or pumped hydro.
  • incentivise the orderly closure of uneconomic and unreliable fossil fuel-based plants.
  • help address the issue of sudden closure of coal-fired power plants.
  • be implemented quickly (ahead of proposed 1 July 2025).

The Ministers’ statement after their meeting on 8 June 2022 indicated that they collectively agreed as a priority, a mechanism to bring on renewables and storage to support stability for the national energy market[1].

Further, in the original communique agreeing the final package of Post-2025 Market reforms[2] the ESB was asked to progress further design work on options that specifically values capacity in the NEM, delivering investment in an efficient mix of variable and firm capacity that meets reliability at lowest cost, enabling jurisdictions to continue to meet their energy and emissions reduction objectives.

The ESB’s proposal, as it stands, is counter to the Ministers’ requests. 

In our submission, we recommend the separation of the capacity mechanism and the processes for orderly closure of the coal-fired power stations.

Nexa Advisory strongly recommends decoupling the mechanism that incentivises the new investment needed in electricity storage and renewable generation and the mechanism to manage reliability as coal generation closes.  Governments need to focus on adding the electricity storage as an urgent priority to ensure that by 2030 we have the 15 GW of storage needed to ensure renewable generation is dispatchable.  Decoupling investment in renewables and storage from the process to manage coal closures, has the benefit of providing clarity and transparency to support new investment, flexibility for the jurisdictions on their approaches to manage capacity and reliability, while ensuring that consumers are not underwriting unnecessary costs.

You can read our full submission here: Nexa Advisory Response to Capacity Mechanism High-level Design Paper

[1] Energy Ministers Meeting Communique 8 Jun.docx (