Energy Security Fund

The Energy Security Fund was announced by the Australian government in July 2011 as a part of its carbon price package. The programme was announced as a part of the two-pronged "energy security" provisions of the federal government's Clean Energy Future package. One strand was to issue free carbon pullition permits and make cash payments to affected electricity generators and fund the closure of up to 2,000 megawatts of the dirtiest power stations by 2020.

Background
In explanatory notes on the package, the government stated that:


 * "An Energy Security Fund will be established to ensure there is a smooth transition which preserves energy security. The Energy Security Fund comprises two elements:


 * An allocation of free carbon units and cash payments to strongly affected coal-fired electricity generators. These allocations will be conditional on electricity generators strongly affected by a carbon price publishing Clean Energy Investment Plans, which show how they will reduce their pollution, and by meeting power system reliability standards.


 * The Government will seek to negotiate the closure of around 2,000 megawatts (MW) of highly polluting generation capacity by 2020. Closing down some of our highest polluting coal-fired generation capacity makes room for investment in lower pollution plants—and kick starts the transformation of our energy industry in a managed way."

The government also established an Energy Security Council to advise the government on potential risks to energy security as a result of the carbon price and elements of the transitional assistance. On its website the Council states that the Energy Security Fund comprised:


 * "$5.5 billion in transitional assistance, in the form of allocations of free carbon permits and cash payments, to generators with an emissions-intensity above 1.0 tCO2-e/MWh on an 'as generated' basis. The Department of Climate Change and Energy Efficiency is responsible overseeing transitional assistance."


 * "funding to support the closure of around 2,000 megawatts of highly emissions intensive generation capacity before 2020, open to generators with an emissions-intensity above 1.2 tCO2-e/MWh on an 'as generated' basis. The Department of Resources, Energy and Tourism is responsible for implementing this measure." (See Contract for Closure Program for details of this).

Methodology for calculating payments
The methodology for calculating payments is set out in section 167 of the regulations under the Clean Energy Future Act of 2011.

The amount that each generator is eligible for is calculated based on historical emissions data on as as generated basis for the two year period between 1 July 2008 and ending on 30 June 2010. The total emissions are divided by the amount of electricity generated over the same years to give an emissions intensity factor.

The generation complex's annual assistance factor is then calculated as the number of gigawatt hours generated over the two year period times the emissions intensity factor over the threshold emissions level of 0.86 kt of CO2-e per GWh.

The Department use the example of a generator which produced historical energy of 16,000 gigawatt hours of electricity, with the production of 20,000 kt CO2-e over the two year period in question. Using these figures the power station's emissions intensity would be 20,000 kt of CO2-e / 16,000 GWh = 1.250 kt of CO2-e per GWh. The generation complex's Annual Assistance Factor would be: 16,000 × (1.250 - 0.86) = 6,240.000.

Payments
In June 2012, $1 billion was paid in cash to nine of the most polluting power generators.

The $1 billion in payments were made before the carbon price was introduced, with no further payments scheduled for the financial year 2013.

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Free carbon permits
For the 2014 and 2015 financial years EnergyAustralia -- the owner of the Yallourn Power Station -- estimates that it will receive 10.7 million free carbon units which at $24.20 and $25.40 each would be valued at $259.4 million and $272.3 million respectively.

From July 2015 it is planned that an emissions trading scheme will commence with the the carbon price determined by the market. The initial plan of having a fixed floor of $15 per tonne from July 2015 was dropped after lobbying from power generators and instead the Australian scheme linked to the European Union scheme. Energy Australia reported that as a result of the watering down of the scheme "Australian carbon prices from July 2015 onwards are expected to be somewhat lower than under the original scheme." EnergyAustralia described the changes as "positive" for it.

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