The Government will provide new assistance to electricity generators to assist with the transition to a low pollution future and ensure Australia’s security of energy supply.

In reaching this decision, the Government has considered analysis by Morgan Stanley and work by Government departments, and has consulted with the energy market bodies.

First, the Government will increase the quantum of assistance available under the Electricity Sector Adjustment Scheme (ESAS) from 130.7 million permits to 228.7 million permits (a 75 per cent increase).

Second, the Government will extend the period over which ESAS is provided from five years to ten, meaning that generators will be required to comply with the existing  ‘power system reliability test’ over this period to continue to receive assistance.

This requirement supports energy security by preventing the exit of a generator from the energy market where this would be likely to breach power system reliability standards

Third, the Government will introduce a Low Emissions Transition Incentive by amending the power system reliability test further to allow generators to receive credit for their own investments in replacement capacity.

This will sharpen incentives for ESAS recipients to invest in new low emissions replacement generation capacity while continuing to receive the remaining scheduled ESAS payments.

Fourth, the Government will provide additional assurance to energy security by establishing an Energy Security Assurance Mechanism under the guidance of an Advisory Board that will advise the Treasurer on whether there are any remaining low probability systemic risks to electricity market security and, if so, actions necessary to address these risks.

Assistance could be in the form of loan guarantees or indemnities and would only be provided where financial distress would cause a significant systemic risk to physical electricity supply, existing market and regulatory mechanisms are not able to address this risk and the applicant had taken all reasonable action to mitigate their exposure to such risks.

Fifth, the Government will delay the ‘windfall gains test’ that applies to ESAS assistance to apply to the last three of ten years of assistance, rather than the last two years of five, and apply the test to only half of a generator’s allocation in this three year period.

This will give generators greater certainty over their allocations.

Finally, to provide a transitional measure to address the working capital costs of market participants, the Government will allow generators to defer payments for future year permits.