Key points

The Clean Energy Investor Group (CEIG) represents domestic and global renewable energy developers and investors with approximately 18GW of renewable energy capacity in the National Electricity Market (NEM) across 139 power stations. The combined portfolio value of its members exceeds $41 billion, with a project pipeline estimated at more than 150GW across Australia. CEIG supports the Electricity Services Entry Mechanism (ESEM) as the appropriate response to the ‘tenor gap’, though it notes that much of the commercially significant detail resides in future guidelines.

Key recommendations include ensuring the Financial Market Entity (FME) has an investment-grade rating supported by a jurisdictional guarantee. The group suggests that contract co-design (CCD) processes must ensure bankable pro-forma contracts and that transmission remains a critical enabler. CEIG also proposes a minimum procurement floor linked to the Integrated System Plan (ISP) and suggests that competition thresholds should only count stakes that provide control, such as majority ownership or dispatch control, rather than any 10% stake.

Context

CEIG supports the ESEM but has assessed the consultation package against five critical investor tests: revenue certainty, counterparty strength, fair risk allocation, stable rules, and a predictable tender pipeline. Investors cannot yet fully assess the package because essential details have been deferred to guidelines to be made by the ESEM Administrator (ESEMA) or the Australian Energy Regulator (AER). For the ESEM to succeed, contracts must be bankable, which involves managing force majeure risk at the ESEMA level, implementing a $0 price floor in negative price periods, and ensuring stable technology-specific reference indices.

Transmission is identified as a critical enabler of the ESEM. Although transmission falls outside the scope of the current review, investors remain reluctant to proceed to a Final Investment Decision (FID) without firm connection dates. CEIG suggests making the ISP more binding for transmission development, specifying exactly how much and when transmission capacity must be built, as no party is currently clearly accountable for implementing the ISP’s transmission recommendations outside of renewable energy zones.

Governance

Regarding counterparty strength, CEIG welcomes the requirement for full cost recovery on a non-profit basis as the foundation of the FME’s credit. However, the group recommends that the Bill explicitly state that the FME must hold an investment-grade rating supported by a jurisdictional guarantee to reduce credit and sovereign risk premiums in bids. Guidelines should provide flexibility but remain within published bounds; specifically, settings should not change during a round, and changes to tenor should be signalled at least 12 months in advance.

CCD process

CEIG supports an industry-led contract co-design process and its formal establishment in the Rules. The group recommends adding a requirement to section 118AAM(2)(a) that pro-forma contracts be bankable and capable of supporting investment in new projects. It also suggests that the ESEMA should publish reasons when it departs from working group recommendations and should consult both proponents and lenders on the bankability of draft pro-formas. A separate co-design process is supported for offshore wind to address its unique requirements.

Anticipated entry trajectory (AET) and tender plan

The ESEM’s dependence on state targets is identified as a weakness, as the withdrawal of targets by a state could collapse the investment pipeline. CEIG suggests introducing a minimum procurement commitment beyond the reliability standard, articulated as zero-emissions bulk energy build of at least a certain percentage of that jurisdiction’s renewable build in the ISP. They also propose a Commonwealth-funded top-up tranche to meet national targets and suggest that any reduction in jurisdictional targets should require a two-year notice period.

To strengthen the tender plan framework, CEIG recommends that each round should offer the volumes in the tender plan unless a published exception applies. The ESEMA should give at least six months’ notice and publish reasons before skipping or reducing a round. If volume is not procured, the ESEMA should be required to publish the volumes offered and cleared, relevant pricing information, and the reasons for the decision, including any value assessment applied.

Eligibility requirements

CEIG raises concerns regarding competition thresholds, suggesting that treating any stake of 10% or more as control could unfairly shut out infrastructure funds with small, hands-off stakes. The group recommends that only stakes giving control of dispatch or majority ownership should be counted. Furthermore, projects holding a Long-Term Energy Service Agreement (LTESA) or Capacity Investment Scheme (CIS) contract should be allowed to bid for an ESEM contract, provided they surrender their existing contract if successful.

Strategic reserves

While CEIG supports the strategic reserves mechanism, it warns that capacity held outside the market can suppress prices and weaken the case for in-market investment. Safeguards are needed, such as an independent assessment of need, transparent formulas for sizing reserves, and a least-cost test. The group also identifies a risk of cross-subsidy, where a participant might bundle a reserve contract with an ESEM firming bid to undercut competitors; they suggest that bundled bids should be assessed based on the total cost of both contracts.

ESEM procurement

CEIG supports price-only assessment with a contingent bid mechanism and a firm notice-to-proceed (NTP) deadline. To ensure project readiness, the group recommends objective pass/fail thresholds for development and grid connection positions before bids are ranked. They also suggest a minimum ESEM contract tenor of at least 10 years (ideally 10–15 years) for capital-intensive bulk energy and shaping assets. For auction frequency, CEIG recommends quarterly auctions as the default rather than bi-annual rounds, anchored by a 24-month rolling forward calendar.

Contract recycling

Support is given for structured over-the-counter sell-downs, provided the guidelines commit to a rolling 24-month sell-down calendar. CEIG recommends publishing the FME’s unsold position and recycled prices by service, region, and contract year. They also suggest a published fair-value method for proponent buybacks and credit support that can be met at the project-company level without requiring parent guarantees.

Cost relief and cost recovery

CEIG supports recovering ESEM costs through the existing NEM settlement system, which allows for smoothing costs across years to support political durability. Cost relief is deemed essential for the ESEM’s design as a voluntary mechanism; without it, a buyer that underwrites a new project through a Power Purchase Agreement (PPA) would also pay a full share of ESEM costs, effectively paying twice for the same outcome.

Market making obligation

The group supports a Market Making Obligation (MMO) for participants above a certain size but argues it should be limited to sell-side offers for generators not active on the demand side. An always-on MMO should apply only to large portfolio generators with a retail position and remain voluntary for others. Additionally, projects holding ESEM contracts should be exempt from the MMO for the duration of their ESEM tenor to avoid conflicting obligations.