Capacity Investment Scheme locked in

Last week, both houses of the Commonwealth Parliament passed the Electricity Infrastructure Legislation Amendment Bill 2025 (Bill), which legislates for the continuation of the Capacity Investment Scheme (CIS) and the targets under the scheme.

What is the CIS?

The CIS is a Commonwealth Government revenue underwriting scheme to encourage new investment in renewable energy generation and clean dispatchable capacity (such as battery storage), with the aim of supporting a reliable, affordable and low-emissions energy system.

The CIS involves competitive tenders, which are run by AEMO Services, following the objectives and capacity targets for the CIS in each jurisdiction as set by the Commonwealth Government.

Successful projects enter into a Capacity Investment Scheme Agreement with the Commonwealth Government, which contains the underwriting agreement for the set revenue ‘floor’ and ‘ceiling’. If revenue earned by a project exceeds the net revenue ceiling, the owner pays the Commonwealth an agreed percentage of revenue above the revenue ceiling. If revenue from the project falls below the floor level, the Commonwealth pays the project owner the shortfall.

The tenders run by AEMO Services involve a two-stage assessment against merit criteria:

• Stage A – Project bid: The initial stage of the CIS tender assesses a project’s technical, commercial and social licence merit. This includes specific First Nations and social licence criteria.
• Stage B – Financial value bid: The second stage of the merit assessment requires proponents to submit pricing bid variables.

What is the impact of the Electricity Infrastructure Legislation Amendment Bill?

The CIS is a prescribed program under the Industry Research and Development Act 1986 (Cth) (IRD Act).

The Bill amends the Climate Change Act 2022 (Cth) to:

1. require the Commonwealth to make, vary or administer arrangements in relation to carrying out of activities under the CIS; and

2. require the CIS arrangements to result in, by the end of 2030:

• at least 23 gigawatts of renewable energy generation capacity; and
• at least 9 gigawatts of clean dispatchable capacity.

This embeds the CIS in legislation, which was a recommendation in the Climate Change Authority’s (CCA) 2024 Annual Progress Report.

The other amendments in the Bill require that:

• if the CCA’s statutory advice indicates a material risk to the achievement of these targets, the Minister’s Annual Climate Change Statement must provide a response to this advice; and
• any amendments to the CIS (through amendment to an instrument under the IRD Act) require an amendment instrument approved by a resolution of each house of Parliament. The effect of this is that the scheme cannot be amended by amending the Industry Research and Development (Capacity Investment Scheme Program) Instrument 2023 without approval of both houses of Parliament.

These amendments give legislative certainty for the ongoing operation the CIS. They also make it more difficult for gas generation to be included in the CIS in future, which is the policy of the Coalition. There are also restrictions under the IRD Act (added in 2023) which prevent a program from being prescribed under the IRD Act if it is to subsidise the extraction of coal or natural gas.