Federal and state-level governments have unanimously signed on to develop an energy "capacity mechanism", a scheme that will pay renewable energy providers to be available to increase electricity supply at a moment's notice.
The mechanism is designed to fill any gaps in supply by covering generator costs when prices are low and recouping that money when prices are higher.
Federal Energy Minister Chris Bowen said the "capacity investment scheme" would "unleash" $10 billion worth of investment and 6 gigawatts of renewable dispatchable power: that is, energy that can be stored and used at-will.
"It will firm-up our grids, providing extra capacity as more and more power stations leave the power grid. As more and more coal-fired power stations inevitably close, we will firm the grid going forward," Mr Bowen said.
It means coal and gas generators have been officially cut out of the scheme, despite the Energy Security Board previously supporting their inclusion.
NSW Energy Minister Matt Kean said the scheme would act as an insurance policy for energy producers.
"We know there are huge challenges with this transition [to net zero emissions], but a non-negotiable is that we keep the lights on during this transition," Mr Kean said.
Mr Bowen said the scheme would establish agreed revenue floors that would cover project operating costs, with the Commonwealth paying the difference when revenue fell short of costs, and a share of profits returned to government when generators exceeded agreed revenue ceilings.
He said the first auctions to determine those floor and ceiling prices would begin in the back half of next year.
National cabinet 'close to deal' on coal, gas price cap
National cabinet will meet on Friday for likely the last time this year to determine whether to impose price caps on gas and coal producers, with the government concerned that price spikes in 2023 could force some businesses to close.
Coal-rich states Queensland and NSW were reluctant to endorse a price cap, but Mr Kean said they were "close to landing a deal".
"New South Wales is prepared to take a hit because we want to protect consumers and businesses," he said.
However, while Mr Kean said his state was willing to forego compensation for lost royalties, he wanted to ensure families and businesses in sectors affected by a price cap would be compensated.
National cabinet is due to meet from 2pm on Friday.
