Major Changes Announced For Capacity Investment Scheme Tender Process

Since Herbert Smith Freehills Kramer's last update on the Capacity Investment Scheme (CIS) in May 2024, the Commonwealth Government has announced key changes to the upcoming indicative tender rounds for 2025.¹

The overriding objectives of these changes are to streamline and simplify the CIS assessment process, and are a welcome development in terms of accelerating the award of Capacity Investment Support Agreements (CISAs), and ultimately, the development of new renewable generation and storage.

It is the Commonwealth Government's hope that the changes will reduce tender duration from 9 to 6 months. The key objectives and elements of the CIS assessment process will remain the same.

The key changes to the tender process and the new requirements for proponents are as follows:

Transition to Single Stage Tender Process

The changes will see the consolidation of the previously two-stage assessment process into a single stage tender process. Bids were previously assessed on project merit (Stage A), followed by a detailed financial bid assessment (Stage B).

Going forward, proponents must submit all bid components, including full financial details, simultaneously.

This change aims to:

• reduce tender duration from approximately nine months to six months, providing quicker certainty for proponents; and
• avoid overlapping bids by ensuring proponents receive outcomes before the start of new tender rounds for the same technology.

The single stage process includes a six-to-eight-week bid preparation window, followed by an eligibility and merit review conducted by AEMO Services Limited (AEMO). Proponents whose bids fail the eligibility criteria will be notified and excluded from further consideration. Eligible bids will then undergo comprehensive merit assessment and due diligence before being recommended to the Australian Government.

Simplified Merit Criteria and Merit Assessment

Merit Criteria

The shift to a single-stage assessment will be accompanied by a consolidation and reduction of merit criteria. While the essential components remain consistent with previous tenders, they have been restructured to fit the new timeline and process.

For CIS Tender 5, the proposed merit criteria are:

1. Financial value, system reliability, and system benefits
2. Project deliverability and timeline
3. Organisational, resource, financing capability, and revenue strategy
4. First Nations participation and benefits sharing
5. Social outcomes and community benefit sharing

The Commonwealth Government has advised proponents to expect similar criteria across tender rounds, with minor adjustments for specific technologies or target markets. The weighting of each assessment criteria will be outlined in upcoming Tender Guidelines, which are yet to be released.

Merit Assessment

Merit assessment will now award higher merit to projects with a feasible pathway to commercial operation by 2030. Projects not expected to contribute to the 2030 emissions target will be assessed as low merit. This change aligns with the CIS' key objective of supporting the Australian Government's renewable energy target.

When making this assessment, AEMO will compare project milestones against industry averages or standards for similar projects. Residual development and construction completion risk for projects will also be considered.

Streamlined Eligibility Criteria

Eligibility requirements will be streamlined to eliminate non-essential complexity and duplication. This change aims to improve accessibility for proponents while maintaining the core objectives and elements of the eligibility assessment used in previous tenders.

Our previous article provides further detail on the previous merit considerations and eligibility requirements.

Update to Commercial Departures Policy

Previously, proponents could propose commercial "departures" from the standard CISA, which were evaluated during merit assessment. From Tender 5 onwards, commercial departures will no longer be treated as a merit criterion.

Going forward, proponents may only submit departure to the pro forma CISA that are strictly necessary for specific project requirements. These will be critically evaluated by AEMO, and any bid with a departure may be excluded if it increases risks or administrative costs to the Commonwealth Government or deviates from CIS policy objectives.

Given the Commonwealth Government's reluctance to accept departures in previous rounds, this is not a significant change in practice, but it does mean proponents will need to focus more on understanding and getting comfortable with the risk allocation in the CISA.

Time limit for CISA execution

A time limit will be introduced for successful proponents to execute a CISA to ensure rapid contract finalisation. The time limit will be confirmed for each tender round, and the Commonwealth Government may discontinue negotiations if it is not met.

Requirement to consider Labour Principles

Previously, proponents were encouraged to consider adopting high labour standards and demonstrate this in their bids. The CIS will now trial measures to reinforce these standards in the tender process. Further details of these measures are yet to be released by the Commonwealth, whose objective is to see high labour standards included in all submissions.

Reserve List Mechanism

Unsuccessful proponents previously had to wait for the next tender round to be considered for a CISA. A reserve list will now be created for sufficiently meritorious 'next best' projects. Placement on the reserve list is subject to availability and at the discretion of the Commonwealth.

If a project initially awarded a CISA fails to proceed to contract execution, reserve-listed bids may be invited to execute contracts within a defined period. Proponents will be notified if their project has been placed on the list and the length of the defined period.

When the changes will apply

The changes will apply to the 2025 indicative tender rounds, commencing on the following dates:

Footnote

1. https://www.dcceew.gov.au/energy/renewable/capacity-investment-scheme/changes-to-future-tender-process?trk=public_post_reshare-text

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