Australia says clean energy fund could underwrite new coal plants

Australia is considering altering legislation to enable funds slated for clean energy developments to be used to bankroll construction of new low emission, coal-fired power plants.

The suggestion by Energy Minister Josh Frydenberg comes after a major power outage during a heat wave in South Australia state worsened a row with the national government over energy security and the state's heavy reliance on wind and solar power.

Frydenberg said current laws governing the Clean Energy Finance Corporation (CEFC) prevented it from investing in the high-energy, low emission (HELE) coal plants.

"In the Act it explicitly rejects carbon capture and storage and nuclear power," Frydenberg told the Australian Broadcasting Corp television on Sunday.

"It actually confines investments to ones which reduce emissions by more than 50 percent on what the average is across the national electricity market," he said.

"So right now a HELE plant - one of these high efficiency low emission power plants - could not be funded under the Clean Energy Finance Corporation."

Asked if the government wanted to see the 50 percent restriction relaxed, Frydenberg said: "That is certainly one of the options that we're looking at..."

The government suggestion to tap taxpayer funds to build the HELE plants also comes after industry participants indicated the private sector was not interested in investing in the plants.

Frydenberg said that while the cost of renewable energy had fallen substantially, it did not solve the problem of integrating intermittent energy supplies into a grid designed to transmit baseload sources of supply, mainly from coal.

"The real challenge for us now is how do we integrate this higher uptake of wind and solar into a system which hasn't been necessarily built for that, or had that situation in the past."

New South Wales state Premier Gladys Berejiklian said her state, the country's most populous and one heavily reliant on coal-fired power plants, was open to new coal-based sources of energy supply.

"We need to ensure all states are doing what they can to secure their energy resources," she told Sky News.

Australia is one of the largest carbon emitters on a per capita basis due to its reliance on coal-fired power plants. Power generators account for roughly one-third of Australia's carbon emissions.

The national government wants 23.5 percent of Australia's energy mix to come from renewables by 2020, but nearly all states have set much more ambitious renewable goals to cut carbon dioxide emissions from their electricity sector - clouding the outlook for many generators.

(Reporting by Peter Gosnell)