Energy companies trading in eastern Australia’s gas markets will now be permitted to provide cash as an alternative to bank guarantees or letters of credit, following a recent rule change by the Australian Energy Market Commission (AEMC). This adjustment aims to address concerns raised by fossil fuel operators about difficulties securing financial backing from banks due to environmental, social, and governance (ESG) considerations.

The rule change allows participants in the Declared Wholesale Gas Market and the Short Term Trading Market to submit up to AUD 10 million in cash to the Australian Energy Market Operator (AEMO) as credit support. Previously, companies were required to obtain guarantees from approved financial institutions, restricting flexibility for firms facing tightening lending policies, particularly those involved in fossil fuel industries.

Delta Electricity, which operates the 1,320-megawatt Vales Point coal-fired power station on New South Wales’ central coast, highlighted the challenges leading to this reform. The company disclosed that 15 banks had declined to provide credit support for its operations, citing ESG policies that restrict exposure to fossil fuel-related businesses. Delta indicated that its existing financier chose not to extend its facility on these grounds, while 13 of the other approached lenders, including Australia’s four major banks, had refused guarantees. Of the remaining two banks, support was limited to activities such as mine rehabilitation and renewable energy projects.

Delta contended that such restrictions could prevent otherwise viable and solvent businesses from meeting market prudential requirements, as they might be unable to secure the necessary financial instruments to engage in trading activities. This issue affects energy companies obligated to provide credit support to AEMO when they are net debtors in the market.

The new rule follows a similar reform for the National Electricity Market implemented in June 2025. Under that earlier change, market participants gained the ability to provide up to AUD 20 million in cash as credit support, an option set to start by the coming Sunday. Extending the cash option to the gas markets is intended to enhance market flexibility, reduce costs, lower barriers to participation, and foster increased competition, ultimately providing benefits to consumers.

The AEMC emphasized that this measure introduces alternative prudential arrangements that do not rely exclusively on bank credit support, potentially easing access for a broader range of market participants. This development comes amid ongoing debates about financial institutions’ roles in facilitating fossil fuel projects and the implications of ESG policies on energy sector financing.