State support not yet secured for National Energy Guarantee

By Lauren Davis
Friday, 10 August, 2018

State support not yet secured for National Energy Guarantee

The federal government’s plans to push through its National Energy Guarantee (NEG) were derailed today at a meeting of the COAG Energy Council, with state and territory governments calling for more detailed legislation with more conditions before they agree to the policy.

The NEG will serve as the government’s replacement for the Renewable Energy Target (RET), which it will not be extending beyond 2020, as well as an alternative to the Clean Energy Target recommended last year by the Finkel Review. The aim of the NEG is to require retailers to meet two targets: a reliability guarantee and an emissions guarantee.

The reliability guarantee requires retailers to make available a proportion of electricity from dispatchable sources (including batteries, hydro and gas), the precise level of which will vary from state to state. The emissions guarantee, meanwhile, gives retailers targets to drive down the sector’s greenhouse gas emissions by 26% on 2005 levels by 2030.

But Victorian Energy Minister Lily D’Ambrosio, ACT Energy Minister Shane Rattenbury and Queensland Acting Energy Minister Cameron Dick claim the 26% emissions reduction target is too low and are pushing for the NEG to have a stronger target so it brings down emissions more quickly — with D’Ambrosio setting the following conditions:

  • Emissions reduction targets should only be allowed to increase over time and never go backwards.
  • Future targets will need to be set by regulation.
  • The targets will need to be set every three years, three years in advance.
  • A transparent registry should be established, with access by regulators and governments to ensure the NEG is working in the best interests of consumers.

The Clean Energy Council has echoed the need to increase the proposed emissions target, with Chief Executive Kane Thornton saying its low level of ambition means the policy will be essentially useless unless this is addressed.

“The $10 billion of new investment being driven by the Renewable Energy Target means the current emissions target will already be almost completely met by the time the NEG starts operating,” said Thornton, referring to modelling that shows emissions would drop by 24% even without the NEG — meaning the policy would only cut emissions by 2% over 10 years.

“The current target will be put to the Australian Parliament later in the year, but there’s not much point legislating a target we will meet by default and which won’t actually do anything to encourage new investment. And if the political negotiations to secure the NEG result in a government commitment to build new coal, private investors will simply jump ship to other countries with a less volatile investment environment.”

Thornton said a handful of other design issues needed to be addressed:

  • The policy architecture should include a backstop that prevents future attempts to reduce the emissions reduction target.
  • The target should be reviewed more frequently than currently planned to ensure it keeps up with changes in the energy sector.
  • The design proposes automatically passing the emissions reductions from solar power systems to electricity retailers. This should be fixed so solar system owners can decide where their emission reductions go.
  • The role of energy storage in supporting reliability should be fully recognised.
  • Western Australia and the Northern Territory are currently excluded from the emissions reduction target. When considered across the electricity sector for the entire country, this means an emissions reduction of less than the nominal 26%.
  • Offsets should be excluded from the scheme. Outsourcing emissions reduction to other sectors means less investment in new energy generation, which means higher power prices.

Environment Victoria has been particularly scathing in its response, with Campaigns Manager Dr Nicholas Aberle calling the proposed emissions reduction target “a disaster for renewables investment”.

“The current do-nothing pollution reduction target would see investment in cheap, clean energy stall,” Dr Aberle said. “This threatens the incredible progress we have already made here in Victoria and misses the opportunity to cut both climate pollution and power prices.

“The mechanism of the NEG could be a workable policy, but without a stronger federal target, billions of dollars’ worth of wind and solar projects, along with thousands of jobs, are at risk in Victoria alone. The states would suffer due to federal failure.

“If this completely ineffectual target goes ahead, it will only be policies like the Victorian Renewable Energy Target that will ensure continued investment in Victoria’s booming renewable energy industry. We cannot allow ourselves to rely on the National Energy Guarantee as it stands.”

Industry is meanwhile hoping that a consensus will eventually be reached, with Simon Mouat, VP of Energy for Schneider Electric, calling for unified agreement on the NEG.

“At Schneider Electric, we’re proud of our deep and diverse business footprint in Australia. That’s why we believe it’s important for our nation’s leaders to come together and reach an agreement on the National Energy Guarantee,” Mouat said.

“Securing a national energy policy is more than arguing about emission targets and coal; it’s about setting up the framework for our future. We want to see a market that is better designed, guarantees better reliability and at a minimum ensures compliance with the Paris climate change commitments.

“An agreement on the NEG will pave the way for Australians to manage their power in new ways.”

So what’s next? While state and territory governments have agreed to keep talking, they have also asked the federal government to get its own house in order first, before determining a position on the NEG. With this in mind, the COAG Energy Ministers will have another discussion after the Coalition Party Room meeting on Tuesday; after that, they may agree to have the state NEG legislation and the Commonwealth draft legislation released for public comment.

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