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National Energy Guarantee — what’s it mean for lights, power, jobs?

national energy guarantee

AFTER A DECADE of wicked witches and flying monkeys, the land of OZ now appears to have an energy direction.

It’s a bit like a crumpled roadmap for a drunken scarecrow, but it is some sort of direction.

With the release late last year of the National Energy Guarantee (NEG), the federal government has, in less than eight pages, pacified the dinosaurs, and let that pesky renewables industry know exactly where it stands.

A masterful, back-of-the-envelope ploy — a victory for the future of dirty energy … or is it?

Looking behind the smoke and mirrors

The NEG focuses on a reliability guarantee to ensure delivery into the grid of the ‘right’ level of electricity (so-called dispatchable energy), from sources which can quickly respond to short-term spikes in demand.

For fossil fuel advocates the ‘right stuff’ should properly come from gas and ‘clean’ coal (‘reeeaaally clean coal’, according to Mr Trump).

Wind and solar are not intrinsically capable of ‘dispatchable supply’. But with the addition of battery storage, their capacity to react to demand instantly and cleanly is astonishing.

In South Australia in December, the 100 MW Tesla battery storage system took just 0.14 of a second to respond to a short duration spike in energy demand.

Gas plants typically take around 16 seconds to kick in, and coal-fired power stations take hours, and sometimes, days to respond — which is why they are kept ticking over and mainly used for baseload power.

The Tesla battery response was blindingly fast, and actually responded before the network engineers had realised there was a problem.

The overall vision for the NEG

Retailers sign up with a mix of energy producers, including gas, hydro, coal, solar, or wind, and the contracts will ensure that the energy must be ‘dispatchable’, and also conform to our government emissions standards.

Brownie points will be earned for both the level of ‘dispatchability’ (is that even a word?) and the degree to which it meets Australia’s already inadequate emission standards. Retailers can also trade between themselves to make up for any deficiencies in regard to how dispatchable, and clean (or more likely how dirty) their energy is.

For example, if Retailer C is a renewables energy provider, and, according to the government is unable to get their power into the grid when nature is uncooperative, a heroic fossil fuel supplier can come to the rescue, and give the renewables retailer a jump start. (Refer to the diagram on p5 of the Powering Forward document.)

Apparently the NEG will not pick winners, and with claims of being ‘technology neutral’, the policy is designed to ‘level the playing field’ — sending a clear signal to the market that fossil fuels will remain ‘bankable’ for decades.

Buying time for dirty energy and a little sweetener

Understandably, there is a feeling in the renewable energy sector that the NEG will simply replace a clean energy target with a dirty one and strangle the industry. In that sense it is clearly not ‘technology neutral’. It tilts the playing field, buying time for dirty energy.

Whatever the intent, it is hard not to be suspicious when a government, normally in favour of letting the ‘free’ market do its stuff, jumps in and manages the outcome when it doesn’t favour the fossil fuel industry.

Finally, to sweeten the deal for residential consumers, many more of whom are rapidly bolting on solar panels and batteries, the government is offering a reduction in energy prices in the order of $100–$115 per year over the next ten years.

Will the market be convinced?

It is really too soon, although there is already predictable applause and Mexican claw waving from the fossil beds.

Victoria’s leading edge ‘clean coal’ company, ECT Ltd, for example, is rapturous, proclaiming that fossil fuels will remain the country’s primary energy source for the next several decades.

Australia’s large banks don’t seem to be overly convinced however. For example, the ANZ recently stepped over the line to join a number of other institutions who have decided that the dirtier parts of the fossil fuel industry, and the Liddell coal station in particular, are not safe investments.

Large energy producer, AGL Ltd, recently sent its own signal to the market, publicly confirming its intention to retire the Liddell coal station and invest in renewables and batteries.

NEG assumptions need testing against risk of price increase

Economic models are engaging. They present, in miniature, a perfect world, where little trains run on time, and inconvenient parts of the world remain glued to life’s baseboard — irrelevant, and incapable of influencing the smooth march of progress.

The National Energy Guarantee is only a sketch at this stage, and more detail will be revealed, however there are a few assumptions which could do with testing.

For example, under the NEG, future retailers who fail to meet dispatchability targets will be fined, and given the shaky state of poles and wires in this country, energy retailers would be foolish not to include the cost of fines in their ongoing risk management plans. This would accelerate the upward spiral of energy costs.

Renewable energy broker Verdi also agrees that the NEG will not take the pressure off electricity prices.

Large wind and solar projects developed and commissioned before 2020 will probably continue to earn energy certificates (RETs) until 2030, and may contribute to a short term push to get more large projects into the pipeline.

With the enforcement of emissions standards, there may even be a higher price floor for existing large-scale renewables generation certificates. However, the government argues that the renewables energy sector should be able to stand on its own two feet within three years, when the current RET program is scheduled to close.

Renewables goals and let’s not forget jobs

rooftop solar
still leading the way

Disappointingly, the renewables share of Australia’s energy mix under the NEG will only rise to 28–36% by 2030, compared to 42% proposed in the now-abandoned Finkel review.

It is also clear that the proposed renewables target in the NEG included existing and predicted growth in rooftop solar, so by 2020 around 23.5% of Australia’s future energy mix would have been renewables regardless, leaving a mere 4.5% of investment potential to 2030. This is not an exciting prospect for clean energy punters.

The Climate Council is predicting a loss of up to 20,000 jobs in the renewables industry between 2020 and 2030 — 9,000 of them in NSW.

The local picture

So, what’s the story in our local government area – is it really doom and gloom for renewables?

Marju Tonisson, spokesperson for local windfarm operator, Infigen, doesn’t think so. She believes that it is too early to make assumptions.

“The NEG remains a high-level concept only”, says Tonisson, “in theory, the notion of creating an obligation on the part of participants to deliver reliable generation, while achieving an emissions target is sound”.

For Infigen, one of the main issues will be how the rules are designed to ensure that competitive dynamics in the market are enhanced.

Infigen believes that the progressive retirement of coal-fired generation and the rising price of gas will favour renewables — both at utility-scale and at the household level.

More detail on the NEG are supposed to become available prior to the next Council of Australian Government (COAG) meeting in April when the policy proposal will be re-evaluated.

IMAGE SOURCE: istock

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