No guarantee we have a solution to energy crisis

The Federal Government announced its response to the Finkel Review’s final, and arguably most critical, recommendation: a Clean Energy Target.

This target was designed to tackle affordability and pollution from the electricity sector by encouraging new, low emissions electricity supply.

The Federal Government has chosen to ignore Chief Scientist Alan Finkel’s recommended Clean Energy Target - the product of months of consideration and consultation - and replace it with a hastily and secretly prepared “National Energy Guarantee” (NEG) that comprises a Reliability Guarantee and Emissions Guarantee.

There is a significant lack of detail on the government’s new policy and how it will achieve cleaner, cheaper and more reliable electricity supplies. This briefing outlines what we know so far and the questions that still need to be answered. It will be updated as more information comes to light.

What do we know so far?

The Federal Government’s Reliability Guarantee would require retailers to source a certain amount of “dispatchable power” (which it defines as coal, gas, hydro, biomass or storage). This creates a minimum target for anything but wind and solar power.

The Federal Government has indicated the new Reliability Guarantee will lead to 28-36% renewable energy in 2030 (well below the 42% modelled for the Clean Energy Target, and below the minimum 50% needed to tackle climate change). That means Australia will end up with more coal and gas and less renewables in 2030 than if we stuck with “business as usual”! From a pollution perspective the Reliability Guarantee will result in a worse outcome than if the government continued to do nothing.

The Emissions Guarantee would set yearly emissions intensity targets - expressed as tonnes of carbon dioxide per megawatt hour of electricity generated - for electricity retailers to meet. Retailers would have total flexibility in how they achieved the targets including the option of purchasing international offsets. They will be able to trade amongst themselves (for example, between a retailer that over-achieves and one that under-achieves) and will be given extra time if they fail to achieve the target in any given year. There are no financial penalties for retailers failing to meet the target, but if the retailers consistently don’t comply they will be deregistered from the market.

Not enough detail.

There is very little detail available yet on how the new Reliability or Emissions Guarantees will actually work (other than an 8 page letter). There is no modelling available that supports claims made by the Federal Government that this will result in lower power bills for households or businesses.

Our Analysis:

Our analysis finds the NEG (by its core design and structure) fails on reliability and power prices.

Reliability - The NEG fails to address issues raised by the Australian Energy Market Operator (AEMO) on reliability. It locks in ageing unreliable coal and expensive gas, lacks an incentive for investment in new renewable energy capacity, and adds bureaucratic red tape and expense on top of already accepted Finkel Review reliability recommendations. It takes control of regional reliability from States, and vests it in committees, far distant from impacted consumers.

Affordability - The NEG cements market power issues raised by the Australian Competition and Consumer Commission (ACCC) on electricity prices. It further concentrates the market power of the big three energy companies, locks in reliance on expensive gas, cedes to the big three, control of timing and type of investment in new generation, and guarantees ongoing investment uncertainty with annual reviews of the Emissions Guarantee. Typically short-term retailer contracting (other than the Renewable Energy Target) will bring more investor risk and higher financing costs, guaranteeing any new generation built under the NEG will be higher cost.

Emissions - The NEG fails to deliver even the bare minimum on emissions reductions. It leads to less renewables, and more coal and gas in 2030 than ‘business as usual’, and effectively caps new large-scale renewable energy investment. By design, it accepts failure to cut emissions enough by allowing retailers to purchase international offsets rather than invest in transitioning Australia’s electricity supply. It lacks effective penalties for retailers that fail to comply, and the lack of alignment between financial electricity contracts and actual electricity supply ensures retailer performance (or lack of) will be untraceable.

If the NEG fails, then what?

States and territories are already leading Australia’s transition to clean, affordable and efficient renewable energy and storage technology. In the past year, all state and territory governments have taken proactive steps to encourage wind and solar uptake as well as developing energy storage to underpin this shift to higher renewable power.

All states and territories (except Western Australia) now have strong renewable energy targets and/or net zero emissions targets in place. These targets are broadly consistent with the level of renewable energy needed across Australia by 2030 so it can do its fair share in keeping global temperature rise below 2°C.

In the absence of coherent climate and energy policy from the Federal Government, states and territories have been quietly getting on with the job. States and territories have demonstrated a greater capacity for leadership and for taking tangible actions on electricity than the Federal Government.

The NEG, a concept created in haste without consultation, takes control away from the States, regions and homeowners actively pursuing a low emissions future, and places it in the hands of a Federal Government with a dire track record on climate and energy policy. The NEG penalises leading states, the renewable energy industry and energy consumers and instead rewards laggard governments, big energy companies and polluting power stations.