Australia gets half a NEG as COAG signs off on reliability obligation

The COAG energy council has given final sign off on the Retailer Reliability Obligation, delivering one-half of the ill-fated National Energy Guarantee conceived of by former Prime Minister Malcolm Turnbull.

Energy ministers from each state and territory, as well as the Federal energy minister Angus Taylor, signed off on the package prepared by the Energy Security Board.

The package of reforms will now be implemented as amendments to the National Electricity Rules and are expected to take effect on 1 July.

Under the reliability obligation, the Australian Energy Market Operator will be tasked with additional roles for the forecasting of future energy demand, providing a signal to the energy market if there is expected to be a shortfall in electricity supply in future years.

Electricity retailers will be required to enter into contracts for the supply of electricity, weighted by the degree of “firmness” of that supply, and the ability of those contracts to shield customers from sudden spikes in wholesale electricity prices.

Retailers will be required to demonstrate that they hold sufficient contracts covering the supply of electricity for periods where a supply shortfall has been forecast by AEMO, should electricity demand exceed a ‘one-in-two year’ forecast during a period where a reliability gap.

If an electricity retailer is found to not have sufficient contracts in place, the retailer may be liable to cover the cost of emergency actions undertaken by AEMO, acting as a ‘Procurer of Last Resort’, with potential penalties of up to $100 million.

COAG and the Energy Security Board hope that the reliability obligation will act as an incentive for energy market participants to make proactive investments in addressing potential supply shortfalls, to avoid further instances of load-shedding, like that seen in Victoria in January.

The Energy Security Board cited the looming decommissioning of the Liddell Power Station as an example of the type of challenges faced in trying to maintain the reliability of supply in the electricity system, and is hopeful the reliability obligation will help mitigate such risks.

The reliability obligation formed half of the National Energy Guarantee, the most notable component of which, the emissions guarantee was abandoned spectacularly by Malcolm Turnbull in the week leading up to being deposed as prime minister.

The emissions guarantee, which would have placed an obligation on retailers to enter into contracts with low emissions generators in an effort to bring down the emissions intensity of the National Electricity Market, was shelved by Malcolm Turnbull just days before it was to be voted on by federal parliament.

Turnbull faced imminent embarrassment and defeat on the floor of the parliament, had rebel backbenchers gone through with their plan to cross-the-floor during the vote on the NEG.

This loss of authority from the prime minister was the trigger for Turnbull’s ultimate demise just days later.

The reliability package won the support of all members of the COAG Energy Council, with an uncontroversial set of changes to the National Electricity Rules set to be implemented.

But it is understood that the NSW Government will continue to advocate for the full National Energy Guarantee package, with new NSW energy minister Matthew Kean expected to tell a meeting of industry representatives that the Federal Government should revive the emissions guarantee.

The Federal Government has faced ongoing criticism for its lack of effective policies to reduce emissions across the Australian economy, including a lack of policies to address sluggish investment in new electricity generation capacity.

Energy minister Angus Taylor has faced particular criticism for claiming that Australian emissions have continued to fall, despite further data released this week showing emissions rose 0.7% in the 2018 year.