Big little lies: The rotten core that could kill the NEG

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The NEG, in its current form, proclaims to halt the energy transition in its tracks. It’s a nonsense of course, but Australia needs a policy that recognises the future, not one that pretends to be able to stop it.

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I began writing about renewable energy way back in 2006 when – asked to do a cover story for The Bulletin magazine – I wrote about the end of a brief investment boom in renewables that had been brought to a shuddering halt by the Howard Coalition government.

Not much has changed. The dose was repeated in 2014 when the Abbott Coalition government tried to kill, and then succeeded in slashing the renewable energy target.

Fast forward a few years and we now have the Turnbull government trying to engineer much the same thing, by introducing a new policy, the National Energy Guarantee underpinned by an emissions target so weak it will virtually be met before it comes into effect.

The result, made clear by the Energy Security Board, is this: Don’t expect any new investment in large-scale wind or solar, or indeed large-scale battery storage, or anything else for that matter, bar Snowy 2.0, after 2022.

And this, according to the ESB’s own modeling, won’t be a two or three-year hiatus; it is designed to create an investment drought lasting nearly a decade. Quite how the esteemed board – the “experts” as Turnbull calls them – can bring themselves to endorse this prognosis is beyond me, and many other observers.

Little wonder, then, that big international investors and developers are warning that they will pack their bags and go. Bar Trump’s America, they figure that no other national government would be this stupid.

But here we are, one day out from a CoAG energy ministers meeting, where the Labor states and territories will come under enormous pressure to endorse or rubber stamp the NEG, and we are being assaulted by one of the most intense misinformation campaigns since, well, the last time we had policy debates about the RET and the carbon price.

The fault here lies entirely with the Coalition government, which has sought to design a policy bereft of environmental and technology integrity to suit no one else but their internal dissenters and conservative commentators.

They started out by designing a policy that sought to hide the fact that abatement can have costs. And the ESB has been a willing accomplice, effectively undermining the credibility of its own policy by doctoring its modelling inputs for no other reason than to try to reassure the Coalition right wing that the Earth may, indeed, be flat.

Now that they have been called out by Victoria, the ACT and Queensland, they are refusing to do the simple and the obvious – allow for flexibility in the emissions targets, and transparency in the registry, and are blaming a Greens-Labor conspiracy for their woes.

The accusations are flying. Sans M. Joyce and M. Abbott, we don’t quite have the colour of $100 roasts and Whyalla ghost towns, but the lies and misleading statements are just as emphatic and destructive.

Here are the key ones.

That this is about emissions reductions

Not according to environment and energy minister Josh Frydenberg: Labor’s about emissions reductions,  he said on Wednesday in response to Victoria’s demand for future flexibility, “we’re about prices.”

The ESB modelling making it clear that the 2030 target of a 26 per reduction in electricity sector emissions will be all but met by 2020, meaning the target will be practically met even before the mechanism comes into effect.

Of course, this means that if Australia were to meet the Paris climate target it has signed up for, let alone meet the 1.5°C or even the 2°C scenarios, it will have to seek more expensive emissions reductions from other sectors.

If it was about emissions reductions, then the Coalition government would not vow to lock in the electricity target until 2030, despite the sector’s obvious potential for very cheap abatement.

The states want a review every three years. The Coalition is refusing to allow that flexibility. So what exactly is the point?

That it will cut power bills by $550 a year.

Turnbull and Frydenberg are making this claim all the time, and they know it is not true.

The Nationals are also playing this line hard, and with even less embarrassment. In the latest issue of Bush Telegraph, its regular emailed newsletter to supporters, it says:

“The long-awaited National Energy Guarantee will save families up to $550 a year, welcome relief for millions in our communities,” the Nationals said. “However, the unholy union of Labor and the Greens have ramped up their opposition to the plan, once again placing ideology over delivering for voters.”

Even the ABC is on board. On News 24, political journalist Greg Jennett – in an opinion piece the government is unlikely to object to – even claimed there is no credible argument to refute the claim that the NEG will reduce power bills by more than $500 a year.

Well, there is a credible argument, and it is broadcast loud and clear in the NEG modelling, even its summary that Jennett might not have bothered to read.

The ESB makes says most of the savings will be delivered by the new wind and solar plants now being built under the RET, and the various state and territory schemes. The NEG modelling – and most other analysis – makes it clear that the NEG has nothing to do with this $400 of annual bill savings.

The ESB is claiming another $150 in annual savings from the NEG itself – to be delivered largely in the second part of the decade, but its logic is bizarre.

This is where the ESB modelling departs from nearly all other independent analysis, which points to a rise in prices because of the lack of competition and the complexity of the NEG.

The ESB says developers have not been building new plants because of the higher cost of capital in an uncertain environment, but they would if there was policy “certainty.”

So how many new plants does the ESB modelling predict will be built once the NEG is in place and “certainty” delivered?

Zero.

Hard to see, then, how that will translate into savings to consumers. As all other independent analysis points out, the only way to reduce prices is to increase competition. And the only way to do that is to encourage new investment.

We’ll have no more of you thank you very much
That it delivers “certainty”

This issue with so-called “certainty” is critical. The experience with the renewable energy target taught us that having an agreed mechanism does not deliver certainty if the two major parties differ so markedly over the target itself.

Witness what happened when Abbott was elected and tried to slash the target.

Abbott couldn’t do so without parliamentary approval but his threats were enough to bring investment to a halt. Even after the cut from 41,000GWh to 33,000GWh was agreed, nothing much happened because the incumbents thought they could engineer another round of cuts.

It was only after it was made clear the target would not be further adjusted, and the legislative target loomed ever closer, that the investment was unlocked.

And one unlocked, it unleashed an unprecedented wave of investment – and much of it attributed little or no value to the renewable energy certificates at the heart of the mechanism. In other words, at significantly lower subsidy than you will read in mainstream media.

The ESB assessment also bells the cat on this one, with its comments about the impact of “certainty”.

As noted above, it claims investment hasn’t occurred because of the lack of certainty (obviously they weren’t talking about renewables), but then said that with the certainty brought about by the NEG the level of investment would rise to …. zero.

That this is about a pressing reliability problem

Debatable claim: The ESB forecasts no reliability problems in the next decade, and has made it clear that it doesn’t expect the reliability obligation to be triggered. (It is, however, agitating to have the definition of reliability changed).

And since it expects there to be no new investment, and no new retirements, , then it presumably doesn’t expect any to emerge, despite ESB chair Kerrie Schott’s extraordinary suggestion (as interpreted by Fairfax on Thursday) that this is the last chance to keep the lights on (see below).

That this is the last chance to keep the lights on

 Frydenberg has been warning of blackouts in Victoria if the NEG is not approved, and the National’s Bush Telegraph does more or less the same.

“A new report from the Energy Security Board warns Labor’s energy policies would lead to unreliable power supplies in future,” the Nationals claim.

Actually, the ESB report says no such thing. But there was Schott on Thursday warning that unless the NEG was agreed to on Friday, the grid would be at risk.

This is not an energy risk, it is a political risk. As she made clear in an interview on RN Breakfast, there is a narrow window to agree on the NEG before Victoria, and then other governments, go into care-taker mode. Perhaps she should be on the phone to Frydenberg for a compromise on emissions flexibility.

For Schott to argue that this is an energy security issue is to ignore both the work she commissioned, and also the detailed study undertaken by the Australian Energy Market Operator, which actually modeled targets of the type that Labor are proposing, and found that even a grid with more than 60 per cent renewables by 2030 won’t have reliability issues.

It did not dial the NEG into its calculations.

Energy analyst Hugh Saddler at The Australia Institute has written the most fascinating analysis on the differences between AEMO’s Integrated System Plan and the NEG.

The analysis effectively shows that having no NEG, but continued use of the existing institutions AEMO and its ISP – which addresses system issues rather than problems with individual generators – will deliver  a better result on all measures!

“AEMO’s modelling results show that, with efficient planning of and investment in the most efficient mix of network services, it will be quite possible to ensure that the electricity supply system of the NEM remains secure and reliable, with much larger emission reductions, and much higher shares of renewable generation in the supply mix, than envisaged in the design of the NEG, and do so at lower total cost,” Saddler writes.

“AEMO’s modelling framework, including as it does a complete array of system augmentation options to deliver security and reliability, also ensures that, for any given level of renewable generation, total system costs will be lower than those of an approach, such as the NEG, which restricts augmentation to a limited choice of augmentation options.

“Hence AEMO’s system optimisation approach will deliver lower wholesale prices than the NEG.”

It is worth a read.

That this combines energy and climate policy for the first time

You could equally argue that it separates it. The emissions obligation and the reliability obligation appear in the same document, and that’s about as close as they get to each other.

They are separate obligations and are quite distinct, operate in different ways, and don’t even start on the same date. And neither of them are expected to be triggered in any case with the current low ball targets.

Credit: AAP Image
That it brings to an end the partisan energy and climate wars

See above. Nothing could be more absurd than the Coalition back bench urging the government to ditch the Paris climate agreement, and the Cabinet and PM being so terrified of dissent that they refuse to do anything about climate.

The major parties remain as far apart on climate and energy as they have for the past two decades. One party believes in the energy transition, the other is clearly out to stop it.

So, what now?

This does not mean that a NEG could not be designed in a way that is effective. What we are saying is that say that this policy is being sold on a series of preposterous misrepresentations, and needs work. And yes, there is time. But the changes, more transparency and adjustable targets, are actually relatively simple.

That it should have come to this shouldn’t come as a surprise. A policy designed to deceive a small faction in the Coalition has grown into a series of big little lies, worsened by preposterous results of the modeling – which deliberately omits key data.

Australia is in the midst of a clean energy transition. All the members of the ESB admit that and have said they embrace it. Even Frydenberg has admitted this.

To produce a document that claims to be able to stop this transition in its tracks – and to endorse it without showing a transition can be readily accommodated – beggars belief.

Australia needs a policy. But one that recognises the future, not one that tries to stop it.

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