ESB adds some meat to skeleton of “do nothing” NEG

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Update: ESB proposes penalties of up to $100 million for retailers failing to meet emissions obligations, as it puts more meat on the skeleton of the National Energy Guarantee, and after briefing state and territory ministers on Friday.

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The Energy Security Board released its latest update of the proposed National Energy Guarantee late on Friday, after a briefing of state and territory ministers who must give their approval of the mechanism in August if it is to be put in place.

The 52-page document puts some more meat on the skeleton of this policy mechanism, designed to impose emissions and reliability guarantees on the market, to ensure “the lights stay on” and prices stay low as the grid continues, and hopefully accelerates, its clean energy transition.

The problem is that the NEG – proposed by the ESB and enthusiastically supported by the federal government – is unlikely to see either obligation triggered under current policy settings.

Reliability won’t be triggered because the ESB now admits there is no reliability problem. “Despite this (addition of “intermittent” wind and solar, the current reliability standard is still not forecast to be breached,” it says.

Nor is the emissions obligation likely to be triggered because all independent analysis suggests that the government’s low-ball target will be met by 2020 through the renewable energy target, the mechanism that the Coalition tried to kill.

In a separate 20-page document, the government has reiterated its commitment to a 26 per cent target, exemptions for trade exposed industries, and the (potentially limited) use of offsets such as Australian carbon credits – much to the chagrin of many in the renewables industry.

And it is insisting that the targets be locked in for 2030, and then only changed with five years notice. It rejects “additionality” for state based targets.

However, the ESB has made its intent clear – should the emissions target ever be elevated – by recommending penalties of up to $100 million should obligated parties, namely retailers, fail to meet their obligations.

“That is causing a few people to focus,” ESB deputy chair Clare Savage told RenewEconomy in a phone interview late Friday (before we had completed our reading of document). “We do want to make sure that there is the right incentive to comply with the obligation.”

Savage says other new elements introduced in this report include a decision to make the Australian Energy Regulator the independent body to manage the reliability obligation, which will be based around forecasts and assessments from the Australian Energy Market Operator.

Contracting, when required of the reliability obligation, for instance, will need to be open and visible. In effect, a public auction. The ESB sees this a critical “to ensure liquidity and transparency in wholesale electricity markets to strengthen competition.” A “book build” run by AEMO is a possibility.

Other new features include more details of the proposed emissions registry to allocate generator output and its associated emissions to a market customer’s load. ITK analyst and RenewEconomy contributor David Leitch quipped after a quick read: “This looks complicated.”

The ESB says the amount that market customers can carry forward from a previous year’s over-achievement will be limited to around 5 per cent, and the amount that can be deferred to future compliance years, will be limited to around 10 per cent.

As foreshadowed in its previous document, the ESB proposes allowing retailers to calculate the output from rooftop solar systems for their emissions obligations. But this will be limited to exports back into the grid only, and will not be based on gross output. It will exclude voluntary “green power” load.

To help smaller retailers,  the first 50,000Mwh of load will be exempt from the emissions reduction requirement, which the ESB says should reduce fears that the NEG would stamp out competition and create big hurdles for smaller organisations.

On the reliability obligation, Savage repeated her view that at current levels it would not be triggered, and hoped that it would never be, even if the level of renewables increased dramatically.

“This is always about being backstop,” Savage said. “Our hope is that markets do what they do best and invest, and hope that it doesn’t get triggered.”

They will be triggered if – three years out – AEMO sees a problem and decides more dispatchable capacity is needed. That will trigger a round of contracting – and presumably investment in new capacity on the supply side or demand side – until such time as it is met.

Savage said the phone hook-up with state and territory ministers on Friday had effectively been an information sessions. “Kerry (chair Kerry Schott) and I will meet with all of them in coming weeks,” Savage said. There will be public forums in the week beginning June 25.

The language in the document is also interesting:

“The National Energy Guarantee (the Guarantee) is a mechanism designed to integrate energy and emissions policy in a way that encourages new investment in clean and low emissions technologies while allowing the electricity system to continue to operate reliably.

“The Guarantee will provide a clear investment signal, so the cleanest, cheapest and most reliable generation (or demand response) gets built in the right place at the right time.”

The ESB also makes clear it is just as enthusiastic about “demand response” and other demand side technologies as it is about new generation and storage.

State and territory ministers are most concerned about the integration of state-based targets into the scheme, the treatment of “additionally”, and how quickly any targets can be revised.

ACT’s Shane Rattenbury said in a statement late Friday after the briefings from the ESB and energy minister Josh Frydenberg that the Federal Coalition’s refusal to negotiate on emissions targets could jeopardise the whole process.

“What’s clear out of today’s meeting is that the Commonwealth expects States and Territories to support woefully inadequate emissions reductions targets, or they will discard the whole NEG proposal,” he said.

“This target will not only endanger the environment, but will create a greater cost burden on Australians over time.

“The Coalition have yet to put forward any real evidence to suggest that the NEG will bring down costs for consumers. It’s more likely that this is a smoke-and-mirrors cost-shift from electricity to other sectors, such as transport and agriculture, that will likely see Australians paying more overall.

“This intransigence on part of the Commonwealth suggests the Coalition doesn’t even want an outcome on electricity reform, and would rather discard some of the good proposals the Energy Security Board has put forward on national energy laws.”

Labor’s Mark Butler said earlier this week that his party’s main concern was that even though the NEG may “do nothing”, it was important to ensure that it “does no harm.”

That reflects the view while the NEG may amount to little more than a safety net under  current policy targets, it could serve a useful purpose – if properly designed – once Australia chooses to get serious about climate change and the energy transition.

Hear our podcast interview with Butler here.

That judgment – of doing no harm – will centre around the design of the scheme and the ability of any future government to quickly ramp up the emissions target, and to ensure that there are no roadblocks that would hinder competition, and new investment.

Many of the initial concerns about the details of the NEG mechanism (if not its ambition, which is not the ESB’s concern) were addressed in the updated version released in April and still more are dress in this document.

Savage says some 10 working papers on technical aspects will be released next week. Feedback is due by July 13, and a final policy document will be voted on at COAG on August 10.

New analysis from Erwin Jackson, a highly respected climate policy analyst now with Environment Victoria, echoes previous findings that the NEG, under the current policy targets, will simply shift the burden of emissions reduction to other sectors, such as farming, manufacturing and transport.

Despite this, the National Party, which claims to represent those sectors, says that even the 26 per cent reduction target by 2030 is too much. Key members of the Nationals, and the Liberals, want to wind back even the current emissions targets.

The only policy that is in place, the “Direct Action” plan put together by Greg Hunt under the leadership and vision of former prime minister Tony Abbott, is now all but exhausted.

On Friday, it released the results of its latest auction – the smallest on record. There is little left in the kitty, and no mechanism to take its place. The government is even baulking at emissions standards for cars for fear it is branded a “carbon tax on wheels.”

Analysts at Reputex say the latest auction shows that the heavy lifting on Australia’s modest 2030 emissions reduction target will be needed by the other “principal mechanisms”.

However, after five years in government, the Coalition still has no policy to address large scale emissions reductions in other sectors, and the country’s emissions are rising.

 

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31 Comments
  1. Peter Todd 8 months ago

    The main thing that the NEG will do is to give confidence to investors. From what I saw at the last Garttan Institute presentation on the NEG, the energy industry is becoming comfortable with this policy. Yes, investors in renewable generation and storage are very likely to drive the carbon emissions lower than the targets set by the LNP and probably even lower to those set by Labor, if they win the next election.

    • Peter F 8 months ago

      How does it give investors certainty. It does not help new investors in renewables or storage, it does not help the economics of coal and if anything by introducing another layer of bureaucracy it increase uncertainty particularly for large consumers

    • Ren Stimpy 8 months ago

      The energy industry getting comfortable with it is quite a different thing to the energy market getting comfortable with it. The former is happy with the status quo. Only the latter exists to build new capacity to meet future shortfalls.

      • Peter Todd 8 months ago

        Investors are interested in one question. How much money will I make if I make an investment in generation. NEG is designed to help answer that question. If it becomes bipartisan, which I think it will, there will be lots of investors willing to commit both on generation and storage..

        • Ren Stimpy 8 months ago

          “How much money will I make if I make an investment in generation?”

          If I’m a coal plant investor that’s an easy question to answer. The answer is >>> much, much less than was possible in previous years.

          – The thirty minute settlement period will soon come to an end, denying all generators the benefit of excessive pricing peaks it currently allows the gas generators to manufacture.

          – Batteries and aggregated demand response are starting to take over the FCAS market with their instantaneous response times.

          – Batteries and aggregated demand response will probably be significant players in the wholesale energy market within the next ten years.

          – Building a new coal plant takes the better part of decade, or longer.

          – A new coal plant will not be able to compete with the existing already-depreciated coal plants, at about double the cost of power.

          – A new coal plant will have to compete with Snowy 2.

          – Midday demand is being eaten by the solar revolution.

          – Evening demand will soon start to be eaten by the powerwall revolution.

          – Midday and/or evening demand is being cheaply supplied by wind generation… I don’t know but let’s say one day out of every three.

          – It’s highly likely there will be a carbon tax in place before Tony Abbott cuts the ribbon to open my coal plant. Or if not, then within the first ten years of its operation.

          – Should I go on?

          The point is this, there will never be another coal power station built in Australia. The sooner we stop pretending there could be (i.e. the NEG) the sooner we can help the real market with investment certainty. You say bipartisanship, but really that means the conservative side of politics just need to admit the mother-hooray-henrying obvious.

          • RobertO 8 months ago

            Hi Ren Stimpy, So long as we have the coal ash group (RWNJ’s or the Jackasses group) we as in Tax Payers are not safe from these idiots. If the Australian public decide to vote the COALition into power we could still see a new coal power station despite the massive losses possible (remember these idiots have no fear of spending tax payers money for anything they want).

          • Ren Stimpy 8 months ago

            A new coal power station is not even a political possibly. The Coalition parties would have to return to Tony Abbott and Barnaby Joyce as leaders for a new coal plant to be built by the government. For anyone who thinks Tony and Barnaby will make a comeback, I have a luxury liner by the name of SS Titanic to sell them (one owner, parked under cover, some repairs needed).

            Turnbull, Frydenberg and McCormack won’t build a coal plant because they’re not quite that stupid (looks can be deceiving). Even Lumpy Morrison has admitted the high cost of power that would come from a new coal plant, basically ruling it out.

            It’s not going to happen.

          • Mike Westerman 8 months ago

            Ren Stimpy – according to the latest REN21 report, 48% of input energy goes to heating and cooling. Virtually 100% of that could be supplied by intermittent generation so there goes half the market. Will there be an “energy” market in the future – doubtful…there will be a heating and cooling service market, and an EV charging network, secure power to local nodes generated at the node to avoid the enormous interruption rates in networks…maybe even some bulk 7×24 REZ with storage for large manufacturers like smelters who will pay for what they get without imposing that on everyone else…

          • Ren Stimpy 8 months ago

            Yes the list of reasons why a new coal plant would lose money in Australia is a long one, and it’s growing.

  2. Patrick Comerford 8 months ago

    The NEG pretty much does for the energy market what the Direct Action policy did for abating carbon emissions. That is sweet FA. Still what’s a couple of billion here or there if it keeps the troops under control. The NEG is a sham policy instigated by a sham government with a sham minister and PM. It really reflects what a sorry lot we have become.

    • John Saint-Smith 8 months ago

      Worst of all, the shameful PM once said he wouldn’t be a part of a government this sham full! And still the people believe his lies and shameful attacks on Bill Shorten.

    • john 8 months ago

      I have 2 thousands acres to stop clearing can you pay me ?
      Yes here is the money.
      I sell it to another shelf company.
      Clear it home free.

  3. Joe 8 months ago

    “…no reliability problem”. Well I guess that is correct if you don’t count Clunker Coalers Clapping out at the drop of a hat. And ask Matt the top man at Tomago about how reliable the Coalers are in the Hunter when his potlines are ready to be filled. The NEG, Direct Action this is what you get from a Government doesn’t even pretend to care about action on climate change. Their aim is only to continue the good times for the FF vested interests and yet we still have the polls at roughly 50/50 so a needed change in Government is not easy to come by.

    • rob 8 months ago

      Off topic I know but right now S.A. is totally powered by wind! Thank you JAY! that’s 1.24 pm NEM time! edit……and a tad of solar…(tis a shit day here). If is wasn’t for filthy Vic we could turn off all GAS which is being exported to the loser state and run on pure green technology! @joe

    • MaxG 8 months ago

      wow… I’d never have come up with that [Clunker Coalers Clapping out at the drop of a hat] … nice :))

  4. howardpatr 8 months ago

    Any meat put on the NEG by the ESB will be ripped of the jackals led by Abbott, Joyce, Kelly and fellow LNP RWRNJs; and Hypocrite Turnbull will just stand by and mouth of platitudes.

    • john 8 months ago

      The Jacks
      Joyce Abbott Abates Canavan kelly
      Mob of pretty poor performing men notice. Pardon the misspelling.

    • MaxG 8 months ago

      Which makes the latter as guilty as the others.

  5. john 8 months ago

    Vehicle emission standards.
    The country has zero emission standards.
    What a joke country where an importer can send a vehicle there and tell the gullible consumer this meets the latest emission standards and is the latest model and it is 2 years old with a 7 gear auto not a 9 gear gear box which is the present model and the poor consumer thinks ” I have the best of class new model ” .
    As to the NEG it will follow the previous JACK model of curtailing the build of Wind Equipment in Melbourne as happened under one of the members of the JACK mob.
    Deplorable s end of story.
    But it is OK because the Shock Jocks and ya other pathetic outlets will be telling the gullible over the weekend what a brilliant initiative this is.
    How on earth do people actually learn that they are being mislead?

    • MaxG 8 months ago

      Well it meets the emission standards. Fullstop. No point arguing. 🙂
      It’s the pollies that need to be blamed… solely and squarely 🙂

  6. John Gardner 8 months ago

    Giles, do we know anything about the public forums, timetable etc? Is it worthwhile any concerned citizens attending and voicing our concerns?

    • baseload renewables 8 months ago

      Hi John,

      I didn’t attend any forums but in the previous round, before the COAG energy ministers meeting I did submit a letter to my State Energy minister via their web interface. I even got a reply in due course. That said, if there are any public forums coming up, I’d like to know about them. This from the COAG site this morning:

      “A public forum and webinar will be held in the week commencing Monday 25 June 2018 to discuss the draft Detailed Design and to hear from stakeholders. Further information about how to participate will be published on the COAG Energy Council website shortly.”

      As for sending any feedback to COAG:

      “The Energy Security Board is seeking feedback on the draft Detailed Design by 13 July 2018. Late submissions will not be accepted. The feedback received in response to the paper will help inform the Energy Security Board’s final design that will be considered by the COAG Energy Council at its meeting on 10 August 2018.

      All reviewed submissions will be published on the COAG Energy Council’s website, subject to any claims of confidentiality. All submissions should be sent to [email protected].”

      • John Gardner 8 months ago

        Thanks Giles, I don’t know that I’m qualified to make a written submission, but I’d certainly like to make it clear that a lot of us out in consumer land want a more worthwhile emissions target and as prosumers we want our rights to a fair FIT protected.

  7. Chris Fraser 8 months ago

    From a stationary energy viewpoint, the ESB seems to have a significant blind spot. Their focus is on balancing demand with reliability NEM-wide but not just with clean energy – they’ll take any kind of energy. Since the bulk of the new investment is anticipated to be clean energy from clean energy zones, the strengthening of the transmission system from those zones should be well planned. It would be rather embarrassing if the dispatchable clean energy is connected but we were still getting load shedding because of under-capacity transmission.

    • Peter F 8 months ago

      We have plenty of transmission capacity if the renewables are sited for lowest system cost rather than lowest generator terminal cost. Just as it would have been silly to build a gas fired power plant on the Moomba gas fields because that is where the gas is. building wind and solar along the existing transmission lines, as close as possible to loads will reduce transmission losses and investment by more than any losses due to lower efficiency of the generators

    • rob 8 months ago

      Off topic I know but right now S.A. is totally powered by wind! Thank you JAY! that’s 1.24 pm NEM time! edit……and a tad of solar…(tis a shit day here). If is wasn’t for filthy Vic we could turn off all GAS which is being exported to the loser state and run on pure green technology! @joe

      • Rod 8 months ago

        Unfortunately, until AEMO are satisfied SA has enough inertia to ride through a voltage excursion we will need to burn gas to keep big bits of metal spinning.
        That might be more batteries, more windfarms with inertia, some fast hydro or even synchronous condensers. Or maybe another interconnector.

        If we didn’t have the interconnectors we would have to curtail more wind on a day like today.

  8. RobertO 8 months ago

    Hi All, I have always thought the NEG was a load of rubbish. I still am lost as to how it’s going to improve the NEM? How it going to lower prices? They do not have a clue on what Australians seem to want?
    My reading is we want more jobs, we want cheaper electricity, we want a cleaner environment. The answer seem to me to be that we will import more batteries, so that some people whom should remain on the grid for the rest of us can leave the grid pushing the electricity prices to rise, and we will just put the batteries in the rubbish bin when we are finished with them.
    Our pollies are leader of a world class people. Science is not important, it does not have any use to the average Australian. Even the carbon tax (Called a Fuel Tax Excise ) is only important to the bottom line, after 2025 (about the time EV start to take off in large numbers). We are headed backwards at a great rate of knots!

  9. Peter Campbell 8 months ago

    “additionally” typo. Should be ‘additionality’. Tricky because spell-checkers keep changing it. Cheers.

    • MaxG 8 months ago

      Good find 🙂
      I have given up reporting them… like any trade, it gets shonkier by the day.

  10. rob 8 months ago

    Off topic I know but right now S.A. is totally powered by wind! Thank you JAY! that’s 1.24 pm NEM time! edit……and a tad of solar…(tis a shit day here)

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