ESB modeling confirms NEG designed to shut door on renewables

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New modelling confirms little if any new renewable energy investment will be made under the NEG. But it reveals that the big savings the Coalition is claiming from the NEG are driven almost entirely by the policy it sought to kill – the renewable energy target.

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The latest modelling for the federal Coalition’s proposed National Energy Guarantee confirms the new policy would effectively shut the door on new renewable investment at national level in the next decade.

The modelling – included in a new 50 page document prepared by the Energy Security Board for the COAG energy ministers meeting on Friday – suggests that the NEG is barely better than doing nothing.

In its low demand scenario, doing nothing would meet the government’s emissions targets just as effectively as the NEG, the modelling shows. Adopting the NEG would add an extra 1 per cent of renewable capacity over doing nothing over a whole decade.

“Both BAU and the Guarantee achieve the emissions reduction target under the ‘low demand’ scenario,” it says. And that would mean no need for any new wind or solar.

In its most optimistic scenario (see table below), the NEG would add just 4 per cent of additional renewable capacity over business as usual – yet even this modelling appears to underestimate the uptake of rooftop solar. So the incentive for new large-scale investment is largely illusory.

modelling esb latest

The government sought to sell the document on Wednesday as an avenue for a “cleaner, cheaper, reliable energy,” saying that household bills could fall by $400 a year and businesses benefit from a price cut of up to 30 per cent.

But the modeling shows that these cost reductions are delivered almost entirely ($280 a year in the case of households) by the very policy that the Coalition tried to kill – the renewable energy target – and will largely happen anyway.

“The steep decline in wholesale prices under both BAU and Guarantee from 2018 to 2022 is due to the committed entry of almost 6,000MW of renewable capacity across the NEM, principally incentivised by the existing Renewable Energy Target,” it says.

The Coalition is assuming added cost benefits ($120 a year) from the NEG, from around 2022 on, but only on the basis of some modelling gymnastics that somehow assumes that the cost of wind and solar will be more than 20 per cent more expensive if there was no NEG in place.

ESB modelling wholesale prices

There is huge irony in this. Conservatives and other renewable energy critics have always denied that renewables will bring price benefits.

It has underpinned their refusal to lift emissions reduction targets, and their refusal to introduce an emissions intensity scheme, or a clean energy target and underscored their commitment to try to kill the RET.

This modelling shoots those claims right out of the sky. Some may doubt that wholesale prices may sink this low – due to the role of gas generators and the greed of the utility oligopoly, but it confirms that any price reductions will be driven by renewables.

And it underlines the point that if it wasn’t for the three-year renewable energy investment strike engineered by the Coalition, then those savings would already be enjoyed by consumers. They now have to wait until next year.

And the modelling will make people ask why we are now turning for the fourth, fifth or sixth best policy.

And, more profoundly, it kills virtually all the arguments that the Coalition ever had to fight a higher emissions reduction target.

The case for the NEG is further undermined by the storage report released by chief scientist Alan Finkel earlier this week that points to the very small amount of storage needed even for a 50 per cent renewable energy target – storage that might be provided by household investments that would happen anyway.

This document, then, will do little to salve the concerns of the states and the renewables industry that this is a policy designed to protect coal rather than encourage new investment.

They will ask what the point is of a policy that appears incapable of adding anything, or very little, beyond “doing nothing.”

South Australia, already at 50 per cent renewables and in the midst of a new investment boom in wind, solar and storage, is particularly appalled.

S.A. energy minister Tom Koutsantonis says the NEG will entrench the monopoly market power of existing fossil fuel generators and retailers, limiting competition and driving up power prices in South Australia.

“It proves it would make it more difficult for new competition from renewables to enter the market and takes Australia in the wrong direction. “

The ability of big utilities to entrench their market power through a series of contracting for both emissions and reliability obligations is one of the main concerns for the industry, and the reason they are convinced that the NEG would cause prices to rise rather than fall.

And the ESB appears to recognise this. The 50-page report includes a special section on South Australia that acknowledges the issue of competition in the market, and even contemplates a new rule to limit market share, although it has no idea how or if such a mechanism could be implemented.

fig5 copy

And it’s not just South Australia that suffers this problem. Many other states also suffer from a few dominant players, as the recent analysis by the ACCC and any number of analysts has identified, and the ability of the big players to game pricing has been highlighted by governments, regulators, consumers and the utilities themselves.

Yet the ESB admits: “It is difficult to predict whether additional contracts will be supplied by existing generation or by new capacity.“

There are a whole lot of issues around the modelling, which we go into in a separate story – notably the modelling about rooftop solar and storage, and its assumption that there will be zero investment in storage in business as usual (which is plain nonsense), its assumption that Snowy 2.0 will be up and running in six summers time, and its cost data.

These inconsistencies, and its evident rushed nature, will raise suspicion and alarm ahead of the COAG meeting, just as many in the industry were willing to explore the possibilities further, arguing that if certain conditions were met – and there are a lot of them – then it might just work.

The document does not allay the main suspicion that lies around the Coalition’s motive for the NEG; namely that it was a rushed response to a sudden decision by prime minister Malcolm Turnbull that he dare not take on the Coalition’s hard right and push for Finkel’s Clean Energy Target.

The modeling, to be sure, is angled to please that particular constituency. As the briefing to COAG admits, the ESB has designed the mechanism “in a manner that is consistent with governments’ energy policy objectives.”

It assumes a bare minimum effort on climate out to 2030, and no effort after that, and on this modelling it is impossible to work out whether it could produce a more agreeable result if a higher emissions target were dialed in to the equation.

It may be that Turnbull simply wants to kick the energy policy can down the road. The final design of the proposed framework – according the document – is not expected to be ready until the second half of 2018, by which time a federal poll may already have been called, or the country well in truly in election mode.

In any case, if the states do agree this Friday for the ESB to do further work, the states will need to take greater control of the direction that it is moving.

Primarily, they need to instruct the ESB to model what might happen post 2030, and if greater ambition is dialed in before 2030 to confirm the ESB claims that it will have the flexibility to respond and not penalise wind and solar.

Other groups have also been coming to the party, saying they are willing to look at it, but there is a growing list of “deal-breakers” that will prevent their support once the details are defined.

These are not dissimilar to the 30 reasons to question the NEG that we published soon after the release, but the focus is on:

– It must provide a clear signal for new renewable generation, and it must also combine this with sensible and ambitious energy efficiency and demand management policies. It must allow the states to develop their own policies if the federal ambition is not strong enough.

– It must provide no avenue for retailers to buy international offsets to meet their emissions targets.

– No soft RET-like penalties if they fail to meet those obligations. Any unmet emissions obligations should be handled by the regulator who would then conduct an auction for new wind or solar capacity.

– Observance of the Australian Energy Market Operator’s annual ESOO report for the obligation requirement. That may mean, according to an ESB response to questions posted after its webinar, that no obligations need to be imposed in regions that don’t need it.

“If there is no reliability issue in a particular state then the reliability obligation won’t be imposed,” it says. It needs to hold true to that, because, if AEMO is to be believed (along with Finkel and the CSIRO), there is virtually no region at all, after the next two summers, that will need such a requirement.

– There must be no squibbing by using existing hydro to meet emission reduction targets. It has to be new generation.

– It must not only provide a clear signal for new generation, it must also combine this with sensible and ambitious energy efficiency and demand management policies.

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31 Comments
  1. mick 12 months ago

    chuck this baby out with the bath water

    • Joe 12 months ago

      Water is way too precious to just toss. The NEG and the tosser who dreamt it can get chucked / tossed.

      • mick 12 months ago

        ok down the sh—-r

        • trackdaze 12 months ago

          Bio energy?

          • mick 12 months ago

            maybe not just reading about nsw wanting to burn forest waste for that abc north coast

          • RobertO 12 months ago

            Hi Trackdase Bio Energy less that 2% total energy, too small to make a large difference, however very good for the planet.

  2. Patrick Comerford 12 months ago

    It’s hard to imagine in your wildest dreams a more convoluted disfunctional situation that Turnbull and his lackey has bought us to. It’s all becoming gobbledygook and I like to think I have some understanding of the energy future that this country needs. This is a disastrous situation we are now in and is entirely the fault of this LNP government and the woefull performance of Turnbull in particular.

    • solarguy 12 months ago

      Welcome to NODDY LAND!

    • Joe 12 months ago

      Is it too late to go back to…Finkel’s CET? Sarcasm.

  3. SA_Jack 12 months ago

    The fact that the NEG’s modelling suggests a generation mix near exact replica of the Business as Usual case is the ultimate indication of it’s quality. All this time wasted to produce a policy that by it’s own admittance is a do nothing – achieve nothing policy. Pathetic.

  4. RobertO 12 months ago

    Hi All, It is very important that the NEG must go (canned completely). If it is delayed or postponed then that is bad for RE. The COALition will be gone at the next election and may be things may start to recover then. RE is good for new jobs at all levels, both short term (Construction and Transport) and long term (On going Maintainance). RE will also put downward pressure on electricity prices (solar is already doing that on households).

  5. Malcolm M 12 months ago

    Revised modeling needs to cover
    -realistic price decline curves for large scale solar, rooftop solar and wind, with sensitivities of perhaps 20 percent in this rate of decline (modelling to date appears to assume minimal further price reductions to 2030)
    – a cost inflator for the degree of concentration of generator capacity

  6. technerdx6000 12 months ago

    If hypothetically the NEG goes ahead in its current form, it might stop large scale renewable generation being built, but this will continue to push up prices. This means the rooftop solar and residential battery storage market is going to continue to explode because the grid prices will be so high. This makes me confused. Is the government going to stop residential solar too? I can see much more than 50% of Australia’s electricity being produced from rooftop solar if the NEG goes ahead (and rooftop solar isn’t limited). Many will also go offgrid.

    • trackdaze 12 months ago

      I wouldn’t put it past them.

  7. Thucydides 12 months ago

    Not a shred of economic credibility left in this government.

    • MaxG 12 months ago

      They never had any to begin with :))

  8. Jo 12 months ago

    No worries, It’s just a NEG.

  9. howardpatr 12 months ago

    The heavy hand of John Pierce, the Chairman of AEMC and lobbyist for the encumbent fossil fuel gentailers?

    • Ken Dyer 12 months ago

      John Pierce is well past his use by date as are his fellow two commissioners. We have Tony Abbott to thank for that piece of chicanery.

  10. JIm 12 months ago

    COAG is going to suspend disbelief and offer a reconciliation on the eve of a State election which prevents Queensland from being present? I very much doubt it. The proposition of the Feds is a misfit with SA’s circumstances which I’m sure SA Liberals will wake up to (if they haven’t already). They are now leafleting households in anticipation of energy being a key issue at the State election on 17 March. Key features of their plan for energy affordability and security are subsidies for battery storage and a second grid connection. This is obviously an SA special. They have stopped well short of repudiating the vision for SA to be a leader in decarbonisation (just don’t do it Labor’s way…or make it less obvious) and this plan, in supporting batteries, is not exactly tech-neutral.

  11. john 12 months ago

    Frankly this is how i see it:
    Do not set out a long reasoned explanation as the average person will not read it.
    Short and sweet.
    Using PV will help you, using Storage will help, you adding PHES will help the bottom line, more importantly using CSP would be more beneficial to the whole system.

    • AndrewATA 12 months ago

      Yep that’s pretty much what we did with our report today. Speed up the wind and solar, build Snowy Hydro 2.0 and a few other things, and we can have 100% renewable by 2030. Cheaper than new coal.
      http://www.ata.org.au/news/100-renewable-energy-by-2030

  12. solarguy 12 months ago

    Get prepared for more bullshit regarding, well this bullshit from the nut jobs. Like, not allowing roof top solar to be installed and not being allowed to ditch the grid( as in SAPS) if the grid runs past your house. But they will keep this card up their sleeve for later!

    • RobertO 12 months ago

      Hi Solarguy, I called this grid past your front door as a “Front Door Tax”, if you want to or have left the grid then you will pay the tax if we go past your front door. Expect to see a Roof Solar Tax also (you have PV on your roof you pay Roof Solar Tax). The ESB is only interested in protecting coal, because if they were interested in Energy Security they would insist on Batteries for all power stations (Coal Gas, Hydro and all the others)

      • solarguy 12 months ago

        They might bung this capper on, but we’ll fight it!

      • juxx0r 12 months ago

        Send them a bill for your car maintenance, even though they don’t use it, you drive it past their front door, so they should pay for it.

    • Darren 8 months ago

      There is at least one sensible argument in favour of a grid availability charge (as opposed to a grid usage charge), and it’s this… as more people leave the grid, it leaves the cost of the grid to be split between fewer and fewer people, so the cost per person increases, forcing even more people off the grid and even higher prices for those that remain. Those that leave the grid are going to be higher income earners, as they are the ones who can afford the large solar systems and batteries needed (and if they have a pool or other large energy sink, they’ll need huge systems). That leaves the grid populated only by those who have no choice but to remain, being renters, welfare recipients, pensioners and other lower income earners, and at the same time being charged even more ludicrous prices for that service because of their smaller numbers. Leaving the grid may be good for the individual that does it, but screws everyone else.

  13. RobertO 12 months ago

    Hi All, Dose anybody have a copy of this NEG report?

  14. epicycler 12 months ago

    to me it all seems rather simple …. short term marginal cost means renewables cheaper, always used first, puts downward pressure on prices. Add that renewables are take it or lose it (today’s wind is gone but there’s more tomorrow) and coal can be left in storage which applies more pressure.

    Coalition cries foul, says what about security. Add minimum power limits for stable power (that’s power not energy). Don’t AEMO already have that authority? Which results in adding storage to be regenerated as stable power, which is a good idea anyway.

    But no, have to include protection for coal with some concocted complicated unmanageable guarantee scheme. “They” don’t like the market “they” created. I sense political flim-flam.

    It appears as if “they” want me to subsidise coal – that’s what it amounts to once the marginal cost curves for renewables and fossil crossed.

    Once that cross over occurred its a simple economic argument, decoupled from climate discussion as renewables are going to happen anyway.

    Strangely, its also in the economic interests of the incumbent renewables generators to not see more renewables installed as they get revenue at the highest price needed to satisfy demand, which is fossil. Hardly a competition.

    • Calamity_Jean 12 months ago

      “It appears as if “they” want me to subsidise coal….”

      Of course “they” want you to subsidise coal! How else are the coal mine owners supposed to stay rich and happy?

  15. epicycler 12 months ago

    this article has a chart with “Liddell Exit” and “Snowy 2 Entry”. One is a generator, the other storage.

    Storage currently requires purchase and resale of energy and surrender of RET certificates. That is somewhat sensible because renewables are always consumed first (they are cheaper) so anything stored is above current demand and will be fossil.

    Which is why Wivenhoe (500MW, 5000MWh pumped storage) is not utilised.

    So change the rules. Add a “tolling storage” mechanism. Like left luggage, I own the energy I pay you to store it and give it back to me. I sell it to the market. SA are getting round market rules with “pairing” but it has to be broader than that.

    That’s still not enough to ensure storage is utilised but it will help when storage is really needed.

    I guess I’m confused by the two marks on the chart.

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