Frydenberg says NEG won’t stop investment in cheap wind and solar

Federal environment and energy minister Josh Frydenberg says the proposed National Energy Guarantee will not put a stop to new investment in wind and solar farms, because of the falling costs of the technologies, as well as battery storage.

“I’m confident we’ll see continue to see under the National Energy Guarantee significant investment in renewables,” Frydenberg told Reneweconomy on the sidelines of the Energy Networks Australia conference in Sydney, following his speech that opened proceedings on Thursday.

The NEG – a final draft of which is expected to be completed by the Energy Security Board next week – is designed to marry an emissions obligation and a reliability obligation.

However, after many of the details of the mechanism have been resolved, there is still huge concern that because of the federal government’s weak emissions reduction target – just 26 per cent below 2005 levels for the electricity sector by 2030 – it will provide no signal for new investment, least of all renewables.

That appears to have been the conclusion of the initial modelling for the policy, which indicated little investment in new wind and solar from 2020 until 2030, a view shared by analysts such as Bloomberg New Energy  Finance, Green Energy Markets, and S&P.

And while ESB chair Kerry Schott has dismissed the idea of new coal generation, and been shouted down by government ministers and backbenchers for saying so,  Frydenberg has insisted that the NEG offers the “best chance” for existing coal generation to remain in the system.

RenewEconomy asked Frydenberg after his speech why the federal government refuses to lift the ambition of its emissions reductions for the electricity sector, given that most studies suggest that target will be largely met by 2020 because of the massive investment in wind and solar under the renewable energy target.

“What’s in favour of renewables is the declining cost curve,” Frydenberg said. “We’ve seen the price of wind and solar come down substantially, and the price of batteries come down with that too.

“You will see more investment of renewables coming into the system. The National Energy Guarantee does have the right level of emissions reduction, and at the same time it will put a premium on reliability which will be important in the system. So we think we have got the balance right.”

But, RenewEconomy asked, what investment signal will that send if the emissions target is already met, or as good as?

“The investment signal is the National Energy Guarantee framework, which has a decreasing emissions profile and an increasing reliability profile,” Frydenberg said.

“I’m confident that we’ll continue to see under the National Energy Guarantee significant investment in renewables.

“Let’s not forget Giles, because you obviously don’t give us credit for this, because it doesn’t suit your narrative, but the reality is that Australia has under the Turnbull government seen a record level of renewable investment.

“We are now the third most popular renewable investment destination in the world, on a per capita basis, more so than France, more so than Germany, even China … we’ve seen $10 billion worth of renewable investment deals finalised and closed over the last year.

“It’s very significant indeed, something that you have conveniently ignored in your publication.”

RE: “I don’t think we’ve ignored it, we’ve just pointed out that it is through a mechanism that you guys tried to destroy.”

JF: “You’ve ignored the boost in renewables under the Turnbull government’s watch.”

RE: “Every day we talk about the boost in renewables, I think.”

RE then asked if there was to be any further modelling released with the new draft due next week, but that was flat-batted and Frydenberg left with the observation that “households will save under the National Energy Guarantee, that’s something you should tell your readers about.”

As we reported in November, the NEG modelling predicted that households could save up to $400 a year by 2030, but it recognised that most of these savings would be delivered by the reduction in wholesale prices caused by investment in wind and solar under the RET.

If new modelling is released, it is going to be interesting to see what it says. The original version, which predicted only a modest rise in wind and solar investment over the 10 years, assumed costs of wind and solar far higher than what they are now.

Indeed, the industry is talking about large-scale solar costs of less than $50/MWh, little more than half the cost assumed by the ESB, and this could fall further given the expected surplus of solar modules caused by policy changes in China. Even with storage, “firm solar” is priced at $70-$80/MWh.

All eyes will be on the other key details of the draft NEG when it is released, and it will then become subject to weeks of submissions, feedback and negotiation before a final version is put to the COAG energy ministers in Sydney in July.

With the Turnbull government refusing to budge on its targets, and facing internal division from its own right wing that it has already gone too far, the focus will be on the treatment of individual state targets, and the ability of the mechanism to be scaled up with a future government or a change of mind in the Coalition.

Frydenberg has insisted that the Coalition wants to “lock the target” in until 2030, but this will be fought by the states, federal Labor, advocacy groups and one presumes many in the energy industry, particularly as Australia will be expected to lift its climate targets in 2019 under the review scheduled for the Paris climate treaty.

In the meantime, the renewables industry will turn to the Victorian and Queensland state targets (40 per cent by 2025, and 50 per cent by 2030), as the chief mechanisms to encourage more wind and solar investment.

Those, and the burgeoning corporate market, that has seen the likes of CUB, Mars Australia, University of Queensland, Nectar Farms commit to going 100 per cent renewables within the next year or two, and others – including steelworks and refineries – using solar to offset their energy costs.