Frydenberg threatens states as NEG “sign on” date closes in

Political debate over the Turnbull government’s proposed National Energy Guarantee is at the pointy end, this week, ahead of the Friday meeting with state and territory energy ministers, who are coming under increasing pressure to “sign on” to the controversial policy.

The Coalition is mustering friends – in business and the media – to put major pressure on the Labor states, amid suggestions that the main business lobby is also preparing a war-chest to tackle Labor head on on energy prices, just as the minerals lobby did for the mining tax.

Independent analysts, meanwhile, are registering their horror at the assumptions made by the Energy Security Board, and particularly its predictions that the NEG – at current policy settings – will cause a near decade-long investment drought in wind, solar and even large scale battery storage.

For his part, federal energy minister Josh Frydenberg is opting for threats and scare tactics, assuring listeners to ABC Radio’s Breakfast program that anyone who doesn’t support the NEG, and this investment drought, is “condemning” Australians to higher power prices.

“Anybody who is against the National Energy Guarantee is turning their back on those experts (who populate the Energy Security Board,” he told RN’s Fran Kelly on Monday morning.

“And if the Labor states were seeking to delay or to obstruct the NEG, they will be held to blame for the high power prices.

“And so anybody who opposes the NEG, will be condemning the families and businesses of Australia to higher power prices than they would have otherwise paid.”

Just how this works is unclear, considering the ESB’s own modelling has shown that just $150 of the $550 a year of energy savings would result from the NEG, while $400 would come from the reductions to prices delivered by the Renewable Energy Target. And even that assumption is under question.

But as Frydenberg knows only too well, this is a war of words and not facts. Just take his comments on the emissions abatement element of the NEG.

When Fran Kelly noted that the NEG’s 26 per cent emissions reduction target was actually only a 2 per cent reduction on emissions, because they had already effectively been reduced by 24 per cent already, here’s what followed:

JF: The ESB makes clear that an additional 38 million tonnes of abatement will occur under the government’s target and without a concrete mechanism in place, there is no guarantee that emissions reduction will follow.

FK: But we’re at 24 per cent…

JF: It’s 38 million tonnes of abatement…

FK: It’s a 2 per cent reduction…

JF: It’s a 38 million tonne reduction. And more importantly it’s a $550 annual saving to Australian households and a 20 per cent reduction in wholesale prices.

Frydenberg also contradicts himself about potential future adjustments to the ambition of emissions reduction targets under the NEG.

Labor states have asked for reviews of the emissions target every three years, and want to be able to ramp up the target via regulation, instead of needing to pass new legislation each time, in a more than likely hostile senate.

One the one hand, Frydenberg argues legislation is needed for certainty.

“The states wanted a review, and we’re happy to provide it,” he told ABC’s Kelly. “But it should be in legislation not regulation. You can’t just flick a switch to turn a target from 26 per cent to 45 per cent with all the subsequent consequences that that will mean for the energy companies.”

On the other hand, he has offered the states a review of the target in 2024, which could see it scaled up mid-way through the scheme after a review of demand forecasts, and an analysis of the costs.

“In the first half of 2024 the government will conduct a review to ensure targets from 2025 to 2030 remain appropriate,” a Commonwealth paper circulated to the states in late July said.

Frydenberg also argues that federal Labor backs the NEG.

“We have a very clear recommendation from the ESB that this policy is the best in the world. Mark Butler, the Labor spokesman, has described it in his own words, as a very positive, as a very good, as a Rolls Royce design. They’re his words.”

But in comments on Monday morning, Butler was not talking Rolls Royces, but strangling of renewable energy investment, and of the failure of the Coalition to get its own party room on side.

“Federal Labor has been consistently supportive and constructive over energy policy… Malcolm Turnbull by contrast has been consistently unable to secure the support of his own party room for sensible policy reform.

“We know that the surest way to bring down power prices is to build more renewable energy, yet Malcolm Turnbull’s plan will strangle renewable energy investment over the course of an entire decade – pushing power prices up. So we will fight any plan that strangles renewable energy investment and jobs,” Butler added.

Still, Frydenberg’s main tactic is to pass the buck to the states and territories, and particularly those like the ACT (Greens), Queensland (ALP) and Victoria (ALP), that have indicated they will not be supporting the NEG in its current form.

“This is politicking and posturing ahead of Friday’s meeting,” he said, “because the states know all well and good what will hopefully occur on Friday is that we agree to the design of the National Energy Guarantee subject to a phone hook-up after the policy has been through the Coalition party room.”

And this particular brand of pressure is not coming from the government alone.

“Importantly, we’ve seen a broad cross-section of industry and consumer groups …saying any delay (to the NEG) will be denying people lower power prices,” Frydneberg said.

And by broad range, he means the Minerals Council of Australia, the Business Council of Australia and the Australian Industry Group, whose message is eerily similar to the government’s.

In an op-ed published in the Sydney Morning Herald on the weekend, AIG boss Innes Willox warns that the states blocking the NEG would be a “colossal mistake,” that would lead them with nothing gained, except for “responsibility” for a slow motion disaster.

“Make no mistake, if the COAG Energy Council fails to support the NEG on Friday they risk further price spikes for Australian households and businesses,” said BCA chief Jennifer Westacott, quoted in the AFR.

“Disagreements about Australia’s emissions reduction ambitions are not an excuse to block the durable framework of the National Energy Guarantee,” she said.

The BCA, chaired by former Origin CEO Grant King, has become a renewable-skeptic organisation, and the ESB’s prognosis that wind, solar and battery installations would come to a crashing halt under the NEG and current policy settings would satisfy its view of the energy world.

There is even talk that the BCA is building a “war-chest” to fight Labor, and recalcitrant states, if they reject the NEG – just like the minerals lobby did when the mining tax was proposed.

With state elections coming in Victoria this year and in NSW in March, and a federal election due in May, this could put the frighteners into the Labor power-brokers.

Meanwhile, the clean energy industry is starting to fear a repeat of the investment droughts that afflicted the industry in the recent past – first in 2006 when the Coalition killed the then MRET, and again when Abbott tried to kill the current target.

Peter Cowling, the head of wind turbine manufacturer Vestas Australia, said in our Energy Insiders podcast this week that the industry is enjoying momentum, but any investment drought of the type modelled by the ESB would result in capital equipment and expertise being lost overseas, and the cost of new investment rising rather than falling.

It’s a must-listen interview.

But of course, the Labor states are not the only threat to the NEG. Another comes from within the Coalition’s own party room – which, ironically, is one of the key concerns keeping state energy ministers from signing up.

Victoria and the ACT have both repeatedly warned that they will not support the NEG, without a guarantee there will be no extension of an “open cheque” to hard-right coal agitators like Tony Abbott and Craig Kelly.

It is no secret that a hardcore right rump off the LNP would like the federal government to underwrite the development of new coal-fired power plants, as well as support to keep existing plants running.

“Prime Minister Turnbull, myself as the energy minister, the Cabinet of Australia, the majority of party room are backing the NEG… That is a good sign of where the discussion will go in the party room,” said Frydenberg on Monday morning, before adding…

“It’s always been the position of the government, that the NEG itself is not a silver bullet.

“What my colleagues and the prime minister and I are talking about here (is that) …there are some very positive recommendations in (the ACCC electricity market review) that the government would like to move forward with.

“One of them is to deal with the market failure which is specifically for generators… new entrants into the market that cant’t gain access to finance because they can’t get an offtake agreement with a large energy user for beyond five years.

“This is a market failure, and this will require the Commonwealth potentially to provide a level of support and guarantee to allow those new generators to come to the market,” he said.

“Could it be coal?” Kelly asks?

“Rod Sims has made very clear, and the government position the same, it is technology neutral.”