NEG worse than thought – penalising rooftop solar and large scale projects

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ESB modelling is false and misleading, claiming credit for projects already in pipeline. The latest NEG outline also penalises rooftop solar and large scale solar, does crazy things with offsets and will end up lifting prices.

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Figure 1: Modelled emission reductions. Source: ESB
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We have now had a chance to review the Energy Security Board’s (ESB) final National Energy Guarantee (NEG) design sent to COAG Energy Ministers this week, which has not been made public but is widely available.

The bad news for the clean energy industry is that the restrictive and discriminatory features in the design of the NEG have not been addressed.

These include:

• the ESB is still not recognising emission reductions from roof-top solar, whereas those from pre-existing large-scale hydro gets recognised;

• only electricity retailers can register and carry forward emission reductions, which disadvantages renewable generators and potentially hands windfall gains to electricity retailers; and

• allows electricity retailers the use of Australian Carbon Credit Units (AACUs) to meet their emissions liability but does not allow renewable generators and energy efficiency projects to create ACCUs.

This paper, however, is not going to deal with the above issues in detail but rather focus on the ESB’s claim that the NEG will deliver lower power prices and lower greenhouse emissions than would otherwise be the case.

The ESB’s NEG is claiming credit for the emission and price reductions associated with renewable projects that are already contracted or subject to tenders that would have happened anyway.

ESB still understates the level of renewables and emissions reductions that would be implemented in the absence of the NEG

ACIL Allen has undertaken modelling for the ESB and under their “Business as usual” scenario (without the NEG) have assumed that only those renewable projects that have already reached financial close would proceed.

They have included the initial Victorian and Queensland government renewables tenders but exclude any other tenders and also exclude any other projects that have been contracted but not yet reached financial close (refer to ESB’s Chart below).

The ESB have assumed that 7,800MW of large-scale renewable and battery projects come on line between 2018-19 and 2020-21.

The ESB claim that anything that is delivered beyond this is attributable to the NEG. This is false and misleading, as there will be considerably more renewables and emission reductions that will take place from 2020-21 in the absence of the NEG.

The ESB is claiming the NEG policy will deliver more than 5 million tonnes of emission reductions in 2020-21 alone (refer to the ESB’s chart below). This would require very roughly 2000MW of new wind and solar capacity to achieve.

This is all rather interesting given:

• The NEG emission liability does not come into force until 2020-21;

• The ESB will allow retailers to defer compliance for their entire liability in this first year to a later period;

• The scheme is still yet to be legislated and the regulatory rules remain to be drafted; and

• It typically takes around 18 to 24 months for a significant renewable energy project to move from being contracted to construction and then fully operational.

Modelled emission reductions

From analysing our detailed database of renewables projects and reconciling it with the ESB’s numbers above we estimate that:

• They’ve omitted from their non-NEG scenario 1,180MW of projects that have already been contracted under long-term power purchase agreements with credible off-takers (but have not yet reached financial close);

• The Snowy Hydro (800MW) and AGL (500MW) tenders for renewable energy are credited to the NEG. It seems unreasonable to include Snowy Hydro 2.0 (as the ESB has done) as a business as usual project when it has not yet been committed, while not also including the announced 800MW renewables tender. Similarly, ESB has included the closure of Liddell power station under its BAU scenario, but doesn’t include AGL’s 500MW renewables tender which was to form part of the resources to replace it; and

• They appear to have omitted from the non-NEG scenario any large solar system (above 100kW) capacity being installed. We’d expect at least 100MW per annum of embedded solar PV generation above 100kW to be installed over the next four years (55MW have been registered in the first six months of 2018 alone).

Electricity emission reductions and ACCUs

The NEG design provides a mechanism for retailers to use Australian Carbon Credit Units (ACCUs) to meet their NEG emissions liability, but does not allow renewable energy and energy efficiency project proponents to use their emission reductions for voluntary surrender or to create ACCUs that could be used outside of the NEG.

With the surge in renewable energy investment, the level of additional renewable energy to be produced significantly exceeds the Renewable Energy Target (RET) target.

As a result, the forward price of Large-scale Generation Certificates (LGCs) has dropped dramatically. Pricing for LGCs to be delivered at end of January 2021 is now at $23.50 with pricing for future years considerably lower.

The spot market for ACCUs is currently trading at $15 per tonne ($12.30 per MWh assuming 0.82 t/MWh emission intensity).

The demand for ACCU’s is primarily determined by the Government’s purchasing requirements under the Emission Reductions Fund, the voluntary market and the compliance market under the Safeguard Mechanism.

Longer term, the demand for ACCUs may also be determined through international carbon markets where the Government seeks to link with other countries.

This market could, over time, become quite large and effectively provides an alternative support mechanism for low emission power generation projects.

There are currently 48 projects registered under a range of energy efficiency methodologies to create ACCUs. Several power generation projects have also been registered under the Industrial Electricity and Fuel Efficiency Methodology and have created ACCUs.

A separate methodology for grid-based renewable power generation has not yet been developed as the support provided by LGCs exceeded the value available through ACCUs. As the price of LGCs plummets the ACCU pathway becomes a viable option to support new renewable power projects.

In the absence of the NEG, ACCUs would have continued to be a pathway for energy efficiency and renewable generation projects that reduce emissions.

In our analysis we have assumed that projects that reduce emissions by 500,000 tonnes per annum come on stream each year from 2022 onwards.

However, the NEG restricts the ability for parties other than retailers to claim emission reductions and there is no mechanism to cancel emissions reductions so that retailers are not able to use them to meet their NEG liability.

As a result, emission reductions are not additional and parties are not able to claim the emissions reductions for ACCUs or in the voluntary market.

This means that the NEG results in higher emission than would have happened anyway.

Our alternative estimate of emissions in the absence of the NEG is detailed in the green line in the chart below.

By way of comparison the dark blue represents the NEG emissions target and the dashed blue line is what the ESB is claiming to be the level of emissions if the NEG is implemented.

From an emissions perspective the NEG design makes things worse

The NEG design does not allow project proponents to register and claim the emission reductions associated with their projects to create ACCUs.

This means that an avenue that supports emissions reductions into the future will be cut off by the NEG. As a result, the NEG will result in higher emissions than would have happened anyway.

In terms of reducing electricity prices, the price reductions claimed by the NEG are due to the surge in renewables generation that would have happened anyway and not by any new investment triggered by the NEG.

While a future government might choose to increase the emissions reduction target the proposed NEG design (i) locks out roof-top solar as a cost-effective emission reduction activity and (ii) provides windfall gains to existing old hydro generators.

Both impacts mean that electricity prices would be higher than would otherwise be the case.

Ric Brazzale is Director of Green Energy Markets

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18 Comments
  1. MaxG 8 months ago

    I know I sound like a broken record: but the NEG is in the true spirit of neoliberalism pursued by the LNP. As long as the majority of Australians vote for these clowns, this is what they will get. Profits funnelt into private koffers, not the public, and cementing income streams for the incumbents.
    Even more so astounding that most solar PV owners also vote for them… implying solar is predominantly a financial motive for them.

    • Joe 8 months ago

      “….broken record”…Max, don’t be down on yourself. It’s not your fault that you are saying what’s true. Of course whenever the penny finally drops the punters are very good at whingeling and then blaming everyone but themselves for voting for “these clowns”.

      • MaxG 8 months ago

        … and speaking of the LNP… did you know they want to approve dumping nuclear waste in the Flinders Ranges (Kimba). Only people living within 50km of the site are allowed to vote on it. I am sure the LNP is proud of their achievement of having swayed the SA voters, to screw them over once more. But, hang on, they are all for it in true LNP spirit!
        https://www.adelaidenow.com.au/news/south-australia/kimba-votes-yes-to-radioactive-waste-dump-in-eyre-peninsula/news-story

        • john 8 months ago

          But but Nuclear is the cheapest to produce power i heard only last week.
          I did print out the Lazard report which he looked at and dismissed because it did not suit his mind set.
          https://uploads.disquscdn.com/images/87d0acca92e60e377eb3b803da754ffdcfe8230a0bb43e38ba1160e4c7ff7570.jpg

          • neroden 8 months ago

            If you heard this from a politician, talk to the person running against him in his constituency about his refusal to accept hard data because “he didn’t like it”.

            If you heard it from someone with a government job or a job in the energy business, talk to his boss.

            Know-nothing behavior should be exposed.

        • lin 8 months ago

          ….cause wind couldn’t blow material from an accident, fire etc for more than 50km, lol. Half of Australia’s population is a day downwind of this. There would be people in Adelaide and surrounds who were exposed to radiation from a-bomb testing on the land of the Maralinga Tjarutja people who could attest to how far this stuff can travel.
          We are being lead by dangerous idiots, and this sort of atrocity has even less chance of seeing the light of day with the folding of fairfax into the cesspit of 9 “journalism”.

        • Joe 8 months ago

          I guess that the proposal getting a fresh go was a no brainer now that ex-Premier Jay is no longer sitting in the Big Chair. I live in Sydney so I may not be on top of all the detail but isn’t the land for the proposed Nu Clear Dump owned by a ‘LNP supporter’ ? Now that The Marshall is in town, he and Turnbull will see to it that the Nu Clear Dump is approved.

        • Mike Shackleton 8 months ago

          Let’s get some perspective on that nuclear waste. It’s low level materials generated from nuclear medicine. It’s not spent rods from nuclear reactors. I’m not a fan of nuclear power because of the waste it generates, but this is not the hill those who care for the environment and public safety should by dying on..

          • Joe 8 months ago

            Even if we accept what you say about ‘low level waste’ once a dump is established whats to stop the dump accepting high level waste in the future. All The LNP see is $’s, and S’s for overseas waste coming to Australia. Health and Safety considerations…hah …the money always trumps that. There is one thing I know….never trust The LNP!

          • James Hansen 8 months ago

            Please note that the area around Hawker is a flood plain. If it gets cut off in the middle of operations, will there be distractions from safety and no media reports?

  2. john 8 months ago

    It annoys me to hear a Government Spokesman or Women saying ” It is because of our policies you are seeing a lowering in price of electricity ” .
    No there is zero policy in place there is zero policy you are going to introduce that will do this however others have put in place policies and you bare faced lairs are already claiming credit !!!!!!!!!.

  3. howardpatr 8 months ago

    The heavy hand of the chairman of the AEMC and fossil fue lobbyist, John Pierce, is evident. Absurd that renewable energy generators can’t create AACUs. Just another carrot for Abbott and his overt and covert supporters in the LNP. Pierce has been dancing the tune of those who deny anthropogenic climate change and the renewable energy for years.

  4. hydrophilia 8 months ago

    So, the LNP folks chant that “Nothing could be better than the NEG” and, based on the evidence, I must agree and say vote for “nothing”!

    • My_Oath 8 months ago

      Yep. “The NEG, literally worse than nothing.”

  5. Eric 8 months ago

    EVERYONE, PLEASE TAKE CONTROL OF YOUR ENERGY PRODUCTION!

    Welcome to the new renewable energy world people!! They want you to pay for your solar panels and battery and then they will high-jack it and sell your energy for a profit to the highest bidder. Don’t beleive the spivvy sales con jobs that will be rained down on you and subliminally projected into the back of your mind.

    Whatever you do.- DO NOT ENTER INTO CONTRACTS WITH LARGE INCUMBENTS FOR YOUR SOLAR ROOF AND BATTERY SYSTEM INSTALLATION. THEY WILL USE YOU LIKE A MILK COW AND TREAT YOU LIKE ONE.

    Take the time to research what systems are available. You will find a local contractor that can do the work, it is basic. Once you have your system and battery INDEPENDENTLY setup, then, – YOU ARE IN CONTROL AND YOU CAN TREAT THE INCUMBENTS LIKE MILK COWS.

    Don’t be a sheep! You know it is the truth.

  6. Malcolm Green 8 months ago

    This is scandal. Rules that lock-out renewable generation just plainly lack integrity. These people are degenerate. Judging by super Saturday bye-election this cabal may very rightly be dismissed.

    • Phil NSW 8 months ago

      The results of the by-elections are in and it sends a clear message to Canberra or more specifically, Malcom Turnbull. He should be now figuring out he has failed to play us for fools. The people have spoken. Hopefully the NEG is now dead in the water as the Labor states can rejected it because they know they no longer need to pitch the middle ground. The people want leadership and Malcom has not delivered and we already know Tony’s version is worse.

  7. neroden 8 months ago

    The states need to kill the NEG flat out. If I remember correctly, all the states need to approve for it to go into effect? All the states need to reject this atrocity. It appears to be designed to (a) penalize renewable energy, (b) raise prices, and (c) provide windfall gains to incumbents, none of which are legitimate goals for the government to pursue.

Comments are closed.

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