New reports slam NEG as “renewables killer” designed for “short-term” politics

As the Turnbull government’s National Energy Guarantee prepares to try and clear another political hurdle this week, two new reports have emphasised the devastating impact the policy would have on renewable energy in Australia, and the negligible impact on emissions reduction.

The first report, a National Energy Emissions Audit electricity update published by The Australia Institute, confirms the industry-wide concern that current NEG modelling would create “an investment cliff” for Australia’s otherwise booming renewables sector, with no investment after 2021.

The report, written by energy analyst Hugh Saddler, also picks over some of the bigger holes that perforate the Energy Security Board’s modelling, that is meant to underpin the NEG.

In particular, it notes the major discrepancies between the projections for new renewable energy capacity under the NEG, and those of the Australian Energy Market Operator, in their recently published Integrated System Plan.

While AEMO factors in the renewables targets and policies of the Victorian and Queensland governments, and sees them leading to a steady build of new capacity (Figure 10), the ESB “apparently pretends” these policies don’t exist, or won’t be implemented, except, perhaps in 2019-21 (figure 11).

“Certainly, none of the ESB’s reports mentions these state policies,” Saddler writes. “Nor do the reports at any point mention the growing volume of new renewable electricity being directly contracted by large corporate electricity consumers.

“And neither do they include the new solar generation which AGL has told its shareholders, and the wider investment community, it will build before 2022-23 as part of its plan to replace the Liddell power station,” he adds.

“The overall result of the ESB’s modelling assumptions is that the currently booming wind and solar farm construction industry is killed in 2021-22.”

A strange enough assumption in light of the current shape of the renewable energy market, Saddler says – but bordering on absurd when you consider renewables will then have to “re-emerge a decade later” to replace the 9,000MW of coal generation capacity likely to close in the 2030s.

“The most likely explanation for the lack of comment on the ESB’s projection is that it is meant to only serve a short-term political purpose,” Saddler writes. “Serious industry participants know that new renewable generation will continue to be built, in line with AEMO’s ISP, because the economic case to do so is compelling.

“If this is a correct interpretation, what does it say about policy processes in Australia?”

The second report, this time from the Australian National University, warns the NEG – as it stands – would put Australia at the “back of the pack” of the world’s OECD countries, in terms of ambition on renewables and on emissions reduction.

“By international comparison, Australia’s aim for renewable energy is clearly quite unambitious,” said report researcher James Prest, from the ANU College of Law.

“Our review of Renewable Energy Targets in all OECD countries shows only five …that have a lower target than Australia [Czech Republic, Hungary, Israel, Canada, and the United States], and some of these have already high levels of renewable electricity production.”

Dr Prest also says the government’s plan to set, and then lock in, limited climate targets leading up to 2030 will leave Australia at risk of not meeting its procedural obligations agreed to under the UN Paris Agreement on Climate Change.

“This is because Australia’s decision to lock in Emission Reduction Requirements are inconsistent with our international obligation to review them in 2023,” he said.

“There is a real risk the new proposed domestic policy will not have the flexibility to take into account the timetable of the international climate ambition review process.”

This is the crux of one of the reasons why Australia’s Labor states and Territories are currently refusing to sign up to the NEG, as we reported here on Friday.

As stipulated by Victoria, those states would like to see emissions targets re-evaluated and reset every three years – and so done through regulation – in order to keep them in line with global efforts to curb dangerous climate change.

The Labor states, among others, argue that ambitious climate targets are essentially in lock-step with ambitious renewable energy targets, because the Australia’s electricity sector has the by far the greatest potential for cheap carbon abatement.

In turn, greater ambition on renewables, is linked with a greater scope to reduce electricity prices. Or, as Victorian energy minister Lily D’Ambrosio put it on Friday:

“Higher emissions targets will lead to the requirement of more renewable energy generation to be built. The more renewable energy generation that is built, the lower electricity prices will get.”

Of course, this is almost the exact opposite message to that which is being pushed home by the federal Coalition, whose latest slogan seems to be “stuff the climate, we’re all about lowering prices.”

“While the labor party is talking about emissions, we’re focusing on prices,” federal energy minister Josh Frydenberg said in an interview last week.

(Although as Greens MP Janet Rice noted on Twitter, below, that is the trouble with the Coalition’s approach to energy policy, in a nutshell.)

Further to that, they also argue that more renewables leads to higher electricity prices and more chance of the lights going out.

“Victoria not only has the second-highest prices in Australia, but it also, following the closure of Hazelwood, which took 25 per cent of the supply out the market, has gone from being an exporter of power at times to now being an importer of power,” Frydenberg told ABC’s Insiders program on Sunday.

As we report here, these statements were fact-checked on Twitter, and found wanting. But Hugh Saddler makes some interesting observations in his TAI audit that also suggest they could be partisan myths.

“It is interesting to note that average spot wholesale prices for the month of July in both Victoria and Tasmania, at respectively $70.10 and $44.85 per MWh, reached their lowest levels since December 2016, before Hazelwood power station closed,” Saddler notes.

“While this observation cannot be said to prove that higher levels of renewable generation will reduce prices, it is certainly not consistent with the claim that renewable generation pushes wholesale prices up.”