Origin pushes for higher Co2 targets, as CEC lament’s “hysteria” over NEG

Major energy utility Origin Energy has lifted pressure on the federal government to increase its emissions reduction target, as the Clean Energy Council also clarified its position on the National Energy Guarantee, also saying it must come with higher targets.

Origin CEO Frank Calabria gave a presentation to a Macquarie Group conference in Sydney on Tuesday that pretty much summed up the majority position on the NEG: The mechanism is looking OK, but the emissions reduction targets are lousy.

Some suggest that on that basis, the industry should wave through the NEG, and then hope for a change of position from the Coalition government, or a change in government. Without emissions targets, the NEG would not encourage any new investment from 2020 to 2030.

This, however, has caused an enormous amount of tension between two of the key peak bodies in the renewable energy industry.

The Smart Energy Council has decided to “wage war” against the NEG, arguing that no developer or investor would commit money based on a hope for a change in government. The political risk is too great.

This position has prompted a slap down by energy and environment minister Josh Frydenberg against “green left” activism.

But it has also caused the Clean Energy Council to clarify its position on the NEG. Previously cited by Frydenberg as a key of the NEG, the CEC insists its support is conditional on higher emissions targets.

“The CEC does not support the National Energy Guasranee (NEG) in its current form,” CEO Kane Thornton said in a letter to members dated on Monday.

He said the CEC did support further work on the NEG by the Energy Security Board, pending a final decision in August.

“By that time, we should have a better understanding of the complete detailed design of the policy, and we expect that our remaining concerns – such as the current low emissions target – will have been suitably addressed.”

Frydenberg, however, has made it clear that the Coalition will not budge on its emissions reduction target for the electricity sector, which under the NEG will stay at just 26 per cent reductions by 2030 over 2005 level.

Analysts say the sector can and should do much more, and that these targets will in fact be met by 2020, thanks to the renewable energy target and other measures.

David Leitch has the latest update on that assessment in this analysis here. The broad consensus is that the NEG will do nothing to bring in new wind and solar generation of any significance.

BNEF’s Kobad Bhavnagri on Tuesday described the Coalition’s climate policy as built on nothing but hope – for an accidental decarbonisation of the economy.

Frydenberg has also promised to “lock” in that target for 2030, promising that the NEG would set a target 10 years hence, with only one review – in 2025 – that can only change the target with 5 years notice. i.e. from 2030.

This is the source of tension among the renewable energy industry. The SEC says it is unconscionable that any such measure is endorsed.

The CEC’s Thornton on Monday claimed “there is a lot of hysterics about the NEG at the moment, suggesting that there is “nothing in the current design” stopping a future government from ramping up the ambition quickly and swiftly.

That may or may not be the case – the nature of the legislation is not yet clear – but it depends on the ability of a future Labor government to pass any such changes through both the House and the Senate.

The big players also want more certainty. In his presentation, Origin’s Calabria said while the company supported the NEG in principle, it needed more ambitious targets.

“We support more ambitious targets for the electricity sector over time, including a transition to net zero emissions by 2050 or earlier,” he said.

Origin has pledged to quit coal by 2032 (AGL’s target is 2048), and says it is well positioned to benefit from a low carbon world.

The first graph illustrates its estimates of how much wind and solar will be built by 2020 – under current policies. It says possibly 11,000MW, and the market is responding in kind, by pushing down the futures price of wholesale electricity.

Customers are also busy, with the numbers switching suppliers each year jumping to nearly 22 per cent.

The next graph from Origin aims to illustrate how it is in a position to “prosper in a carbon constrained” world and well placed to bring in low cost renewables.

“Origin is committed to halving emissions in line with the Paris 2°C  goal,” it says.

The graph to the left illustrates Origin’s new renewable capacity additions over the net three years, leading to 1,853MW of capacity from June, 2020.

The graph on the right, however, shows not much has changed in the last year – renewables have remained constant, but the market position has change, with Origin relying more on coal from Eraring this half, and gas generation, and less on contracts and spot markets.