Revealed: NEG “decisions” document confirms fears of critics

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“Decisions document” for National Energy Guarantee – circulated just a week after submissions closed – confirms worst fears of critics, but confirms the huge savings likely from new wind and solar projects.

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Barely a week after submissions closed on the Turnbull government’s proposed National Energy Guarantee, a “decisions” paper of the controversial policy proposal has been delivered to state and territory governments, ahead of the crucial August 10 COAG Energy Council meeting.

The 39-page Energy Security Board document has been distributed and a copy obtained by RenewEconomy. Bizarrely, the ESB is refusing to even confirm its existence, with a spokesman saying it will make “no comment” on its processes and will not release any details before August 10.

Those that have seen the document – and are prepared to admit its existence – raise many of the same concerns as they did about the draft document released in June, which called for responses to its numerous questions to be delivered in mid July. A week later, it seems decisions have already been made.

The new decisions document, dated July 23 and titled “National Energy Guarantee, COAG Energy Council Decision Paper,” details a number of changes that have been made to the policy since the draft was published in mid-June. Most are considered marginal and not really affecting the overall picture.

However, it also include is what appears to be update modelling which suggests even greater savings to be delivered from the NEG – now $550 a year rather than $400 a year.

Pointedly, most of the savings to households will come from the renewables energy generation brought to the system by the federal renewable energy target, and the Victoria and Queensland state targets.

“The continued connection of additional renewable generation projects to the NEM in coming years is projected to see prices fall from today’s elevated levels (Chart 3),” the document says.

“The modelled short-term wholesale price reductions are comparable to those currently implied by futures contracts.”

It says the average NEM-connected household is estimated to save around $550 dollars a year (real $2018) on their retail bill over the 2020s relative to 2017-18. Of this, nearly $150 per year (real $2018) is forecast additional savings as a result of the Guarantee.”

Which means that $400 of the savings come from renewables. In some years, the savings will be $500 a year just from the renewables from the RET – see chart 5 below.

The “decisions document” insists that without the NEG, there will be no new build in any form of generation, apart from Snowy 2.0 and rooftop solar.

It includes this chart above, which seems to ignore the Victoria and Queensland targets too, and seriously undercooks the amount of rooftop solar to be installed, even though it claims to be “in line with AEMO forecasts.”

The “decisions document” does not include expected new build with the NEG in place. The ESB could not comment or clarify because it could not confirm that the document actually exists.

The “decisions document” confirms the use of offsets, and while it says the mechanism can incorporate any further emissions reductions target, the key part of the mechanism that relates to how quickly the targets can be changed is not included. That will come from a special paper from the federal government.

The NEG has been criticised because the emissions reduction target – just 26 per cent for the electricity sector – is too low and will effectively be met by the early 2020s, and the Coalition government is trying to lock this in until at least 2030.

Many different independent analysts say it will result in no new renewables investment, will force prices to rise rather than fall because of the complexity, and will reinforce the power of the incumbents.

Those who have seen the latest document say that despite some cosmetic changes, their fundamental concerns remain, and chief among them is an apparent “premium” for coal, gas and hydro plants, at the expense of wind and solar.

Some of the fine details are still not clear, but the ESB document says the policy is designed to ensure that the owners of existing “firm” generators – i.e. coal and gas – have an incentive to keep them maintained and in production.

Bruce Mountain, from the Victoria Energy Policy Centre says it will result in a “straightforward transfer of wealth” from consumers to incumbent generators.

He says the policy is designed to deliberately obscure pricing of any emissions reduction, and the resulting complexity will flow through to consumers in the form of added costs.

John Grimes, the head of the Smart Energy Council, says the document shows renewable energy – now that it is finally being built – is driving down the wholesale cost of electricity, and yet the policy seeks to put everything in place to ensure power prices go up.

“It ignores modelling from RepuTex that demonstrates the NEG will increase power prices. This is an inconvenient truth for the Turnbull Government and the Energy Security Board,” he said in an emailed statement.
He said there were many critical questions left unanswered:
  • How will the national emissions reduction target be increased?
  • Will national and/or international offsets be included to excluded?
  • How can State and Territory Governments realistically go further than the NEG?
“State and Territory Governments should support the NEG when they have sufficient information to determine it’s in their State’s best interest, and should only do so on the condition that the Federal government implements a strong national emissions reduction target.”

The ESB document insists that the “guarantee is specifically designed so that it does not undermine, and may indeed boost, competition through measures that enhance market liquidity and pricing transparency in retail and wholesale electricity markets.”

It says that “under the emissions reduction requirement, smaller retailers are supported through the exemption of the first 50,000MWh of load and with greater flexibility to carry forward any over-achievement.

“Under the reliability requirement, when the reliability obligation is triggered, a Market Liquidity Obligation will require the largest participants to offer to buy and sell contracts with all participants.”

Changes to the reliability mechanism of the policy – designed to incentivise retailers and other liable entities to contract and invest in “dispatchable” resources – include:

– The allowance for large customers to be able to ‘opt-in’ to manage their own reliability obligation, “if they consider this is the most cost-effective and efficient approach.”

– Retailers can adjust their contract position within the compliance year when they take on new commercial and industrial customer sites with historic peak load less than 30MW.

– Large vertically integrated retailers will be covered by a Market Liquidity Obligation when the reliability obligation is triggered. “Obligated entities will be determined based on a size threshold and required to perform a market making function for the duration of the gap period.

– Liable entities found to be non-compliant with their contracting obligations will be charged an amount that contributes to the costs of AEMO exercising its Procurer of Last Resort function. This will be a proportionate cost contribution commensurate with the non-compliance, determined after the event and capped at $100 million.

Analysts are also concerned about potential windfall gains to long-standing hydro power plants, with those built before 1997 now being able to sell allocations, unlike in the RET. This will benefit the federal government-owned Snowy Hydro, and the Tasmania government Hydro Tasmania.

Other changes to the emissions component include:

• The approach to over-allocations of generation has been revised. Market customers have an incentive to reallocate generation in advance of the reporting deadline. Over-allocation will not attract a civil penalty.

• The carry forward limit increases, to up to 10 per cent of the first year’s electricity emissions intensity target per MWh of load plus a fixed amount of 60,000 tCO2-e.

• In the first year, market customers can defer their full compliance obligation, but any deferral must be made up in the following years.

COAG NEG Decision Paper - final

 

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30 Comments
  1. Keith Altmann 2 months ago

    The Grattan Newsletter of 24 July may also have some relevance to any decision. They view most of the issues leading to price rises are beyond government control.

    • Robert Comerford 2 months ago

      They are only beyond govt control because our govts choose it to be so :>)

    • Kevfromspace 2 months ago

      Tony Wood of the Grattan Institute is a rusted on supporter of the NEG. He thinks that home solar panel deployment has come “at great cost” and is generally anti-renewable energy, calling its supporters “green evangelists”. I don’t think he’s very concerned about climate change, nor the oligolopical power of the major gentailers.

      • Peter F 2 months ago

        I think that is a bit harsh, but while he is way ahead of the government he has been a bit behind the curve lately

      • David leitch 2 months ago

        I agree with you Kevfromspace

  2. Rod 2 months ago

    $550 per year savings hey. Now where have I heard that before? Tony, still waiting.

    • Patrick Comerford 2 months ago

      Yeah funny that, remarkable coincidence no collusion here folks totally independent report blah blah blah. The energy ministers need to punt this fiction out the window and into the rubbish bin.

    • juxx0r 2 months ago

      And most of that comes from what we’ve already achieved, maybe we could do a bit more of that and get bigger savings.

      Such is the perverseness of our government that they wouldn’t even look for the best solution. Instead, propose a complex solution to a non problem in order to push prices up.

    • Ian Smith 2 months ago

      The only way I’ll get a $550/a saving is to install solar panels and a battery.

      • Rod 2 months ago

        Maybe not a battery, just yet. But around 6.5kWp on your roof, EW or NW would certainly save $550 per year. A bit of load shifting will help too.

        • juxx0r 2 months ago

          we saved $550 in four months

    • Joe 2 months ago

      Rod, your ‘cheque’ must be still stuck in the mail system somewhere.

    • Steven Gannon 2 months ago

      He was wrong by $1,100.

  3. Farmer Dave 2 months ago

    Giles, I am delighted that you have obtained this document and have shared it with us. I have long been worried about the additionality issue, and have done my best to understand the emissions reductions sections to understand how this version of the design deals with additionality. My understanding so far is that projects built under State emissions reduction schemes can choose to be included in the NEM wide reductions, or can be excluded from those reductions. If the choice is to exclude a project, then the emissions reduction it brings will truly be additional to the NEM emissions reduction guarantee mechanism. If any of the readers of this site think I have this wrong, then please correct me.

    There are two other situations where this possible solution to the additionality problem may not apply. Firstly, a corporate entity may want to enter into a Power Purchase Agreement (PPA) with a new wind or solar project, and may want its support of the project to result in emissions reductions above and beyond those being achieved by the NEG. This document seems to be saying that such a choice may not be available to such entities. Secondly, households or others who install behind the meter renewables may also want the emissions reductions their investment will achieve to be additional to those required under the NEG, but again this choice does not seem to be available to them.

    Again, I would welcome comments or corrections on this issue.

    • Peter Campbell 2 months ago

      I share your concern for additionality. As a resident, rate-payer and electricity purchaser in the ACT, I don’t want the ACT’s 100% renewable electricity to be undermined and used to let another jurisdiction free-load and do less.

  4. Ken Fabian 2 months ago

    The question isn’t how existing emissions targets will be met, but how future emissions targets that lead zero emissions will be met. Attempts to shame the LNP into keeping international pledges actually just leads, in LNP thinking, to blaming international agreements for having to do something they don’t want to, ie treat the climate problem like it actually exists. It strengthens rather than weakens their resolve.

    This lot will have no problem with failing to keep those agreements. I’d like to say, if they are still in office, but given Labor’s tendency to shoot selves in feet – along with a general failure to commit to anything and fight for it with determination – I have no confidence the LNP will be on the opposition benches any time soon.

    • Joe 2 months ago

      One wonders why The LNP bother staying within UN / International pledges and conventions. The Paris Agreement, UN Conventions on Refugees are two that The LNP don’t have their heart in it so why their continued acting. They don’t care so just get out and be truthful about how they really feel.

  5. Peter F 2 months ago

    And why would anyone stop following Bluescope, Gupta, Coca Cola, Telstra etc and not keep signing PPAs as large scale renewable and storage prices continue to fall. Are these people completely blind.

  6. onesecond 2 months ago

    I have read that at the same time the COALition tries to sabotage clean energy production they have approved hundreds of millions of dollars to trial geoengineering efforts such as spraying salt water into clouds over the Great Barrier Reef or floating a biomembrane above it to reduce the heat that is killing it. But of course what they really do is everything they can to ensure coal plants stay open and even want to build new ones while there are heat waves all over the globe! In Japan died a lot of people because of it and there were temperatures as high as 25°C 500 km NORTH of the arctic circle and 33°C in Siberia and there are forest fires like never before in Sweden in recorded history!
    It is just sickening. They should be in prison and not running a country.

  7. Brad 2 months ago

    At least now we can clearly see that the NEG emissions target is based on a starting point of 24% reductions when the RET ends with a further ~4 Mt CO2e per annum drop over ten years via the NEG (without modelling the Qld and Vic RETs to completion).

    According to the website for the Murra Warra wind farm (429 MW), it will displace over 1.7 Mt CO2e per annum, meaning that the NEG emissions reduction requirement is equivalent to adding 1 GW of wind power and no utility solar over 10 years.

    Not to mention it assumes measly projections for rooftop solar, which, if modelled to reflect even this year’s additions with a similar rate of change as modelled for the NEG following it, eclipse the additional reductions required even without any utility renewables over the next decade.

    What a joke.

  8. Askgerbil Now 2 months ago

    The NEG policy doesn’t even acknowledge the reason that electricity prices increase, and will continue to increase. The attached spreadsheet image (in the twitter post) is a model of what happens to the average wholesale electricity price when demand increases for just 12 hours a month to 10,000 MW from a typical value of 8,000 MW per day.
    If you play with the model and try the same increase to 10,000 MW for 24 hours a month instead of 12 hours, the price increase becomes far more extreme.

    The NEG policy is written as though this price sensitivity doesn’t exist and isn’t forecast by the AEMO to worsen.

    https://twitter.com/Askgerbil/status/1021026208698359809

  9. Phil NSW 2 months ago

    The NEG pushes the onus for compliance from the Retailers/Generators on to the customer. This a huge shift to protect the incumbent gentailers. A retailer is actually best place to report and be responsible for ensuring emission targets are met.

    I also note the price reduction (not attributable to the NEG) in forecast wholesale prices is not explained fully but is well understood to be caused by the increase of RE in the NEM. Does this not imply further increase in RE will put more downward pressure on wholesale prices?

    • Mike Westerman 2 months ago

      Pure obfuscation – an expensive complicated way of avoiding simply imposing a carbon tax on generators, and reverse auctions for sufficient dispatchable reserve, if the current off market contracts are insufficient. Sad that members of the ESB are so willing to sell out.

  10. Diego Fuentes 2 months ago

    It is a political document designed to lock in the LNP’s favourite things – transfer of wealth and consolidation of power to large corporations, beneficial treatment of their fossil fuel donors, killing renewable energy for ideological reasons, killing employment in industries who’s employees might vote Labor, acting against the economic interests of the general population for the benefit of the elite. Was it written by the IPA?

    • Mike Westerman 2 months ago

      You missed: promulgated by the American turncoat Murdoch

      • Calamity_Jean 2 months ago

        Hey! We don’t want him either!

        • Mike Westerman 2 months ago

          Yeah well he sold his birthright so your problem now to take out the garbage!

          • Calamity_Jean 2 months ago

            Gee, thanks! /sarcasm

  11. Le Clair 2 months ago

    Is the ACIL Allen extensively used in the preparation of these documents the same ACIL Allen whose modelling completely failed to match reality when predicting the supply of STC’s into the market under the SRES? Yes, I think it is.
    How can there be any confidence in their NEG predictions which, face it, are extracted from thin air, when, with 6 years of operational data in the SRES behind them, they have gotten it so hopelessly wrong for 2 years in a row?

    • Jonathan Prendergast 2 months ago

      The truth is, even the best modelling cannot predict the future in terms of energy costs. It is all about assumptions, but technology and price change, government policy, market corrections cannot be predicted. If anyone can find me a forecast model that has been right, I’ll buy them a beer

Comments are closed.