Why the NEG could be a “terrible outcome” for renewables

Australian energy market experts have delivered a scathing appraisal of the Turnbull government’s National Energy Guarantee, describing it variously as a “pea and thimble trick”, a potentially “terrible outcome” for the renewable energy industry, and as a further extension of the Coalition’s faction-driven energy policy farce.

In a webinar hosted by the Australian Solar Council on Friday, ASC chief John Grimes spoke to the former chief of the Clean Energy Finance Corporation, Oliver Yates, and energy industry analyst Tim Buckley, about the implications of the Coalition’s proposed NEG plan, announced early last week.

While noting that the details of the policy proposal remained extremely vague – and were most likely 12 months away from becoming any clearer – each speaker expressed serious concerns that the NEG would fail in all of its key goals, of creating electricity market reliability, sustinability and affordability, while also nobbling the renewable energy industry along the way.

“This (NEG) just continues the farce of the energy policy uncertainty that we’ve seen for the past four years,” said Buckley, the IEEFA’s director of energy finance studies, Australasia.

“It’s not a policy, it’s a way of leaving us in limbo for another year while they debate and put another proposition (that the Coalition’s right wing might support).

“The words and the meaning of energy security seem to be absent from this plan,” Buckley added. “I don’t think a system that is increasingly reliant on coal-fired power is diverse, and I would also challenge the argument that it’s going to deliver affordability for Australians any time soon,” he said.

Yates – who recently left his role at the helm of the federal government’s green bank, the CEFC to set up a private clean energy investment start-up – said the proposal would take the electricity system back to the 1980s, when the market was bi-lateral, revolved around baseload fossil fuel generation, and concentrated power in the gen-tailers’ hands.

But his biggest concern was for the threat the NEG posed to renewables investment in Australia, which could trigger the same sort of downward spiral it experienced during the leadership of Tony Abbott.

“If there is no change to the RET, it actually is a terrible outcome for the industry,” he said. “There is a real risk in this scheme that for (renewable energy) projects coming into the market after 2020, the price of RECs will fall to zero. It’s a real attack on ability to finance renewable energy projects.”

The issue in question is about a small but crucial detail, of whether new wind and solar projects built after the RET is met in 2020 will be able to generate new certificates.

The legislation currently says yes, but this will send the price to zero. Even though many contracted projects currently ascribe no value to RECs, the ability of merchant plants to be access any sort of RECs price was considered important.

The Coalition has said it will not now change this feature, and appears to be doing lobbying of its own too justify that – a front page story in The Australian on Monday said it would create $7.5 billion in extra subsidies to renewable energy generation built before 2007. i.e. hydro.

That inflated number assumes the price of RECs stays around $80/MWh for a decade, which is absurd and not what anyone is suggesting, and ignores the impact of any plant that might be built “independently” – that is, not contracted by an incumbent retailer – between now and 2020.

“This is equivalent to scrapping the RET,” Yates told the webinar. “This is an equivalent statement to what Abbott did when he said he was going to scrap the RET.

“They know the RET had to be restructured by 2020… By making it clear that they do not intend to restructure the RET, they are (doing the) equivalent to scrapping it from 2020 and making it zero.”

And Yates explains how this will impact investment in the industry: “When you get to 2020 and you have enough projects in the system to meet the (RET obligations)… nobody stops creating certificates.

“There’s no new buyers for those certificates. There is no more demand. Nobody is required to actually buy those certificates to meet their emissions requirements.

“So immediately, you are left with – and they are electronic pieces of paper – more electronic pieces of paper than people want to buy. You can’t bank them, you can’t eat them, you can’t even stick them on your wall.

“So …for most people in the industry, that actually means that the price of them will be very low, and they will be continuing to be created year after year because the scheme is not being shut down.

“So the creation of certificates does not stop, however the demand for certificates stops as soon as you’ve reached the target and no retailer has to submit those in to the CER, so you have more certificates than you have buyers, and demand, and then you know what happens,” he said.

Tim Buckley agrees that, based on the little detail available, the NEG could be disaster for Australia’s renewable energy progress, and adds that the cost of this would ultimately be born by consumers.

“It’s designed, in my view, to try and stymie and slow the roll-out of renewables in Australia,” he said.

“To me, this policy is hitting Australians in the hip pocket with very, very expensive gas and electricity, when leading countries like India are actually recording a series of record low world-scale renewable tenders that are delivering both wind and solar …at below $US40/MWh, down 50 per cent in the last two years, and 20 per cent below the cost of existing domestic thermal power generation.

“Clearly, our government is saying that they’re interested in jobs, they’re interested in investment, and yet they’re totally willing to turn their backs on the renewable energy industry.

“The outcome we require is very, very clear,” he added. “Unfortunately the federal government’s focus on coal is ridiculous.”

Grimes, who has campaigned doggedly in support of the Australian solar energy industry throughout the Abbott and Turnbull leaderships, had an equally bleak view of the implications of the NEG for the renewable energy sector.

“It is our assessment that this is about killing investment in renewables leading up to and after 2020,” Grimes said on Friday.

“The impact today, If you are an existing… owner of a large-scale renewable energy project, I think, right now, you’re in the firing line. If you are proposing a large-scale project, and you’re close to, or near financial close, or in the pipeline, you’re absolutely in the firing line of this policy.

“If you’re a REC trader, who is actually trading renewable energy certificates, you’re in the firing line of this policy.

“If you’re about commercial solar, and we have so many members and stakeholders who are doing lots of projects of 100kW and above, you’re in the firing line – not at some point in the future, not necessarily post-2020, but today.

“If you’re a manufacturer, you’ve got skin in the game here; if you’re a a distributor… if you’re an installer… you’re absolutely in the firing line.

“And I can tell you, there’s whole lot of confusion and uncertainty around what this means for small-scale solar,” he added.

“That, in terms of market confidence is critical, and you’re in the firing line for this. If you’re a householder, or a supporter of renewable energy, this is actually quite a sophisticated attempt to close down renewable energy in a much more palatable and friendly way that Tony Abbott tried to do.

“But the outcome, the implication is exactly the same.”

In terms of emissions reduction, the commitment to which underlies the whole premise of the NEG as the Energy Security Board has framed it, the speakers were equally dismissive.

“It’s… putting all of the carbon emission reduction efforts primarily on non-electricity sectors, and we don’t have a policy for that, we don’t have a price for that,” Buckley said.

“So, to my way of thinking, it’s the government’s way of totally ignoring Australia’s Paris climate agreements.

“China and India are ahead of their Paris climate agreements. …India is way ahead of their targets, and they’re being motivated, economically, to continue to accelerate their deployment of renewables.

“And meanwhile, our government is most likely going to announce they’re going to have to subsidise the next coal-fired power plant, because there is no private financial corporation that is going to bankroll it without a massive government subsidy,” he said.

“If you don’t make these carbon reductions in the electricity sector,” added Yates, “then you’re going to have to find those carbon emission savings from somewhere else. That’s going to be more expensive than doing it in the electricity sector. So it’s just robbing Peter to pay Paul.

“I asked one of the …members of the energy security council had they considered that the very low carbon emission reduction for the electricity sector was going to mean other sectors were going to have to reduce emissions and that was going to be expensive?

“And they took the old party line, ‘Oh that’s outside our terms of reference. We’re only allowed to look at the electricity sector.’

“So the fact that you’re going to … carbon emissions from the electricity sector and pile them on to another sector, and that other sector is going to suffer increased costs, is being (ignored) from the analysis, totally… “It’s economic madness.”

For Grimes, however, it all boils down to playing party politics, particularly within the Coalition’s own ranks.

“That war is being waged, and the far right, and Tony Abbott, are absolutely on the ascendancy,” he said.

“The government survives in the House of Representatives … with a voting margin of one. They are one heartbeat away from a by-election or some other change, and the forces on the right know that, and they… say if you have renewables, if you extend the RET, if there’s any sort of pricing mechanism for carbon, I’ll cross the floor.

“Well the implications of that, is that the government will fall, and Malcolm Turnbull will no longer be prime minister. So, as a result they’ve won, they’ve won the game.

“It’s a bit like a scheister’s card game … a pea and thimble trick… that’s what’s happened here. Very scant policy detail in the background of a very poor process… that provides a whole lot of uncertainty and meets some short-term objectives.”

“The objective of those who are on the ascendancy …is to create delay, confusion and uncertainty,” Grimes continued. “Because, if those things exist, how can anybody make a meaningful investment in renewable energy.”