Verdia Update – The National Energy Guarantee

The Federal Government’s National Energy Guarantee has its limitations and is certainly not short of critics. Yet despite its flaws, the prospects for renewable energy projects in the Commercial and Industrial sector remain high. Behind-the-meter solar PV installations still provide electricity cheaper than the grid and their cost continues to fall.  While electricity prices from the grid have stabilised since the highs of 2017, they remain higher than ever and in the long term are likely to continue increasing.

 

Where is it up to?  

The Energy Security Board (ESB) was established by the COAG Energy Council in November 2017 and is chiefly tasked with developing the National Energy Guarantee (NEG). The first public consultation paper was released in February (available here) and submissions were received from over 150 stakeholders.  

After reviewing these submissions and consulting further with the sector, the ESB released its initial design of the NEG (available here) for the COAG Energy Council meeting on Friday 20th April. This release contains a number of important details, including the Commonwealth design elements relating to the emissions target.  

At this meeting, the ESB got agreement from the states to continue developing the policy with a meeting on the final design scheduled for August. If approved at that meeting, the policy will make its way through Parliament to be legislated and enacted over a 12-18 month period. 

What are some possible implications of the current design? 

With the details available it is difficult to know exactly what impact the NEG will have on the energy sector. However, commentators and industry experts (such as the Energy Efficiency Council) have highlighted some important considerations that Verdia will be following closely. 

The current emissions target stipulated by the NEG will likely be met by 2020 under the existing Renewable Energy Target. Minister Frydenberg has been unequivocal in standing by the 26% target but it is likely to be the biggest hurdle in getting state governments to agree to the final policy. If a higher target is legislated (either due to pressure from the states or transition to a Labour Government), the policy will encourage significant investment in renewable energy in Australia.  

In the most recent update provided by the ESB, the reliability guarantee has been watered down to a point where it does not appear likely that it will be triggered. While some commentators have put this in a negative light, without strict reliability contracting requirements, future renewable energy projects may actually be cheaper and easier to get off the ground. 

In its latest form, some say that the NEG will do little to support new renewable energy projects beyond 2020. However, from a pure policy mechanics perspective, the NEG provides many of the right levers and does have the potential to provide long-term certainty for renewable energy projects. All that is needed is for the emissions target to be increased – and with campaigns such as the one launched by the Smart Energy Council (see here) that will hopefully be the reality.  

What does it mean for renewable energy projects today? 

The simple answer is: not much. While the NEG is still being developed and the details will evolve as the ESB continues to consult with industry and state governments, the case for renewable energy projects is still as compelling as ever: 

  • Behind-the-meter solar PV installations provide electricity cheaper than the grid and their cost continues to fall 
  • While they have stabilised since the highs of 2017, electricity prices from the grid remain higher than ever and they are likely to continue increasing 
  • Government subsidies (e.g. LGCs and STCs) continue to be offered and LGC prices are still over $80/MWh – the sooner projects are installed the sooner businesses can benefit from these subsidies  

 

Recap – what is the National Energy Guarantee? 

The NEG is the Coalition Government’s proposed energy and climate change policy. It is the first time the Australian Government has endeavoured to achieve both energy and climate change objectives under the one policy. It is not intended to solve all the issues or be a silver bullet; instead, it is expected to work alongside other policy measures and provide an overall direction for the energy sector in Australia. 

As it stands, the NEG contains two key elements: 

  1. Reliability Requirement – ensuring there is adequate dispatchable generation across the National Electricity Market 
  1. Emissions Requirements – ensuring that electricity delivered through the NEM meets emissions targets in line with Australia’s commitment to the Paris Agreement