Hopes rise for energy policy breakthrough
Summary: The government's prospects of getting its National Energy Guarantee approved by the party room and the Parliament have been bolstered by two reports in the past week that give comfort to those in the Coalition advocating a greater reliance on coal.....
As Energy Minister Josh Frydenberg aims to steer the NEG through his own party's ranks before seeking federal Labor's support to legislate the policy, Coalition backbenchers who have been raising concerns about the NEG are indicating they could accept the policy should the government adopt key recommendations from the reports, which it has indicated it will.
Liberal MP Craig Kelly, one of the most outspoken critics of the NEG, described last week's report by the Australian Competition and Consumer Commission on the energy retail market as "a very big turning point in the debate". He told The Australian Financial Review that should the government adopt the key recommendations either in parallel with the NEG or as part of the policy it "would make all the colleagues very happy".
One of the most significant recommendations from the ACCC report would involve the government underwriting investment in new dispatchable power generation by entering into agreements to become a guaranteed power buyer of last resort.
While this would not directly fund the construction of a new coal plant, it could act as an incentive for a private operator to build one.
In return for their support for the NEG, the Nationals want $1 billion set aside for upgrading existing coal-fired plants and another $4 billion in equity funding for the construction of new ones. Nationals MP Keith Pitt, who is leading the internal push, said the guarantee recommendation had "similar merit" to directly funding new plants.
"There's more than one way to skin a cat," he said.
The government will officially respond to the ACCC report later this year. It's first priority is to receive the support of the states and territories for the NEG in August, then have the party room and the Parliament approve the legislation.
All sides of the debate were buoyed on Tuesday by the release of a report by the Australian Energy Market Operator that said the nation's existing coal-fired power stations needed to be kept operating for as long as possible before they were replaced with cleaner technology such as renewables.
This was the cheapest and most secure option to transition towards a clean energy future, which the NEG also aims to achieve.
AEMO found about 30 per cent of the NEM's existing coal resources, which produce 70,000 gigawatts of energy each year, would be approaching the end of their technical life over the next 20 years, which could have a major disruptive effect on the energy system, which is already dealing with the large influx of renewable energy sources.
While the coal-fired power plants will be replaced with renewable energy such as wind, solar and battery storage, it was important to keep the coal assets running for as long as possible.
The Nationals hailed the AEMO report as a victory for coal and their push for an upgrade fund. Labor and the Greens noted the report did not advocate building new coal-fired plants and that it signalled the eventual demise of coal.
Mr Frydenberg said the AEMO report should allay concerns within the Coalition that the NEG would spell a quick end to coal. The report sent "a warning shot that coal needs to remain an important part of the energy mix if we want to keep our prices down and our stability up".
"I'm sure a lot of my colleagues will be pleased with what they've seen in this report, which says that coal will continue to be critical in the years ahead," he said.
The NEG would require retailers to source power that meets simultaneous emissions reduction and reliability targets.
The government is proposing the electricity sector reduce emissions by 26 per cent on 2005 levels by 2030 under the NEG. Labor says this is too low and is proposing 45 per cent.
On Tuesday, opposition energy spokesman Mark Butler hinted strongly that Labor would support the NEG but ramp up the emissions reduction target should it win government.
"The design of the mechanism is looking very positive at the moment, it's looking like a workable model that won't do harm to the system," he said.
"The problem is the level of ambition that is being attached to it by Malcolm Turnbull ... will mean not a single large-scale renewable energy project gets built for an entire decade in the national electricity market."
"That is going to be a very substantial problem for the reliability and affordability of the system," Mr Butler said.
"So we do have an argument with the Turnbull government about the level of ambition."