National Energy Guarantee 'clumsy, inefficient', says VEPC's Mountain
Summary: The Turnbull government's proposed revamp of Australia's electricity sector has many unresolved issues just two months before states and territories are supposed to sign off on the plan, the head of the new Victorian Energy Policy Centre said.....
Bruce Mountain, who will launch the new centre in Melbourne on Wednesday said the National Energy Guarantee (NEG) as designed would not reduce coal generation and would "only slightly increase renewable capacity".
"It's clumsy and inefficient," and deliberately set up to hide a market price for emissions, Dr Mountain told Fairfax Media. The government's own forecasts say "it will move nothing in a meaningful sense".
Among Dr Mountain's concerns - to be detailed in a speech at the launch - was the lack of a penalty for non-compliance, undermining the policy's credibility.
While retailers would be obligated to reduce the emissions intensity of the electricity they purchase, the reliance on a registry rather than a market to settle shortfalls would also hinder transparency. One consequence would be to hobble the development of financial instruments, potentially raising costs.
The overall approach was "without precedent [and is] projected to make effectively no difference to greenhouse gas emissions relative to business as usual", Dr Mountain will say in his speech.
By contrast, Australia had a readymade market for the Renewable Energy Target (RET), which would be much more effective than the NEG, he said.
The creation of the new policy centre - based at Victoria University and mostly funded by the Andrews Victorian government - is likely to increase scrutiny on the NEG in the final months of its development.
Josh Frydenburg, the federal environment and energy minister, wants states and territories to agree on the plan by August 10.
The scheme aims to reduce power prices while improving security of the grid as the share of renewable energy sources increase. It also intends to ensure the electricity sector - sources of about one-third of Australia's carbon emissions - meets Australia's Paris climate commitment of cutting 2005-level emissions 26-28 per cent by 2030.
“There is an unprecedented cross section of support for the NEG," Mr Frydenberg said.
“The independent Energy Security Board’s (ESB) modelling found that the guarantee would add over 3200 megawatts of additional renewable capacity compared to business as usual and would result in lower prices," he said, adding that household power bill would fall by an average of $400 by 2020.
Dr Mountain said the requirement of the electricity sector to meet only an average emissions reduction goal "would impose costs - probably large - elsewhere in the economy in order to deliver the Paris commitment".
The Australian Energy Council, which represents major generators, said the NEG had made major design advances since its conception late last year with the Energy Security Board set up to drive it.
Still, "the [board] are working to a remarkably short timeframe to deliver a largely completed reform", a council spokeswoman said.
Among the council's concerns, as detailed in its submission, the body would prefer only the high-level structure and legislation be set up now. The more complex details would then be set up within the National Electricity Rules over time.
"Whilst our cautious approach is preferred where feasible, we have to acknowledge that the ESB has a difficult juggling act to retain support across so many parties, and are therefore under pressure to deliver it in considerable detail before the next COAG meeting," the spokeswoman said.
Another concern for Dr Mountain was the current NEG design - unlike the RET - could provide a windfall for old hydro stations owned by Snowy Hydro and Hydro Tasmania. While the current low emissions ambition of the Turnbull government meant the transfers would be minimal, that would change if a future Labor government took over and significantly increased the electricity sector's emissions-reduction load.
Tackling the NEG issues will be only part of the new policy centre's priorities.
Tackling the high costs of electricity in general will be another, with Australian states now enduring the high power charges before tax in the world, according to data analysed by Dr Mountain.
The retailers charges amounted to about $423 of the almost $1400 typical residential bill in Victoria as of May 2017, Dr Mountain's data showed. That compared with $73 for state and federal environmental schemes, $415 for networks and $263 for the actual wholesale generation charge.
Of those retailers' charges, Victoria was the highest in Australia, followed by NSW, and considerably higher than other nations. The European Union's average retailer charge of about 2 Australian cents per kilowatt-hour compared was a fraction of Victoria's 12 cent charge, and more than 8 cents in NSW.