COAG energy ministers agreed on Friday to commission more design work on the Turnbull government’s proposed National Energy Guarantee, forcing the renewable energy industries in Australia into a new era of policy uncertainty.
The decision was expected, given that Queensland could not vote due to its state election tomorrow, the Liberal governments in NSW and Tasmania would always support it, and Victoria earlier this week declared itself open to finding out more about the plan.
This left South Australia and the ACT in the minority in their opposition to the NEG – or, as federal energy minister Josh Frydenberg put it in a press conference in Hobart this afternoon, they “they had their say today, and they lost.”
All the states have not agreed. South Australia voted against work being conducted on the NEG unless it was done in conjunction with work on an EiS & the CET. https://t.co/FaS7xQnqSU
— Tom Koutsantonis (@TKoutsantonisMP) November 24, 2017
Still, the federal government was forced to abandon its original tactic of asking the states to actually approve of the NEG, instead merely seeking consensus on doing further work.
The Energy Security Board will now do this work, returning with more ideas in April about how a new emissions obligation and a reliability obligation might work; how it can avoid reinforcing the power of the incumbent generators, and if it is scaleable.
Final design proposals may not be presented until the second half the 2018. Agreement then, will require the support of all states. By that time, South Australia will have gone to the polls, Victoria will be in election mode or have voted, and Canberra may also be winding up for a federal poll.
The decision means that renewable energy sector, and the nascent energy storage industry, will face at least another year of policy uncertainty, with only the state-based targets and lingering high prices driving new investment as the renewable energy target is already nearly met.
Queensland’s 400MW renewable and storage tender is dependent on the result of Saturday’s poll, the results of Victoria’s 650MW renewable energy auction will not be known until next July, while the Northern Territory is expected to announce the details of its renewable energy plan next week.
The only factors driving new projects are the soaring prices in wholesale markets and the growing corporate off-take market, as big companies look to slash their energy bills through contracts with wind and solar projects.
The reaction to the ESB’s updated modelling has been scathing, with experts noting that it achieves little more than “business as usual.”
The modelling, as revealed exclusively by RenewEconomy on Wednesday, admits that it may not achieve any more emissions reductions than doing nothing; may not invite any new investment in wind and solar or storage of note; and any bill reductions for consumers will largely be driven by wind and solar installed under the RET.
Analysis from Bloomberg New Energy Finance supports this, saying it would “decimate” new investment in the wind and solar industry.
On BNEF estimates, the NEG under current emission reduction targets will actually cause a reduction in the amount of renewable energy (particularly wind energy) over business as usual, and an increase in the amount of coal generation. (See graph above).
However, if the Coalition aimed for a 45 per cent emission reduction target – as recommended by the Climate Change Authority to meet the Paris requirements, but rejected outright by the Coalition’s right wing – then the amount of solar may increase four-fold, mostly at the expense of coal.
In a separate analysis, Reputex said that under the NEG, and the Coalition’s current emissions reduction trajectory, net zero emissions in the Australian electricity sector may not be reached until between 2095 and 2101. (See chart below).
Most analysts say that to meet the Paris treaty, this global target needs to be met before 2050. (See chart below).
The consensus agreement at COAG was reached after South Australia and the ACT found themselves outvoted by NSW, Victoria and Tasmania.
NSW and Victoria are shareholders, along with the federal government, in Snowy Hydro, the company that would build and own the huge Snowy Hydro 2 pumped hydro project, which appears to be the big winner from the NEG.
Tasmania was told just before the meeting that it would get $20 million from the federal government to do further studies on the proposed new Basslink that the government would like to build to become a “clean energy battery” for Victoria, also supported the move,
South Australia and the ACT also failed in their attempts to force the Energy Security Board to model the NEG against the policies that the Coalition has previously rejected, Alan Finkel’s Clean Energy Target and the emissions intensity scheme.
“Why is Australia holding back. What is it that they are afraid of,” South Australia energy minister Tom Koutsantonis said.
“What’s clear from the Energy Security Board’s report into the NEG is that it stifles investment in renewables, keep dying, uneconomic coal power stations alive longer, and enriches the generators with the most market power.
“South Australia and the ACT are at the cutting edge of energy technology … we want more solar thermal, not less. We want more pumped hydro, not less. We want more wind and solar.”
Koutsantonis said South Australia would commission its own modelling of alternative policies.
“If you truly believed the NEG was the best option to drive down power prices, why wouldn’t you agree for it to be compared against other mechanisms? The answer is that the NEG is in truth the third best option. That simply isn’t enough and can’t be supported by South Australia.
“To proceed the NEG would require unanimous support at COAG, so this policy is either years away, or won’t happen at all.”
But Frydenberg either isn’t fazed by this, or isn’t looking that for forward.
“South Australia and the ACT took a stand, and they were defeated. The COAG energy council rejected their bid, the message from that is that the Commonwealth and the other states see the NEG as the only game in town,” he said.
“We didn’t seek today to make the NEG a reality,” he added. “This process has some way to run. It has to be considered, it has to be careful, it has to be undertaken by the experts and that’s what we’ll do.
“What we are now doing, following the release of the modelling, following the agreement today, is to undertake design discussions with the key stakeholders.”
Frydenberg issued a media statement saying that the NEG and “new investments” would deliver bill reductions of $400 a year to households, but the modelling makes clear that most of this is the result of the RET that the Coalition sought to stop.
The Victoria government, which has its own 40 per cent renewable energy policy, but also three major brown coal generators, was criticised by the Greens for its support of the NEG.
“(Premier) Daniel Andrews has betrayed renewables by backing in the coal-huggers at COAG. He has sold his soul to coal,” climate spokesman Adam Bandt said in a statement.
“Despite knowing that the NEG will strangle investment in renewables and prop up dirty coal, Andrews has shown his true colours and capitulated at the last minute.
“Andrews should have joined with Greens climate Minister Shane Rattenbury in the ACT and the SA government who wanted to explore a policy that might actually work,” he said.
However, state energy minister Lily D’Ambrosio said Victoria had raised its concerns, would not approve the policy unless they were addressed, and had succeeded in forcing the ESB to report to the COAG council as a whole, rather than being “run roughshod” by the commonwealth.
“At the end of day – if the information comes back, and the National Energy Guarantee does not stack up, that will be the end of it,” she told RenewEconomy.
Clean Energy Council CEO Kane Thornton said the most important issue is whether the NEG can ultimately deliver new renewable energy investment that is crucial to reduce power prices.
“The clean energy industry will only support the NEG policy if it is designed and implemented in a way that ensures strong and sustained investment in renewable energy and energy storage,” he said in a statement.
“A lot of analysis and work is now required to fill in the detail necessary to fully assess the policy and its potential. This will determine whether it is capable of delivering this new investment and able to secure support from the clean energy sector.”
Giles Parkinson is a journalist of 30 years experience, a former Business Editor and Deputy Editor of the Financial Review, a columnist for The Bulletin magazine and The Australian, and the former editor of Climate Spectator.