It’s getting increasingly hard to find anything right about prime minister Malcolm Turnbull’s policy thought-bubble, the National Energy Guarantee.
It has been slammed from pillar to post since its rushed unveiling last year, because, according to the growing ranks of critics, it will do nothing to address Turnbull’s “energy trilemma” of emissions, prices, and reliability. In fact, there are fears it will make each of them worse.
Utilities, analysts, and activists have already criticised the NEG for doing little on emissions, putting an effective freeze on renewable investment, and creating a scheme of such complexity it would likely push up prices and reinforce the power of incumbent utilities.
The reliability component has also been slammed for being vague, ill-defined and possibly unworkable, and addressing a problem that may not even exist. Now developers of energy storage are also complaining, because it could have the opposite effect of what it intended and may stifle investment.
If you thought that the NEG would get one thing right, it would be to provide a signal for new investment in “dispatchable” capacity. But Tesla and Genex, the leading developers of battery storage and pumped hydro projects in the country, say it could do the opposite.
Tesla, as we report in this separate story, says the NEG and other market rules are designed to favour incumbent fossil fuel generators, and it accuses the Energy Security Board of not being abreast of new technologies such as its own big battery – the world’s biggest – in South Australia.
“Achieving an appropriate mix of generation assets is dependent on removing existing market barriers for battery energy storage as a technology type,” it says. Read more here: Tesla says Energy Security Board needs to catch up with battery technology
Genex, which is building a 270MW solar farm and a 250 pumped hydro facility in Queensland, in an old gold mine, says the NEG is likely to stop investments such as its world-leading project.
“We do not view the current concept design as providing the appropriate incentives for new investment in dispatchable capacity,” Genex says in its submission.
Retailers have also made their views clear, suggesting that there is no reliability gap and any reliability obligation would simply reinforce bigger retailers and push up prices.
“There is currently no forecast reliability gap,” the 10 retailers say in a joint letter accompanying their joint submission. Technology is likely to make today’s issues moot within five years. We need to proceed with caution to avoid making significant, costly changes that have dire consequences.”
Grid owners are also not happy. Spark Infrastructure, which owns networks in South Australia, Victoria, and a minority stake in Transgrid, says the scheme will likely do little, apart from adding costs to consumers.
“There is the potential for the scheme to result in further costs being imposed on end-use customers with little demonstrable improvement in reliability or emissions,” Spark says in its submission.
It also warns that the NEG would result in yet more market power in the hands of the big generators, a group it has previously accused of deliberately rorting the system to create scarcity and push up prices.
The Australian Renewable Energy Agency said it was concerned about the complexity of the contracting regime that the NEG seeks to impose, and the risk of reinforcing market power of the big incumbents.
It also wants the ESB to consider the “shape” of the reliability requirement, not just the scale. This is important to take into account “distributed generation”, and the up to 13GW of behind the meter storage that could be installed by 2030.
“Were AEMO to centrally procure additional capacity on the basis of an overly precautionary approach to forecasting the contribution of distributed energy resources, this could result in stranded investments in large-scale generation with costs borne by consumers,” it says.
ARENA’s own studies show that the cost of providing storage for up to 40 hours in a high penetration renewables grid would be in the range of $100-$150/MWh – far cheaper than the peaking plants that the current fossil fuel grid relies upon. And costs were likely to fall further.
It also noted that wind and solar, and battery storage could be installed much more quickly than traditional generation. Solar was being built in less than two years.
Some upcoming battery storage projects were likely to take less than 7 months to complete after contracting – just like the Tesla big battery. The lead times for demand response were even shorter than this.
Enel Green Power, part of the largest integrated utility in Europe, and which is building the 220MW Bungala solar farm in South Australia with the hope of adding battery storage, echoed some of Tesla’s complaints.
It said the emissions from batteries need to be differentiated to reflect they are likely to be charged by wind or solar.
It was also damning on the weak emissions targets, saying they would do nothing to attract new investment in clean energy technology.
“The proposed emission reduction target for the electricity sector (-26% of emissions by 2030 versus 2005 levels) is not very challenging and falls substantially short of the requirement for the 2 degrees scenario,” Enel Green Power says.
“With such a low target, new investments in clean technologies – which are becoming more and more competitive with conventional generation – would be hindered rather than encouraged.” It also warns of the risk of reduced competition and higher prices from the contracting regime.
Pacific Hydro, one of the biggest renewable energy operators in the country, and with plans to launch a retailer, agreed that the consultation process has been rushed, with insufficient time to consider the potential impacts of such major changes.
“The real risk is that the reliability shortfall calculation further entrenches the existing players, with the result being less competition and higher prices in the long term,” it said.
Goldwind, the biggest wind turbine maker in the world, also says the reliability guarantee risks reinforcing the power of incumbents, pushing up prices, and is too complex to be introduced by 2019 as planned.
Indeed, it was hard to find many submissions that were supportive – apart from those among the big gen-tailers that stand to benefit, and the various lobby groups who have been supportive of the concept from the get-go, and may even have helped develop the concept.
These include the likes of the Energy Supply Council and the Business Council of Australia. Even Adani’s submission urged the ESB to recognise Australia’s resources and its ability to have high penetration of renewables in Australia.
Among the big retailers, Origin Energy did not appear particularly impressed.
It says the emissions targets are well short of what could be achieved -– Origin wants zero emissions by 2050, and it is concerned about the emissions obligation on retailers rather than generators, and the complexity of reliability contracting.
Given all this, the ESB must somehow absorb the enormous complexity and detail of the more than 106 submissions it has published – and however many more are not published – and put together a “high level” plan for the COAG ministers meeting ….. in just three weeks.
It has all the hallmarks of a rushed job designed to fix a political problem, a characteristic that has been evident from the start.
In the end, the fate of the NEG may well depend on the outcome of Saturday’s state election in South Australia.
The state Labor government has made no secret of its contempt for the scheme, and energy minister Tom Koutsantonis, in his submission, highlighted the numerous storage projects that his government has put in place.
He criticises the NEG on numerous fronts, on emissions, the failure to recognise new technologies, and the risk of higher prices and reinforcing market power.
“The South Australian government further holds concerns with the process of developing and consulting on the NEG, with these deficiencies exemplified by the reliability section of the paper.
“This makes no attempt to define the problem with the existing frameworks that needs to be solved, does not give any consideration to alternative approaches and does not offer any balanced assessment of the NEG proposal.”
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.