Exactly what is the point of the Coalition’s proposed National Energy Guarantee? What we now know from the advice of the Energy Security Board and chief scientist Alan Finkel is that, based on current climate policy settings:
– It will not achieve any emissions reductions beyond doing nothing;
– It will rely almost entirely on the renewable energy target for the assumed reductions in consumer bills;
– It will likely not encourage any new renewable energy investment;
– And, according to the storage report commissioned by Finkel, it will not address or solve any problems on reliability that may emerge from the government’s modest targets.
In summary, the NEG – as currently conceived – is useless. In fact, it is worse than useless, because it will displace focus on other policies that might actually Do Something.
We do know that the NEG has only been designed because prime minister Malcolm Turnbull and energy minister Josh Frydenberg have been too scared of the Coalition party’s right wing to introduce the policies they know would work best: a clean energy target, an emissions intensity scheme or, heaven forbid, a carbon price and a renewable energy target.
The huge reduction in bills driven by the investment in renewable energy – highlighted in the ESB modelling as it has been in any other serious analysis – puts the fears about costs at rest.
But there may be something else afoot. It could also be that the NEG is just an elaborate ruse to create an economic argument for Turnbull’s pet project, the multi-billion dollar Snowy Hydro 2 pumped hydro scheme.
No one is against pumped hydro – it is likely to be a key element, along with battery storage and solar thermal, in providing the back-up and reserve to the high renewable energy penetration grids of the future. The ANU says the technology will easily guide us to 100 per cent renewables.
What is less clear is whether Snowy Hydro 2 is the best idea. It is massive – 2,000MW and 385,000GWh – but there are questions on whether the system is best served by having all this storage capacity in one location, and what the cost of the poles and wires to spread the benefits would be.
There are numerous other pumped hydro schemes that could do similar work – three are on the drawing board in South Australia, another in Barnaby Joyce’s electorate in NSW, and at least one, including the Genex solar hybrid project in an old gold mine, in Queensland.
The modeling presented by the Energy Security Board this week ahead of the COAG energy ministers meeting makes the remarkable assumption that Snowy Hydro 2 is a done and dusted deal, and that it will be up and running in six years.
On the basis of what? It hasn’t even completed a feasibility study.
Pumped hydro relies on volatility in electricity markets to get a return: it hopes to be able to source electricity to pump the water up hill at a significant discount to what it will receive when the water is allowed to cascade back down and spin the turbines and generate power.
One of the major claims made by the ESB modelling is that the introduction of a reliability obligation and an emissions obligation on retailers – and the intensive contracting they will have to do – will reduce volatility in the market.
The lack of volatility is not good for Snowy Hydro 2. What is good for Snowy Hydro 2, however, is the idea of contracting. That could deliver the revenue certainty that it would require for financing, even if it is government owned.
Finally, there are some added benefits. Turnbull can convince the right wing that he has reliability in hand, even though Snowy Hydro 2 is more about “dispatchability” than it is about the right wing’s preferred vocabulary of “baseload”.
It also has the happy outcome – at least for the incumbent fossil fuel industry – of crowding out new competitors.
The ESB modelling notes that on low demand profiles – virtually inevitable considering the adoption of energy efficiency, demand management and more reooftop solar – the NEG provides no signal for any new generation, be it wind, solar, batteries, or coal or gas between 2020 and 2030.
That will suit the ideologues and the fossil fuel industry just fine. It means that rather than using wind or solar power to pump that water up hill, Snowy Hydro 2 will be using coal – reinforcing the business case for the ageing, polluting and inflexible coal generators in Victoria and NSW.
And it will leave Turnbull with a lasting legacy, one of his very few: a multi-billion dollar vanity project that speaks volumes of his record as prime minister: The man who vowed never to lead a government that didn’t take climate change seriously, but happily did.
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.