If you believe the Energy Security Board (ESB) and Acil Allen’s new modelling released yesterday on the National Energy Guarantee (NEG), you are believing in a fairytale.
This modelling suggests that in a time of unprecedented disruption and technological change in global energy markets, Australia’s electricity system will basically stand still for eight years from 2021/2022-2030. That the only changes are those that are currently planned — closures of two coal-fired power stations — Liddell and Gladstone, the building of Snowy 2.0 and the onward, unstoppable march of rooftop solar.
ACIL Allen admits that their modelling is not meant to be a prediction of the future — they say so in bold font … “It is important to note that the modelling results presented are not a prediction of the future.”
The whole purpose of the modelling is an exercise in political persuasion.
This modelling is trying to walk a very fine line — it’s meant to give just enough evidence to progressive state governments that implementing the NEG is better than doing nothing and just enough evidence to the Coalition backbenchers that coal will continue to be king for the next decade.
If you take the results of the modelling at face value and don’t question any of the underpinning assumptions, the ESB and Acil Allen achieve their task reasonably well (maybe).
Firstly, the modelling “finds” that a NEG will reduce power bills by an additional $150 per year above doing nothing.
They also “find” that coal will still make up 60% of generation by 2030 and that no new coal-fired power stations will close. Hoping that this will be enough to appease Tony Abbott, Matt Canavan, Craig Kelly and the rest of the Coalition coal club.
Finally, the modelling “finds” that with the NEG in place, an additional 1000MW of renewables will be built and there will be more of a market for demand response, hoping this will be enough incentive for Labor states to sign up to the deal.
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Never mind the fact that this is one-seventh the amount of renewables being or about to be constructed and that is the projection for a whole decade. Or that it suggests that to meet the Coalition’s 26% emissions target only 1000MWs of new renewables will need to be built above what is already contracted. Or that the consequences of this, were it to eventuate, would be that the majority of the 20,000 people employed in the renewables industry (according to Green Energy Markets) would be looking for a job by 2022.
However, putting aside whether a paltry 1000MW of new renewables combined with a $150 annual bill reduction for households is sufficient to entice state governments to deal, if you dig into the assumptions underpinning the modelling, things start to become pretty problematic pretty quickly.
Firstly, there is no assumed cost of implementation of the NEG by retailers or generators, despite the fact that this is a complex and major new policy initiatives.
Secondly, the ESB assume that despite compliance with the NEG being inaccessible to the public (i.e. untransparent), gentailers will pass cost reductions from the NEG through to consumers. This runs counter to what the recent ACCC report into electricity prices found about gentailer behaviour.
Then there’s the issue of the predicted generation mix in 2030. The NEG modelling differs significantly from the Australian Electricity Market Operator’s (AEMO) Integrated System Plan which was released two weeks ago. The Integration System Plan unlike the NEG modelling is actually meant to be the best prediction by energy experts of what the future electricity mix could look like. AEMO predicts that by 2030, renewables will account for between 46% and 61% of our generation, while the NEG modelling predicts that just 34% of generation will be from renewables in the same period.
To achieve this low low number, the ESB and Acil Allen have had to assume that Queensland and Victoria will not continue with their state policy commitments beyond the reverse auction rounds currently in place. They have also had to assume that all corporates stop contracting renewable energy, despite this being a growing global and national trend. There is also the assumption that there will be no other policy on energy in the next 12 years.
To yield the results that are needed to appease the Coalition backbench, the ESB has had to make assumptions that are counter to what all energy experts know to be true — Australia’s energy system is changing. To make the case that coal will continue to be the largest source of electricity generation in a decade’s time, the modelling has had to assume that essentially nothing in the electricity system will change for the next decade.
However, global financial and technological trends, combined with the fact that acting on climate and renewable energy is extremely popular with the Australian electorate (59% and 84% respectively according to the most recent Lowy Poll), means that even in this uncertain political context, one thing in the energy market is certain — things will change.
Nicky Ison is a research associate at the Institute for Sustainable Futures at the University of Technology Sydney and a founding director of the Community Power Agency.