Josh Frydenberg coal NEG

Depending on who you ask, the Turnbull government’s National Energy Guarantee is either going to tank Australia’s renewable investment and emissions goals, break five years of investment uncertainty with a holistic energy framework, or do absolutely nothing.

The Coalition claims that the NEG will reduce emissions, make power more reliable, and save households money. Let’s look at how likely these three outcomes are. But first…

Where are we at with the legislation?

As of yesterday, the policy has passed the Coalition party room and will be introduced in this sitting fortnight. However, up to 10 Coalition MPs could cross the floor during the vote. This would force the Coalition to haggle with the opposition. Unfortunately for Turnbull and Co, Labor has condemned the emissions reduction target as meaningless. However, Labor will face public pressure over NEG’s purported savings for household energy bills (more on this later).

The policy also needs approval from the Council of Australian Governments, but Victoria, ACT and Queensland have effectively only agreed to keep negotiating, and haven’t approved anything yet. Last Friday’s meeting ended in a stalemate, with Energy and Environment Minister Josh Frydenberg refusing any of the state’s demands for more flexibility around emissions (i.e. regulation over legislation, additionality, more regular reviews), and now that deadlock has extended to federal Labor.

Frydenberg will allow a five-year review in 2024, which shadow energy spokesperson Mark Butler has knocked as “asking a question when we already have an answer from the Energy Security Board paper”.

Labor states are now expected to mull draft legislation for a few weeks, but this could all be moot if Victoria does not sign up by the time it enters caretaker mode in October ahead of the November state election.

Will the NEG reduce emissions?

The NEG’s emissions reduction target for the energy sector — 26% below 2005 levels by 2030 — is widely seen as pointless.

Most researchers, including those responsible for the policy design at the Energy Security Board (ESB), say Australia is expected to meet this target within the first year of the NEG’s operation, meaning the country would basically spend eight or nine years treading water.

As a mechanism, the emissions guarantee will act much like an emissions intensity scheme, and, while putting the crediting burden on retailers rather than generators is a major sticking point for clean energy advocates, federal Labor is at the very least open to the ESB framework.

Frydenberg has copped to the emissions target criticism but refused to budge, arguing in June that low prices and the mere existence of NEG framework would help attract, or at least not hinder, new renewable investment during that 2022-30 limbo period. This stands divorced from the ESB’s modelling which, as Crikey argued last week, unreasonably claims Australia won’t see any new projects throughout that period and state targets would be rescinded.

While a redundant emission target could definitely kill the momentum Australia has enjoyed under the Renewable Energy Target, the ESB’s investment assumptions still pale in comparison to the much-better-received forecasts from the Australian Energy Market Operator (AEMO) for Australia’s grid under its Integrated System Plan.

What about reliability?

An almost entirely moot point. For all the government’s song and dance around supply in Australia (helped in no small part by South Australia’s destructive storms in 2016, which some have falsely tried to attribute to renewables), Australia already has a 99.998% reliability standard.

While the Integrated System Plan recommends using coal generators until the end of their “natural” lives to ensure a smooth transition, AEMO also argues that renewables will be the cheapest option to replace this and that a 100% renewable grid would create a supply just as reliable, if not more so. The Climate Council also argues the guarantee misdiagnoses whatever reliability issues Australia does have, namely coal generators tripping during heatwaves.

Will punters save any money on the NEG?

The Coalition has the best shot at pushing the NEG through on savings. The ESB recently found that, between 2020 and 2030, the average NEM customer (80% of Australians) will save $550 a year under the NEG as opposed to $400 without any national policy.

However, it should be noted that, a) the ESB says that the $400 saving is largely attributable to new clean energy projects coming online, and b) research from RepuTex Energy, modelled for Greenpeace, has found that Labor’s 45% target would drive prices even lower as a price signal for new investment.

Also, while the ESB has made opaque references to the NEG’s impact on policy stability, contracting and demand response, no one really knows how that translates to the purported $150 a year because the government has refused to release full economic modelling. However, that the ESB has even cited that extra $150/year remains the Coalition’s best claim that the NEG is better than nothing.

So there you go. The NEG, at best, hits one out of three of its stated goals, and, if weighed against more ambitious projections, at worst holds all three back. Best of luck!

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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