‘National Energy Guarantee’ a national disgrace.

Malcolm Turnbull’s leadership has been fraught with spineless (or a complete lack of) policy and the Government’s announcement of a National Energy Guarantee yesterday was congruent with what we’ve come to expect. In short, their national energy policy removes the Clean Energy Target, has 0 renewable energy policy after 2020, and defers critical decisions to state Government, the Australian Energy Regulator, and the Australian Energy Market Operator. The ‘National Energy Guarantee’ policy is based on a unanimous recommendation by the independent Energy Security Board, chaired by Dr Kerry Schott.

National Energy Guarantee

As per the official document, the National Energy Guarantee will actually comprise of two separate guarantees, determined and enforced by different bodies: 

The reliability guarantee will be set to deliver the right level of dispatchable energy—from ready-to-use sources such as coal, gas, pumped hydro and batteries—needed in each state. It will be set by the AEMC and AEMO. The goal of this is to help stop blackouts like those seen in South Australia last year and reduce prices by using long-term contracts rather than short-term spot prices. 

The emissions guarantee will be set to contribute to Australia’s international commitments. The level of the guarantee will be determined by the Commonwealth and enforced by the AER. This means that renewable subsidies and incentives have been scrapped completely – retailers will be responsible for ensuring their power is efficient enough to help Australia meet its international obligations (our Renewable Energy Targets signed up during the Paris climate change conference). No word yet on what the penalty would be for those not reaching this target but presumably they’d be able to make up for it the next year or face a light slap on the wrist. 

This is a ‘technology- neutral’ position which does not ‘pick winners’ – so it’ll be interesting to see how this pans out. What impact will it have on the myriad Australian solar farms currently in various stages of development? What about future plans? 

Residential Energy Prices

The Government estimates this Guarantee ‘could’ lead to a reduction in residential bills – around $100-115 per year over 2020-2030. They’re hoping to reduce spot price volatility without using subsidies or taxes – which theoretically could help the ballooning cost of electricity in Australia. See the graph below which is labeled ‘% increase’ on the Y axis – which may make it a little more difficult to see that the price has more than doubled every year since 2012. With Australian wages stagnating and underemployment at an all-time high, something needs to be done about these gigantic increases. But is this really the way to go about it? 

National Energy Guarantee - Average Retail Electricity Price Increases 2004-2017
National Energy Guarantee – Average Retail Electricity Price Increases (source:energy.gov.au)

We understand it’s difficult to balance this rapidly increasing price with the subsidisation of new technology which can take time to show results, but this 50c/day saving is hardly the ‘game-changer’ it’s hailed to be – so the myopic choice of ignoring Chief Scientist Alan Finkel’s recommended Clean Energy Target in favour of a 50c / day saving Turnbull can’t even guarantee is a perfect metaphor for the endemic, anaemic, short-sighted policy we’ve come to expect from Australian politicians over the past decade or so. How far can we kick the can down the road? I guess we’ll find out. 

It’s becoming increasingly clear that coal-fired generators have no future in Australia. Have renewables reached the point where they don’t need any help from the Government with regards to subsidies or tax breaks? Prima facie this looks like an atrocious plan for renewable energy and Australia’s energy future as a whole.

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Finkel Report could raise cost of Solar in Australia

The Finkel Report for National Energy Market security was released last week. Chief Scientist Alan Finkel’s review of the NEM included 50 recommendations, one of which was the implementation of a “generator reliability obligation” which could have serious ramifications for the cost of renewable energy in Australia. The closing of ‘dirty’ coal-fired power plants such as the 1600MW Hazelwood earlier this year has put a large dent in our installed capacity, which has been slowly sinking as we attempt to transition to renewable energy in an attempt to meet our 2030 Renewable Energy Targets (RET).

Finkel Report Australia MW Capacity Energy
Australian Installed Energy Capacity – 2017 Finkel Report

Finkel Report

According to the Sydney Morning Herald, under Finkel’s recommendations, the average household would save $90 per annum on their electricity bills over the decade from 2020-2030. This would be through the implementation of Finkel’s ‘Clean Energy Target’ – as opposed to a ‘business as usual’ situation. The report, which you can read by clicking here, notes that the value of Australia’s wholesale electricity market trades $11.7 billion. There are 9.6 million metered customers and, with rapidly increasing electricity prices it is obvious that something needs to be done. Balancing the price of wholesale electricity and the reliability of the grid whilst trying to meet climate change obligations is a very tricky and delicate process.

In an attempt to mitigate this, there are some repercussions for solar. The “Generator Reliability Obligation” and some changes to new wind and solar plants could pose serious problems for the next 10 years of renewable energy in Australia. Firstly, Finkel advised that plants be equipped to provide voltage and frequency response, which is reasonable. But the big one is a very controversial recommendation that individual wind and solar farms be self-reliant to provide ‘dispatchable generation‘ (i.e. backup power)  – rather than looking at more holistic/system-wide solutions. Even though many solar farms are being built with battery storage a ‘hard and fast’ rule like this could have implications for investment in large solar in the future (as battery storage costs have been shrinking, they are still significant).

The Finkel Report and the “Generator Reliability Obligation”

Kane Thornton, CE of the Clean Energy Council (the CEC represents businesses involved in solar and wind renewable energy generation) was quoted as saying – “Many new renewable energy and energy storage technologies and solutions are now available to help manage energy security”. Many large-scale solar plants being built these days are including battery storage

We don’t want a repeat of the the blackouts that plagued South Australia last year so it is understandable that energy security remains paramount whilst our energy economy transitions. It’ll be interesting to see which recommendations are taken on board and which aren’t – but I think the ‘generator reliability obligation’ could prove to be more trouble than it’s worth if it stifles innovation and curbs investment with blanket rules on new solar plants.

With the proposed $16.5b Carmichael coal mine by Adani Mining still being discussed (the mine is expected to produce 2.3 billion tonnes of coal over 60 years), it seems like we are reaching a flashpoint with regards to the crossroads of global warming, employment, and profit. The rest of 2017 promises to be a very interesting time for Australians and their electricity.

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