I have been partially supportive the National Energy Guarantee notion on the proviso that it uses an appropriately stringent energy intensity cap but it’s looking more and more like it was just another Turnbull brain fart. Nobody I know can figure out how it will work. Not least because at this stage nobody knows what it is. But one recurring theme that is coming up in my discussions is that it is going to wreck the wholesale electrcity market, via The Guardian:
The Turnbull government’s proposed national energy guarantee will protect coal generators from competition provided by renewables and batteries and undermine the efficiency of investment in renewable generation capacity, according to a new analysis.
The analysis of the government’s policy by Carbon and Energy Markets for the Australian Conservation Foundation also floats the idea that the Neg – which imposes new reliability and emissions reduction guarantees on Australia’s energy retailers and large energy users from 2020 – could mean the existing spot market will need to be disbanded.
The analysis says “a critical issue hiding in plain sight and not yet widely understood is that establishing retailers’ emission intensity will require that they are able to identify which generators produce the electricity that they sell”.
“This means that the existing mandatory spot market – which does not identify which generators are used to supply the electricity that retailers buy from the spot market – will need to be disbanded.
“Disbanding the spot market and its settlement systems and also terminating financial contracts that are struck relative to the prices in this mandatory spot market will require many years to complete, and will result in transition costs in the hundreds of millions of dollars.”
The analysis also argues the policy won’t establish an effective market in emissions reduction, because it won’t put a price on carbon emissions. “The absence of an emission price, makes it harder for buyers and sellers to find each other and to find prices that they are willing to trade at.
“The resulting transaction costs and illiquidity undermines operational and investment efficiency.”
It says the complexity of the new system the government proposes for the electricity sector will prompt the creation of “a large bureaucracy to account for all electricity produced by generators and sold by retailers and to account for the contracts between generators and retailers, between generators and generators, and between retailers and retailers”.
The analysis says the Neg is likely to be a favourable regime for the incumbent generators and unfriendly to renewables. “It can be no surprise that there is no evidence in Australia or internationally of an approach similar to the Neg having ever been implemented or even proposed.”
Whether the NEG favours coal depends upon the emissions intensity cap that we do not know yet. But the wholesale electricity market is just about the only thing that does work in the Australian energy system so dismantling it is an intrinsically bad idea unless there is a VERY PERSUASIVE case made for it.
Given how thin the NEG is shaping up to be it clearly does not qualify.
