The chief executive of 10 retailers who represent 10 per cent of the National Electricity Market – including ERM Power, 1st Energy, Covau, Locality Planning Energy, Energy Locals, Click Energy, Winconnect, Next Business Energy, Globird and Bluenrg – said while the transition to renewable energy was inevitable it would not be simple or cheap.
…”The temptation may be to make major, sweeping changes, however there must be recognition that huge amounts of low-emissions electricity [3800 megawatts] are coming online in the next few years in the form of renewables projects, in addition to 40,000 megawatts of proposed build which includes Snowy Hydro 2.0,” the chief executives said in a letter to the Energy Security Board.
“There is currently no forecast reliability gap. Technology is likely to make today’s issues moot within five years. We need to proceed with caution to avoid making significant, costly changes that have dire consequences.”
Just to be clear, this includes entrenching members of the vertically integrated gas cartel that caused the price spikes in the first place. And from Reneweconomy:
A damning new report from Australia’s Climate Council has suggested that the Energy Security Board has completely misdiagnosed problems at the heart of Australia’s electricity grid, and the proposed National Energy Guarantee will address issues that cause just minutes of outages a year.
Australia has the highest reliability requirement in the western world – 99.998 per cent from generation and transmission lines – but the overwhelming majority of the outages experienced by customers (98.15 per cent) are caused by failures in distributed networks, which are not addressed by the NEG.
Issues that are addressed by the NEG – the available of sufficient supply – account for just 0.24 per cent of outages; probably the equivalent of a minute or two of lost power per customer per year, according to the Climate Council.
The NEG has been roundly criticised by both the industry and activists for failing to address climate targets (although that bit is the fault of the government), and for proposing an unnecessarily complex and potentially expensive “reliability” guarantee.
There is growing disquiet that the NEG’s reliability guarantee, which remains poorly defined, is politically motivated; and that its focus on retailers and the use of contracts risks giving yet more market control to the handful of incumbents that already dominate the industry.
The NEG has two broad ‘requirements’; an emissions requirement and a reliability requirement. While these may deliver lower emissions and a more reliable electricity system there’s no guarantee that they will do so in the most cost-effective way.
The emissions requirement may be set too low to be of any use, but imposes significant compliance costs and complexity.
The ESB’s consultation paper notes that the Commonwealth Government supports a target for electricity emissions of 26% below 2005 levels by 2030, matching the national target. However, as is widely known the ALP has a more ambitious national target (of 45% by 2030) achieving the government’s national target really needs greater emissions reductions in electricity (because sectors like agriculture are unable to match the national rate of reduction, and decarbonisation of electricity is required to reduce emissions through electrification of sectors like transport and parts of industry) moreover the proposed exemption of electricity consumed by emissions intensive trade exposed industries (EITEs) means that EITEs could potentially contract directly with cheap high carbon generation while other energy users cross-subsidise their electricity emissions the impetus of a pro-rata target of 26% is so little that such an emissions target would probably lag rather than drive investment. We find that even without a NEG this level of emissions reduction would be achieved. If, as the consultation paper canvasses, carbon offsets from outside the market also become eligible to count towards the emissions target, it would drive even less change than business as usual.
With no effective investment signal the emissions requirement is pointless, except to the extent that once it exists it’s easier for future governments to ratchet it up. This means a weak emissions requirement does nothing to reduce policy uncertainty. At the same time, the administrative demands of complying with the emissions target are onerous and extremely complicated. Most electricity contracts do not specify the source or emissions intensity of the contracted electricity, and so the consultation paper has set out a range of methods of trying to work this out, as well as proposing the AER establish a registry of electricity contracts so that it can stitch together emissions, generation and retail contracts.
As well, once past 2030, the NEG demands five years notice on any changes to the emissions intensity target meaning ratcheting up decarbonistion becomes impossible over the political cycle.
Advertisement
In short, the Do-nothing Energy Guarantee:
remains a complete mystery, is incredibly complex and threatens to destabilse the only thing that does work in the NEM, the wholesale market;
will likely entrench the gas cartel that is the real cause of the all the problems;
does nothing to solve outages;
will retard decarbonisation now and even more into the future;
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
