Energy intensity, security in with the NEG as the CET fades away

While details are still sparse, the Coalition Federal Government, led by Malcolm Turnbull has turned away from deploying a Clean Energy Target. It has opted what it is calling a National Energy Guarantee (NEG) system, to be put into place once the existing Renewable Energy Target mechanism comes to an end in 2020. A new market regime for post-2020 had long been requested from market participants, to deliver investment security.

The Prime Minister and Energy Minister Josh Frydenberg are expected to provide more details as to the NEG today. The key principles as initially communicated are:

  • An energy intensity calculation will be employed, and electricity retailers forced to source some of their power from that is sufficiently efficient – to allow Australia to meet its Paris climate commitments;
  • The NEG will place an additional requirement that utilities have a minimum amount of dispatchable power available, to ensure security.

In a video announcing the NEG, Prime Minister Turnbull said that the system includes no subsidies, no certificates, and no tax. The policy, he said, will guarantee reliability and emissions reductions, while providing – desperately needed – certainty for investors.

Just how the NEG could do these things, and reduce pressure on rising power prices, is unclear. It is also unclear what kind of enforcement mechanism will be used to ensure both the energy intensity and dispatchability measures.

However, Turnbull is clearly hoping that he has found a middle ground through opposition to the Clean Energy Target (CET) from the right of his own party, and the need to produce a policy mechanism by which investment in new generation occurs and emissions are reduced.

“This is a significant breakthrough,” said Turnbull. He said he hoped the NEG will bring to an end the “climate wars”, which have hamstrung Australia’s energy policy in recent years.

Climate warrior number one, former Prime Minister Tony Abbott tweeted that the defeat of the CET was “progress”.

 

The NEG was approved by the government’s party room meeting today. It will need the cooperation of the state energy ministers for implementation.

Various state governments have already shown their willingness to step into the energy policy void previously left by the federal government’s self-induced paralysis, with Queensland and Victoria both moving forward with plans for large scale renewable auctions, of which security of supply – through storage – is playing a significant.