Victorian minister plays hardball with Turnbull on the NEG


Michelle Grattan, University of Canberra

The Turnbull government is facing fresh trouble over its energy policy ahead of a crucial meeting next week, with Victoria’s Energy Minister Lily D’Ambrosio warning that the state won’t be rushed into signing onto the National Energy Guarantee (NEG).

In a speech to be delivered on Tuesday, D’Ambrosio will play on dissent in the Coalition, saying: “Malcolm Turnbull is trying to get us to sign up to something that hasn’t gone to his own party room – a place full of climate sceptics”.

“Every time we get close to a national energy policy, the Coalition party room shoots it down,” she will tell a clean energy summit in Sydney. An extract from her speech was issued ahead of its delivery.

“How can we have any confidence in what they’re asking from us if it hasn’t been through his party room first?

“We won’t rush into supporting a policy that we’re not certain is in the best interests of Victorians, just to appease to coal ideologues in Canberra.

“We won’t support a scheme that leaves the states in the dark and leaves us all hostage to the extremists in Turnbull’s party room,” D’Ambrosio will say.

Victoria’s shot across the bows on energy comes as Turnbull faces difficult fallout from the government’s disappointing byelection performance on Saturday, especially in the Queensland seat of Longman, where the Liberal National Party’s primary vote plunged by 9 points to just under 30%.




Read more:
View from The Hill: Malcolm Turnbull’s authority diminished after byelection failures


This is fuelling a push from some within the Coalition for the government to abandon its policy for tax cuts for big business if, as expected, a fresh attempt to get the legislation through the Senate fails. Labor successfully exploited the company tax issue in the byelections.

Turnbull’s weakened authority will also embolden party room critics of the energy policy, led by Tony Abbott – although these are in a minority. Abbott on Monday repeated his call for Australia to withdraw from the Paris climate agreement and to cut immigration.

The Guardian reported on Monday that Energy Minister Josh Frydenberg had flagged a two-stage process, as he tries to bed down a deal on the NEG. Under his timetable the NEG mechanism would be agreed on August 10 at the meeting of the Council of Australian Governments energy council. On August 14 the states and territories would get the Commonwealth legislation on the emissions reduction part of the scheme and discuss it in a phone hook up.

The key to this timetable is that it would allow Frydenberg to put the Commonwealth legislation to the Coalition party room on August 14 ahead of it being presented to states and territories. He has previously said the legislation would go to the party room.

Abbott has unsuccessfully pressed for much more party room input before any Commonwealth-state deal is done.

It is not clear whether Victoria will actually try to stall a deal next week, or is just playing politics ahead of the meeting.

D’Ambrosio will say Victoria has “acted in good faith” on the development of the proposed NEG “but it’s no secret that like many other states, we have major concerns about it.”

“We have made it very clear from the beginning – we won’t let any policy get in the way of Victoria achieving our legislated renewable energy targets. Our targets are the only real guarantee to bring down power prices”. Victoria would continue to discuss its concerns ahead of next week’s meeting.

Meanwhile, amid the uncertainty about the company tax cuts’ future, Finance Minister Mathias Cormann strongly defended them. Cormann, who has been the government’s negotiator with the crossbench, is seen as its most committed advocate of the tax plan.

“We are working with the crossbench as we speak to secure the necessary support,” he told the ABC.

Pressed on whether the government would take the policy to the election if it could not win the Senate vote, Cormann said: “That is our position”.

“The bigger businesses around Australia in many ways are most exposed to the pressures of global competition and they employ many millions of Australians directly. Weaker bigger businesses in Australia means less business for smaller and medium-sized businesses.

“It also means lower job security for the people that big business employ directly and lower job security for the many employees in the many small and medium-sized businesses who supply products and services to those bigger businesses,” Cormann said.

Federal Liberal MP Luke Howarth, from Queensland, told Sky that if the measure could not be passed it should be dropped.

The ConversationAbbott, interviewed on 2GB, said he accepted the economic case for the company tax cuts but there were no votes in them.

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.

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The National Energy Guarantee is a flagship policy. So why hasn’t the modelling been made public?


Bruce Mountain, Victoria University

Central to the public debate about the National Energy Guarantee (NEG) has been the numerical forecasts of its effects – in particular how much it will reduce power prices. In a democracy whose households pay some of the world’s highest electricity bills, it is obvious why this measure should shape the narrative on energy policy.

But Plato tells us that good decisions are based on knowledge, not numbers. What’s more, electricity markets are incredibly complex, and therefore not amenable to straightforward predictions.

The Energy Security Board has put numbers at the centre of its NEG proposal, but the basis of these numbers is not clear. With 22 colleagues at 10 other Australian universities, we are calling for state and territory ministers to ensure that the ESB’s modelling is available for proper scrutiny. I explain here why I support this request.




Read more:
Infographic: the National Energy Guarantee at a glance


On October 17, 2017, the newly created ESB claimed in a letter to federal energy minister Josh Frydenberg that annual household bills would ultimately be A$100-115 lower under the NEG as a result of the NEG being introduced.

The ESB said this calculation was based on its estimate that wholesale electricity prices under the NEG would be 20-25% lower than under business as usual, and 8-10% lower than under the Clean Energy Target proposed by the Finkel Review.

No analysis or modelling was provided to justify these claims. But five weeks later the ESB had altered its forecast, releasing a report claiming that wholesale electricity prices would typically be 35% lower with the NEG than they would be without it. Underlying this claim was the assumption that only 597 megawatts of renewable generation would be developed between 2020 and 2030 if the NEG was not implemented.

Since more renewable generation than this was installed just on the roofs of Australia’s households and businesses in the first five months of 2018, the ESB was effectively suggesting that without the NEG investment in renewable generation would all but dry up.

This stands in stark contrast to the verdicts of other analysts. Bloomberg New Energy Finance predicted that 24,000MW of renewable generation (40 times more than the ESB’s figure) would be built between 2020 and 2030 without the NEG. Bloomberg also predicted less new renewable capacity with the NEG than without it.

Final design on the table

The ESB last week released its final design for the NEG to policymakers, but not the public. It now claims that the policy will reduce household electricity bills by A$150 a year relative to business as usual. It also now says that without the NEG around 8,000MW of new renewable generation will be installed (13 times more investment than it predicted eight months ago).

But the ESB says all of this will be installed behind the meter on the roofs of Australia’s homes and businesses and it persists with the assumption that no new large-scale renewable capacity will be built without the NEG.

But once again this seems to contrast vividly with what others are saying and doing. Several major companies have signed contracts for large-scale renewables, including Telstra, Carlton & United Breweries, Orora, and BlueScope Steel. The ESB’s assumption that all large-scale renewables development will grind to a halt without the NEG is even less plausible now than it was in November 2017.

Others have previously noted that the ESB’s estimate of renewable investment from 2020 to 2030 bears no relation to the estimates from the Australian Energy Market Operator (AEMO) of around 18,000 MW of additional renewable generation between 2020 and 2030, despite the ESB’s claims to the contrary.

However, the ESB’s final design has now helpfully clarified what several other analysts have already pointed out: that meeting the government’s target of reducing the electricity sector’s greenhouse emissions by 26% will require emissions reductions of just 2% between 2020 and 2030 beyond what is already set to be achieved. That is a meagre 0.2% cut per year that the NEG policy will be required to deliver.

I estimate that this will in fact be achieved several times over just with the 8,000MW of new rooftop solar capacity that the ESB predicts will happen even if the NEG is not implemented. To be clear, on the ESB’s numbers, Australia’s electricity sector greenhouse gas emissions will be lower than the government requires them to be, even if the NEG is not implemented. So how then can it be plausible to predict that the NEG will stimulate additional investment in renewable capacity beyond what would happen anyway?




Read more:
Explainer: why we shouldn’t be so quick to trust energy modelling


You can’t have your cake and eat it. If a policy is intended to make no difference to what would happen anyway, how can it be expected to drive down household bills by A$150?

And without putting its modelling into the public domain where it can be subjected to wider expert scrutiny, how will we know whether the ESB’s assumptions actually hold water?

The ConversationThe NEG will be a massive administrative change to Australia’s energy market, and a potentially substantive change if future governments set much higher emissions reduction targets. State and territory energy ministers are being asked to accept the ESB’s promise that household electricity bills will decline by 30-40% in the next few years, and that the NEG will account for a fair part of this. Those ministers should scrutinise this rosy projection carefully before accepting it. After all, the public will be looking to them, and not the federal government, to make good on these price pledges.

Bruce Mountain, Director, Victoria Energy Policy Centre, Victoria University

This article was originally published on The Conversation. Read the original article.

Will the National Energy Guarantee hit pause on renewables?


Frank Jotzo, Australian National University and Salim Mazouz, Australian National University

The federal government’s new National Energy Guarantee (NEG) proposal looks likely to put the brakes on renewable energy investment in Australia. And based on the sparse detail so far available, there are serious questions about whether the plan really can deliver on its aims of reliability, emissions reductions and lower prices.

The broad mechanism design could be made to work, but to be effective in driving the transition of the energy sector it would need adequate ambition on carbon emissions and very careful thought about the reliability requirements of the future electricity grid.


Read more: Infographic: the National Energy Guarantee at a glance


The policy may well be used to force investment into the fossil fuel power fleet through regulatory intervention, and perhaps for the power sector to buy emissions offsets. This would risk locking in a carbon-intensive power system.

The NEG: top or flop?

Having rejected several options – including an emissions intensity scheme, the Clean Energy Target put forward by the Finkel Review, and any continuation of the Renewable Energy Target – the government has finally managed to get a policy proposal through the party room, formulated in advice by its newly established Energy Security Board.

Analysts’ initial reactions have ranged from unbridled enthusiasm to derisive rejection. It depends on political judgments, expectations about how the scheme might operate in practice, and how high one’s expectations are for efficiency and environmental effectiveness.

The politics of this are complicated, but there are hopes that the Labor opposition will agree to the scheme in principle. But the decision is ultimately with the Australian states, which would need to pass legislation to implement it.

Reliability guarantee: supporting fossil fuels?

The first element of the NEG is the “reliability guarantee”. This would require electricity retailers to buy some share of their electricity from “dispatchable” sources that can be readily switched on. The NEG list includes coal and gas, as well as hydro and energy storage – essentially, anything except wind and solar.

The NEG proposal might be informed by a political imperative to support coal. As John Quiggin has pointed out, defining coal-fired plants as dispatchable is questionable at best: they have long ramp-up times and are sometimes unavailable.

The Australian Energy Market Operator (AEMO) would prescribe the share of the “dispatchable” power sources and perhaps also the mix of technologies in retailers’ portfolios, separately in each state. This would be a remarkably interventionist approach.

Demand from retailers for the power sources they are told to use could trigger investment in new gas generators, refurbishment of existing coal plants, and some investment in energy storage. It is difficult to see how it would force the building of new coal plants, given their very large upfront cost and long-term emissions liabilities.

Would electricity prices be lower, as the Energy Security Board’s advice claims? Investment in new power generation will tend to reduce prices, cutting into profit margins. But the resulting investments will come at higher economic cost than market solutions, because they are determined by regulators’ orders made with a view to the short-term energy mix, not long-term cost-effectiveness. And there would be risk premiums on project finance, reflecting uncertainty about future policy settings.

Emissions guarantee: flexible but weak?

The NEG’s second pillar is the “emissions guarantee”. This would require retailers to keep their portfolio below some level of emissions intensity (carbon dioxide per unit of electricity).

This increases the demand for electricity from lower-emissions technologies, allowing them to command higher market prices and therefore encouraging investment in them. This price signal would benefit renewables and also favour gas over coal, as well as discriminating against the most polluting coal plants.

The Energy Security Board’s advice suggests that retailers would have flexibility in complying with that obligation, by buying and selling emissions components of their contracts, and potentially also using emissions offsets from outside the scheme to make up for any exceeding of emissions limits.

The reliability and emissions elements of the NEG interact with each other, and the net effect depends on the detailed implementation as well as the relative importance of the two components.

Given the politics within government, the weight could be on support for coal and gas generation. The reliability guarantee could therefore end up putting a tight lid on the amount of new wind and solar that can enter the system.

Renewables, gas or credits?

The Energy Security Board makes explicit reference to Australia’s Paris target of a 26-28% reduction in emissions, relative to 2005 levels, by 2030. Prime Minister Malcolm Turnbull has said the NEG will be expected to cut electricity emissions by a similar percentage, as a “pro rata” contribution to this goal.

But to meet the economy-wide target, the electricity sector would need to make deeper cuts, because emissions reductions are cheaper and easier here than elsewhere.

The Energy Security Board says it expects renewables to reach 28-36% by 2030. This is rather low, considering that the Finkel Review projected 42% under its proposed clean energy target, and 35% under business as usual. Other analyses have shown that much higher levels of renewables are achievable.

So if the NEG is not geared to support renewables, how could significant emissions reductions be achieved?

One way would be to replace coal with gas-fired power, and brown coal with black coal. But the government has flagged that it is opposed to closing old coal plants. And a large-scale shift to gas would raise electricity prices further, unless gas prices were to tumble.


Read more: The government’s energy policy hinges on some tricky wordplay about coal’s role


That leaves another option, mentioned in the Energy Security Board’s report: power retailers could buy emissions offset credits from elsewhere to make up for not meeting the emissions standard, specifically from projects under the government’s Emissions Reduction Fund (ERF).

This might be attractive for the government, as electricity retailers would then pay for ERF credits, rather than government as has been the case until now. It may also be attractive to the power industry, as it would reduce the cost of complying with the new obligations. Retailers would pass on the costs to their customers, so electricity consumers would end up paying for ERF projects.

Even assuming that all of the ERF’s emissions reductions are real (and some of them may not be), all this does is shift the adjustment burden from electricity to other sectors such as agriculture.

The ConversationThe NEG has the potential to reduce emissions effectively if the parameters are adjusted accordingly. But what seems more likely is that it will put the brakes on investment in renewables, solidify the status quo and delay the energy transition.

Frank Jotzo, Director, Centre for Climate Economics and Policy, Australian National University and Salim Mazouz, Research Associate, Centre for Climate Economics and Policy, Australian National University

This article was originally published on The Conversation. Read the original article.