First look at the National Energy Guarantee
Yesterday the Federal Government released its energy plan designed to ensure reliability and affordability of energy markets as well as emissions reductions in line with Australia’s Paris commitments.
The National Energy Guarantee as it will be known, will be made up of two parts.
First, a reliability guarantee. This guarantee will be set by the Australian Energy Market Commission (AEMC) and the Australian Energy Market Operator (AEMO) to deliver the right level of dispatchable energy (ie. coal, gas, pumped hydro and batteries).
Second, an emissions guarantee that will ensure that Australia meets its international commitments. The level of the guarantee will be set by the Federal Government and will be enforced by the Australian Energy Regulator (AER).
The guarantees are based on the recommendations of the new Energy Security Board (ESB) – made up of energy regulators – which was one of the recommendations of the Finkel Review. The Government has said it will now work with the ESB and the states through COAG to implement the National Energy Guarantee.
The Prime Minister, Mr Turnbull said the Guarantee represented a different policy approach by the government.
“Past energy plans have subsidised some industries, punished others and slugged consumers.
“It is truly technology-neutral, offering a future for investment in whatever technology the market needs – solar, wind, coal, gas, batteries or pumped storage.”
Property Council chief executive Ken Morrison acknowledged the policy saying there were three threshold issues for the property industry arising from the Government’s announcement.
“The first is whether this framework will provide the certainty needed to unlock investment into energy generation, which will ultimately provide affordability and reliability for energy consumers, including the property industry.
“While there is a lot of detail yet to be released, this would seem to be a credible framework for achieving such outcomes. And that is certainly the view of the Government’s new Energy Security Board which conceived this approach.”
However, Morrison warns that bipartisan support is critical if the policy is to end the stop-start nature of energy policy, and provide investment certainty.
“Investment certainty needs policy longevity, and that requires a bipartisan commitment. It is yet to be seen whether the Opposition will support this framework and with what caveats.
“Like all of us, the Opposition is doing its ‘due diligence’ and it did not rule anything in or out yesterday, but it has questioned the robustness of the modelling the predicted savings for consumers was based on.
“The second threshold issue is the impact of the expiry of the Renewable Energy Target in 2020 without any direct incentive-based replacement. This will remove an existing incentive for property owners to install renewable energy technologies, with the existing scheme to be grandfathered after 2020.
“This means that existing installations will still be able to generate certificates until 2030, but there will be some uncertainty over the ongoing value of certificates for large scale systems.”
Mr Morrison said it was unclear whether the proposed emissions guarantee for energy generators would create a market for greater investment in distributed energy.
“The challenges in aggregating smaller projects may limit the ability for distributed renewable energy projects in the property industry to contract with generators to help fulfil their guarantee.”
Morrison says the final threshold issue relates to the implications on emissions reductions for the built environment.
“The Government’s new emissions mandates are designed to reduce the energy sector’s emissions to meet our Paris targets, but only in line with the energy sector’s share of Australia’s overall emissions (about one third).
“This means that policies are also needed to transition the built environment – responsible for 23% of Australia’s emissions – to help meet the Paris 20 targets.
“Australia will need a more comprehensive suite of policies of sticks and carrots for the built environment at state and national levels.”
Morrison said there was still a significant process ahead in terms of the policy.
“There are still substantial details to follow, modeling to be pursued and negotiation with the states and market operators.”
The Property Council will now assess the detail of the Government’s announcements and consult with members on implications for the industry and the economy.