Government unveils NEG

Prime Minister Malcolm Turnbull.

Prime Minister Malcolm Turnbull.

The Australian Government has this week revealed its National Energy Guarantee (NEG) policy after ditching the recommended Clean Energy Target (CET).

The Turnbull Government will accept the recommendation of the Energy Security Board (ESB) for a new National Energy Guarantee to deliver more affordable and reliable electricity while meeting our international commitments.

“As our energy system transitions, we must ensure households and businesses have access to affordable and reliable power,” said the Prime Minister.

“The independent Energy Security Board advises the Guarantee will give certainty to investors and therefore encourage investment in all forms of power.

“This means electricity bills will be lower than currently forecast and lower than they would have been under a Clean Energy Target.”

The ESB estimates typical household bills will fall by an average of $110-$115 per year over the 2020-2030 period.

The Guarantee is made up of two parts that will require energy retailers across the National Electricity Market to deliver reliable and lower emissions generation each year:

  • A reliability guarantee will be set to deliver the right level of dispatchable energy (from ready-to-use sources such as coal, gas, pumped hydro and batteries) needed in each state. It will be set by the Australian Energy Market Commission (AEMC) and Australian Energy Market Operator (AEMO).
  • An emissions guarantee will be set to contribute to Australia’s international commitments. The level of the guarantee will be determined by the Commonwealth and enforced by the Australian Energy Regulator (AER).

The government says the NEG will lower electricity prices, make the system more reliable, encourage the right investment and reduce emissions without subsidies, taxes or trading schemes.

“It is truly technology-neutral, offering a future for investment in whatever technology the market needs - solar, wind, coal, gas, batteries or pumped storage,” said Mr Turnbull.

“Unlike previous approaches, we are not picking winners, we are levelling the playing field.

“Coal, gas, hydro and biomass will be rewarded for their dispatchability while wind, solar and hydro will be recognised as lower emissions technologies but will no longer be subsidised.

“Importantly, this plan builds on the Finkel Review, which recommended the creation of the ESB that has now recommended the National Energy Guarantee.

“The government will now work with the ESB and the states through COAG to implement the National Energy Guarantee.”

Industry response

The Australian Pipelines and Gas Association (APGA) welcomed the announcement of the NEG as a step forward.

APGA Chief Executive Officer Steve Davies said that while little detail was available, the policy proposal appeared to create a level playing field through balancing reliability of electricity supply with the requirement to lower carbon emissions.

“The policy outlined by the Federal Government today removes the market distortions that can be the result of subsidising certain sectors,” said Mr Davies.

“Some groups are quick to claim that renewables are already price competitive with more mature technologies.

“If that is indeed the case, then the expiry of the Renewable Energy Target should make little difference as price competition on a level playing field will guide investment decisions.”

Mr Davies said APGA would carefully examine the detail of the NEG with a view to comparing the likely outcomes with the CET recommended by Chief Scientist Alan Finkel.

“The Clean Energy Target was designed to ensure Australia would meet the lower carbon emissions targets it signed up to in the Paris agreement,” said Mr Davies.

“Any policy that fails to put Australia on that same track will be very confusing for investors as it sends mixed signals as to the real policy objectives of the government, and such a policy would be unlikely to receive the bipartisan support which underwrites the long-term investment decisions that are required in the energy sector.

“It’s important that the government and the Energy Security Board bring the energy industry together to discuss the development and implementation of this policy.

“And I’d encourage the government to involve the Opposition and minor parties in that process so that we can develop and agree on the long-term framework for energy policy in Australia.”

 

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