The federal government’s National Energy Guarantee (NEG) has been proposed as Australia’s future energy policy. While the Clean Energy Council’s preferred policy approach was the Clean Energy Target recommended by the Finkel Review, we are keeping an open mind about the NEG and continue to work with the Energy Security Board on the detailed design. The clean energy industry will only support the NEG if it is designed and implemented in a way that ensures strong and sustained investment in renewable energy and storage.
What is the National Energy Guarantee (NEG)?
The National Energy Guarantee is a policy mechanism designed to retain existing resources and encourage new investment in the National Energy Market (NEM) while ensuring that emissions standards are met and the system operates reliably.
How will the NEG work?
If implemented, the NEG will consist of two key parts: a reliability guarantee and an emissions guarantee.
The reliability guarantee requires electricity retailers to invest in enough dispatchable energy resources (e.g. coal, gas, hydro, battery storage, demand response) to cover a set amount of their peak load in a region if a shortfall is predicted.
The emissions guarantee requires electricity retailers to meet a defined emissions level for the electricity they purchase from the wholesale market.
How will the NEG impact energy prices?
According to initial estimates by the Energy Security Board (ESB), the NEG will reduce household power bills by approximately $120 per year between 2020 and 2030.
However, government modelling shows that this saving is dwarfed by the additional $280 per year reduction that will occur due to the 6000 MW of new renewable generation that will enter the market in the next few years under the Renewable Energy Target (RET).
What effect will the NEG have on renewable energy projects?
According to the ESB, renewable energy will account for 28-36 per cent of total energy generation in 2030 under the NEG (including hydro and rooftop solar).
This suggests that between 250 and 670 MW of large-scale renewable projects will be deployed each year from 2020-2030.
Considering that approximately 4300 MW of renewable energy projects are currently committed or under construction, this would involve a significant reduction in renewable projects.
If emissions abatement under the NEG is pushed out closer to 2030 – which is a possibility that has been flagged by some in the government – this makes the prospects for renewable energy bleak in the early years of the decade.
How will the NEG contribute to emissions abatement?
Currently, the government has set the emissions abatement component of the NEG at 26 per cent, which is at the lower end of Australia's commitments under the Paris Agreement. This represents only a minor reduction from what is expected under a business as usual scenario.
Given the extraordinary technological and economic development of clean energy this decade, the Australian energy sector now has the potential to achieve much greater emissions abatement at lower cost than many other sectors of the Australian economy.
The Clean Energy Council advocates for a higher emissions target under the NEG to help Australia reach its commitments under the Paris Agreement and encourage new investment in renewable energy. Failing this, the NEG should include a mechanism that makes it easy for future governments to quickly and easily implement stronger emissions reductions.
How will the NEG affect state government emission reduction initiatives?
State-based renewable energy schemes such as the Victorian Renewable Energy Target and the Powering Queensland Plan will be honoured under the NEG. However, any new renewable energy capacity installed as part of these schemes will be incorporated into the national emissions reduction target of 26 per cent.
A number of states have expressed opposition to this requirement, claiming that it will result in some states taking on more of the emissions reduction burden than others.
When will the NEG be implemented?
For the NEG to be implemented, all of the states and territories must agree to ratify the policy. A final decision on the NEG is due to be made at the COAG Energy Council meeting in August 2018.
If the federal government does manage to get all the states and territories on board, the reliability component of the NEG will start in 2019 and the emissions component will succeed the RET in 2020.
For more information about the Clean Energy Council’s stance on the NEG you can read the following documents:
- Response to the National Energy Guarantee consultation paper - 9 March 2018
- National Energy Guarantee Position Paper - 31 October 2017