The National Energy Guarantee (NEG) was proposed as Australia’s future energy policy. However, the NEG was abandoned by the federal government shortly after Scott Morrison replaced Malcolm Turnbull as Prime Minister. While this effectively ended the chances of the policy being implemented in this parliamentary term, the states continue to work on the reliability component of the NEG and the federal ALP has indicated that it may take the policy to the next federal election.
What was the National Energy Guarantee (NEG)?
The National Energy Guarantee was a policy mechanism designed to retain existing resources and encourage new investment in the National Energy Market (NEM) while ensuring that emissions standards were met and the system operated reliably.
How would the NEG have worked?
If implemented, the NEG would have consisted of two key parts: a reliability guarantee and an emissions guarantee.
The reliability guarantee would have required 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 was predicted.
The emissions guarantee would have required electricity retailers to meet a defined emissions level for the electricity they purchased from the wholesale market.
How would the NEG have impacted energy prices?
According to initial estimates by the Energy Security Board (ESB), the NEG would have reduced household power bills by approximately $120 per year between 2020 and 2030.
However, government modelling showed that this saving would have been 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 would the NEG have had on renewable energy projects?
According to the ESB, renewable energy would have accounted for 28-36 per cent of total energy generation in 2030 under the NEG (including hydro and rooftop solar).
This suggested that between 250 and 670 MW of large-scale renewable projects would have been deployed each year from 2020-2030.
Considering that approximately 4300 MW of renewable energy projects are currently committed or under construction, this would have involved a significant reduction in renewable projects.
If emissions abatement under the NEG was pushed out closer to 2030 – which was a possibility flagged by some in the government – the prospects for renewable energy would have been bleak in the early years of the decade.
How would the NEG have contributed to emissions abatement?
The government set the emissions abatement component of the NEG at 26 per cent, which was at the lower end of Australia's commitments under the Paris Agreement. This represented only a minor reduction from what was 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 strongly advocated 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. In the absence of this, the Clean Energy Council called for the NEG to include a mechanism that would have made it easy for future governments to quickly and easily implement stronger emissions reductions.
How would the NEG have affected state government emission reduction initiatives?
State-based renewable energy schemes such as the Victorian Renewable Energy Target and the Powering Queensland Plan would have been honoured under the NEG. However, any new renewable energy capacity installed as part of those schemes would have been incorporated into the national emissions reduction target of 26 per cent.
A number of states expressed opposition to this requirement, claiming that it would have resulted in some states taking on more of the emissions reduction burden than others.
When was the NEG due to be implemented?
For the NEG to be implemented, all of the states and territories had to agree to ratify the policy.
If the federal government had continued with the policy and managed to get all of the states and territories on board, the reliability component of the NEG would have started in 2019 and the emissions component would have succeeded the RET in 2020.
Following the abandonment of the NEG, the federal government has indicated that it won't replace the RET with any other policy when it expires in 2020.
For more information about the Clean Energy Council’s stance on the NEG you can read the following documents: