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National Energy Guarantee raises more questions than it answers

As the dust settles on last week's proposal for a National Energy Guarantee (NEG), it is clear that there are many more questions than answers at this stage.

The CEC campaigned for many months on a Clean Energy Target (CET) as proposed by the Chief Scientist, and we will continue to make it clear that a CET (along with the other 49 Finkel review recommendations that would ensure reform of the energy market to address any reliability or security issues) was our preferred policy approach.

Of course, we are open-minded about the NEG and will engage fully with the Energy Security Board and the government on the merits and potential design of the policy. But from the scant detail that has been released, it remains unclear how the NEG will ensure investor confidence in a strong pipeline of new clean energy projects.

While we can comprehend how the NEG could ensure incentives for reliability (including from existing fossil fuel generation) and delivering emissions abatement, there isn’t any guarantee that investors will see a price signal or the long-term confidence necessary to underpin new investment.

The "modelling" that was done to support the NEG proposal is very light on and shouldn’t be taken too seriously, but it did reveal disappointingly low levels of new investment in clean energy under the policy.

While future higher levels of ambition on emissions reductions would deliver different outcomes for clean energy, it is crucial that we focus on understanding and informing the design of the core policy architecture at this stage.

Some of the other big design questions to fully consider include assessing the impact of international carbon abatement certificates on the scheme, the implications for the contracts market and interaction with the broader energy market and how these will affect retail competition and liquidity. The design of these elements will also have a material impact on the implications of the NEG for investor confidence in new clean energy projects.

If this policy is going to fly, we will need strong support from major political parties right across the country. But first we need to ensure that we have a policy that will deliver the new clean energy investment and lower power prices that all Australians want.

That’s likely to take several months of detailed analysis and consultation, something the CEC will be doing as a matter of high priority.