Finally, the federal government has a policy for the electricity sector: the National Energy Guarantee. (NEG. Did it think this one through?)
It is, effectively, an emissions trading scheme applied to electricity. It is similar to other schemes — the Clean Energy Target (CET) and the Emissions Intensity Scheme (EIS) — supported by Labor.
The NEG requires the electricity sector to reduce emissions by 26–28% by 2030, as per Australia’s commitment under the Paris Climate Agreement. It also imposes reliability requirements on the electricity system, as did the Finkel Review. New investment under the current mandatory Renewable Energy Target (RET) ends in 2020, and the NEG is not extending this RET. Neither did the CET or EIS.
Does the NEG help or hinder renewables and reduce electricity bills compared with the CET or the EIS? The answers are unknowable. The climate movement should not be drawn into favouring one policy over the others.
The policy wording may appease Tony Abbott — it emphasises “reliability” and is not labelled “emissions trading”. Federal Labor is unlikely to accept it. The problem for the Coalition will be the state governments, whose agreement is required.
The NEG could mean that state-based renewable energy targets are no longer effective. Some states are talking about a fight.
Under the NEG, electricity retailers must source electricity to meet both reliability and emissions guarantees.
Under the Reliability Guarantee, retailers must source sufficient “dispatchable” generation: electricity that is available whenever required (mainly from coal, gas, hydro, solar thermal or storage). Wind and solar photovoltaic (PV) are variable so, without storage, they do not satisfy this requirement. Under the Emissions Guarantee, retailers must meet emission reduction targets.
The policy is “technologically neutral”: the government will not require any specific technology as it just sets the reliability and emissions reductions standards, leaving the market to sort out how to meet them.
Since Abbott abandoned the carbon price in 2014, there has been no mandatory scheme apart from the Renewable Energy Target (RET) to reduce emissions from electricity. The Emissions Guarantee starts after 2020. Retailers can meet any emissions shortfall by trading with other retailers, or by buying Australian or international carbon credits.
The climate movement therefore needs to push for Australia to commit to a much higher emission reduction target.
Every country is required to increase its commitment over time. Australia will next “communicate or update” its climate pledge in 2020. Labor has promised to raise the current commitment of 26–28% to 45% by 2030.
Equally important is to severely the limit buying of international carbon credits. Preferably this should be banned so that all the emission reduction actually occurs here.
Coal and gas
The Reliability Guarantee will be structured to help coal, even though coal does not have the flexibility increasingly needed on the grid.
But Australia is unlikely to get new coal-fired power stations without the government underwriting them. New coal is considered by a section of the private sector as “uninvestable”, given climate target imperatives.
What about existing coal-fired power stations? Typically, these are retired after about 50 years. Ageing power stations are not particularly reliable and will probably shut as planned. But most coal power stations are in their 30s and there are unlikely to be more premature closures unless Australia strengthens its emission reduction targets or the movements grow significantly.
The climate movement needs to keep pushing for a just transition for coal communities. We should also emphasise sustainable ways of achieving reliability, such as an energy storage target.
The NEG will assist gas-fired power, since gas contributes to emission reductions and reliability. But the CET and EIS would also have helped gas. Without a specific measure to help renewable energy, gas will benefit. This is also assuming that gas prices can be brought down, which is unlikely while the domestic price is pegged to the much higher international prices.
Currently, state governments are being pressured to overturn bans on unconventional gas. The climate movement must ensure these bans hold and are extended.
The soon-to-end RET explicitly supported renewable energy. Other emissions reduction schemes (CET, EIS or NEG) may only partly help renewables because they compete with gas. Wind and solar power are variable: they contribute to the Emissions Guarantee but not to reliability.
Could we get more renewable energy outside of the NEG?
Currently we can get renewables additional to the RET. Some states are implementing their own renewable energy targets; and households and businesses are installing solar panels or buying the government accredited scheme GreenPower.
The NEG may make it harder to get additional renewables. States with higher renewables targets would just contribute to the national commitment.
We need to ensure that the states do not agree to this and can push their own high targets in addition to the national Emissions Guarantee.
We desperately need significant large-scale storage on the electricity grid. Pumped hydro storage is cheaper and could do the heavy lifting. Batteries have other advantages: they are modular, can be installed anywhere and are dropping in price.
To date, renewables have been installed without the associated energy storage. The electricity market does not provide sufficient incentive for storage. Owners of storage could make money by buying electricity when it is cheap and selling when it is expensive. But this will not be enough. We need guaranteed storage, either through government investment, or a mandatory energy storage target, such as that recently proposed by the Greens.
The NEG may provide an incentive for more storage, since renewables coupled with storage will satisfy both the Reliability and Emissions Guarantees.
Reliability is a concern because renewables have been growing (without the required storage) and fossil fuel power stations have been closing.
A reliable electricity system has enough electricity generation to nearly always meet demand, especially during heat waves. It is also secure: the South Australian statewide blackout of September 2016 was a security failure. Load shedding during heatwaves are reliability failures.
Since the blackout, the Coalition and corporate media have talked incessantly about reliability, attacking wind and solar energy because they are not available on demand. Abbott has pushed for a “reliable energy target”. He has seemingly won this.
Meanwhile, many environmentalists have underplayed reliability. We have pushed for more renewables. We must push just as hard for storage. And we must push for other ways to improve reliability. Reducing electricity demand on peak days (typically during heat waves) can help by reducing expenditure on new power stations and poles and wires.
Finally, we are seeing attention given to such demand management.
Energy bills have risen enormously. But we should not focus on whether an NEG, CET or EIS will reduce bills the most. Vulnerable groups can reduce their bills if they can get help reducing how much electricity they use.
Energy efficiency is the main way. There are many programs and regulations that governments could introduce. A no-brainer is to require landlords to make rental properties energy efficient.
Governments versus the market
The NEG is a push for greater regulation of the electricity market. It may help prop up the market. But can markets lead us to sustainability?
To reduce climate impacts, we must rapidly transition to renewable energy. We need strong planning and a government-owned and operated electricity system to drive the transition, rather than markets and private ownership. But currently we have a federal government that strongly supports coal and gas. Some ministers even want the government to build coal-fired power stations. Meanwhile we have private companies itching to build renewables.
The electricity market relies on competition between generators and retailers — mostly privately owned. The market has become increasingly dysfunctional. This year, state governments started intervening by announcing intentions to build power stations and storage. Such interventions angered business because it would undermine the private sector.
But policy instability over the past decade has discouraged investment in new coal and gas power stations. Only renewables have been built. Business wants policy stability. They believe this will stimulate new private sector investment in fossil fuel generators. The NEG still represents a large government intervention, but only to the rules of the electricity market. It will probably satisfy business.
Our fight for strong climate action continues.