The National Energy Guarantee and what we know so far

The National Energy Guarantee and what we know so far

While details of what the National Energy Guarantee means for Australian businesses is missing, what is clear is that there is a serious affordability problem across the NEM. The ACCC has found that electricity price increases over the past ten years are putting Australian businesses and consumers under unacceptable pressure.

The report has found that businesses across all sectors have faced unprecedented increases over the past 12 months. Following renegotiation of long term contracts, many of these businesses cannot pass the increased costs on and are considering reducing staff or relocating overseas. Some businesses have even been forced to close. The report has found that as a whole there is insufficient competition in the generation and retail markets, which is both raising prices and increasing barriers to entry to innovative technologies.

What the ACCC have found

The draft report has found that the wholesale market is highly concentrated and this is likely contributing to higher wholesale electricity prices. With recent closure of large, baseload coal-fired generators, the reliance on gas powered generation has become more prominent. Current policy around domestic gas supply do not support this reliance and resultant shortages in domestic gas supply are driving prices up further.

In addition, while most retail markets across the NEM have more than 19 retailers operating, according to the ACCC’s findings, the ‘big three’ (AGL, Origin and EnergyAustralia) control in excess of 60 per cent of generation capacity in NSW, SA and VIC. As a result, the ‘price-maker’ generators may favour their own retail businesses making competition more difficult for smaller retailers. Coupled with the significant tightening of the demand-supply balance for electricity, the current market delivers significant challenges for standalone retailers.

Turning to the distribution network that transmits the electricity from generators to consumers, the report identified significant increases in electricity network costs. This is mostly as a result of overestimations in current supply and demand and thus network companies have taken advantage of available incentives to put in place more capacity than necessary. “To a significant extent, past decisions relating to network investment are ‘locked-in’ and will burden electricity users for decades to come,” the report says.

What the Coalition have proposed

While the final report is not due until mid-2018, this preliminary report by the ACCC has played a significant role in the government’s ongoing energy policy development.

The announcement by the federal coalition that they intend not to proceed with Chief Scientist Alan Finkel’s plan for a clean energy target, the government has instead decided to focus on what is called the National Electricity Guarantee (NEG). The NEG is a policy that seeks to focus on increasing affordability for consumers in the electricity market.

To date, the NEG will operate to re-balance the energy market through setting minimum quotas for “dispatchable” or “baseload” supply, which addresses the primary challenge to ensure there is always a reliable supply of energy to the country.

Secondly, the federal government is reviewing policy for a national emissions target in line with international commitments such as the Paris G20 summit. In order to meet this target, energy retailers would need to ensure they supply a certain amount of low emissions energy which they can either generate themselves, or they can purchase from renewable energy generators. In essence this system would place the onus on retailers and large energy users to operate using cleaner cheaper sources, although there is insufficient detail to determine how this mechanism might work.

What this means for solar

The advice given from the Energy Security Board specifically states that, in relation to the proposed emissions guarantee, that any new policies are not intended to change the current Renewable Energy Target (RET).

The RET is expected to be met by 2020 and continue to run until 2030 as is currently planned on the current target. It is then proposed that new large scale renewable projects will then contract with retailers under the new low emissions guarantee structure instead of creating RECs under the RET. Those that build renewable systems for their own use will continue to create and sell LGCs under the current RET scheme.

All of this information is so far quite vague, as the government has not put forth an actual policy and would appear far from having legislation written. Effectively this new legislation should not significantly impact the near term picture for LGCs i.e. 2017 or 2018 and may have a positive impact on the value of LGCs post 2019.

For smaller sized systems under 100kW it is less clear whether the current STC system, which subsidises PV solar owners upfront will remain in place. However, with the likelihood of a continued RET, it is expected that this will remain in place.


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