Opinion Pieces


January 12, 2018

Last year was dominated by Australia’s ongoing energy crisis. And this year the crisis will continue as long as climate and energy policy aren’t brought together in a single framework to support new investment and the modernisation of our electricity system.

Energy Minister Josh Frydenberg wrote in this page on Monday that the government’s National Energy Guarantee is “now the ­opportunity to deliver more affordable and reliable power”. But the minister and his government have had previous ­opportunities to bring climate and energy policy together to deliver the three pillars of energy policy: affordability, ­reliability and cutting emissions in line with our international ­obligations.

The emissions intensity scheme Labor took to the last election, which had the backing of states and industry, was flagged by Frydenberg as a possible way forward more than a year ago, only for him to turn around and dump it less than 36 hours later, after pressure from Tony Abbott’s faction of the Liberal Party.

Energy policy then turned to the clean energy target recommended by Chief Scientist Alan Finkel after one of the most extensive reviews of our National Electricity Market. When the CET was announced, Malcolm Turnbull said it “would certainly work” and it had a number of “very strong virtues”. Yet, after five months of trying to get the CET through his partyroom, the Prime Minister and Energy Minister were forced to trash that policy as well, thanks to Abbott’s opposition.

The government has now turned to the NEG, which is universally acknowledged to still lack crucial detail.

But although a detailed design remains elusive, the government has been able to paint a picture of what its NEG will deliver.

This picture is clearly intended to calm the concerns of Abbott and his fellow travellers, not deliver the modernisation Australia desperately needs.

Frydenberg likes to trumpet support for his NEG, citing organisations such as Bloomberg New Energy Finance. But analysis by BNEF actually shows the government’s NEG would see a 95 per cent cut against current annual investment levels in large-scale renewable energy. It would deliver just 1.5 gigawatts of new large-scale renewables to 2030.

In comparison, over 5GW of new renewables have been committed in the past two years. It is no wonder BNEF says the NEG would “decimate” large-scale renewable energy investment.

If, as is the government’s stated policy, the electricity sector is only expected to reduce its emissions in proportion with the national 26 to 28 per cent target, other sectors will have to do the heavy lifting. Compared to projected 2020 emissions, the government’s plan is for electricity to cut its emissions by 17 per cent by 2030, with pollution from other sectors such as direct combustion, transport, fugitive emissions and manufacturing needing to be cut by more than 40 per cent at the same time to meet the national target.

Yet the government hasn’t committed to a single new policy to drive these cuts, nor has the it explained how it is fair or cost-­effective for industrial sectors to cut emissions so heavily when electricity, which can reduce pollution at relatively low cost, only needs to cut it by 17 per cent.

The government doesn’t seem to be aware that the more investment in renewables that energy policy ­delivers, the less costly pollution reductions other sectors will need to achieve.

The impact of the government’s NEG on renewable investment is one concern, but there are others. Its NEG operates through the existing opaque contract market between energy retailers, which is already dominated by the big three “gentailers” that own generation as well as retail businesses.

Placing more power into the hands of the big three, which is what the government’s NEG would do according to the Energy Security Board, is a very strange way to address excessive market concentration in the ­National Electricity Market, a problem the government has previously acknowledged is driving up prices.

The complexity and divisiveness of energy policy make it easy to get bogged down in the details. That’s why it is crucial to remember the big picture.

Any sensible energy policy must do one central thing: support the modernisation of our energy system. That means replacing old coal generation that will close in coming decades with cleaner and more flexible renewables backed up by dispatchable technology, whether battery or pumped hydro storage, gas generation or demand management. Delaying this inevitable transition isn’t a plan for cheaper, cleaner or more reliable power; it is a recipe for wasted time and resources, higher prices and pollution. Delaying it does nothing but make today’s problems worse while passing the buck to our kids and grandchildren.

Different mechanisms, whether an EIS, a CET or an NEG, can be poorly designed so they stifle new investment and fail to support the transition that Australia ­desperately needs; they can all be designed to delay. However, in principle they can also be well designed to deliver a modern, clean and reliable energy system. That goes for an NEG-type mechanism that operates through existing electricity market structures, as well as a CET or EIS. But to be well designed, an NEG would have to address impacts on competition and, crucially, it would need to support renewable investment.

Unfortunately, based on all the information available, the government isn’t planning a well-­designed NEG. Its version seems designed to increase the market power of the big three gentailers, and support investment in coal generation while strangling renewable investment. It is clearly being designed not to deliver the transition Australia needs but to allay the concerns of the hard right in the Coalition partyroom. This is something Labor will not support, and neither should industry or the Australian community.

This piece was first published in The Australian on Friday, 12 January 2018.