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The NEG — Is This Loss?



Before the meta-democratic moves that saw Australia endowed with a fresh prime minister, the author wrote a 3 part piece on the National Energy Gurantee.


While the NEG has since been swept away at a stroke by the incumbent occupant of the prime ministerial position and his team — it retains, if not gains, importance by that very fact.


What have we lost with this brash decision to brush aside the NEG? What specifically did it involve? What was at stake? Who had been behind and who against it? And why?


The National Energy Guarantee — Beginning at the Beginning


The National Energy Guarantee was first proposed by the Turnbull government October last year. There was and there remains a common consensus that dramatic changes to the National Energy Market are really required.


From the schizophrenic supply to South Australia, to power stations prematurely closing in Victoria. Add in international agreements around emissions reduction and an ever mounting increase in residential rooftop solar sending power to a grid designed to distribute, not to receive it.


To effectively allow for such changes and solve past problems: a thorough, thought-out plan is central. With 40,000 kilometres of transmission lines providing power to 9.6 million metered customers tallying to a $11.7 billion wholesale value of electricity traded — it is imperative to this day.


The final push came from the Finkel Review. So named for Dr. Alan Finkel who co-authored the paper actually entitled Independent Review into the Future Security of the National Electricity Market: Blueprint for the Future.

29 July 2016 - Alan Finkel headshot from Swinburne and CSIRO strategic launch

After Alan Finkel’s Report kicked off the discussion in June 2017 — by October that year the then incumbent government under the Honourable Malcolm Turnbull introduced talking about a National Energy Guarantee.


15 February 2018 the Energy Security Board (ESB) produced the first version of a Draft Consultation paper for public access and asking several times for stakeholder input throughout.


A detailed document, it exhaustively elaborates a powerful process-map to handle the problems and promise of supply security, new technologies, grid reliability and emissions reduction.


It’s tricky to keep this reasonably readable, not excessively lengthy nor too technical. But I’ll give it my best.


An Overhead Overview of the Draft


The Draft concurred with the Finkel Report that national energy policy must merge with the emissions reduction target of 28% by 2030 and 0% by 2070, as agreed at Paris.


On face-value, it would seem that the Draft adopted many measures like those actively advocated in the Report. The need to balance security and reliability are paramount.


Security being the ability of a system to operate to a fixed standard subject to defined technical limits even in the event of an incident (closure of a generator or damage to power lines).


Reliability here is supply equal to demand and includes reserves for eventualities.


The Draft identifies two key requirements: the Emissions Requirement and the Reliability Requirement. The former has an ESB component and a separate Commonwealth Government contribution.


From there it moves onto map out Governance of the Guarantee, the ideated Interaction of the NEG with programmes already in place before concluding on Contracting.


Let’s look summarily at all of them.


Emissions Requirement


The Australian Energy Market Operator (AEMO) was to see to it that retailers became signatory to the emissions requirement as a condition to operate as a retailer at all.


Each year electricity emissions reduction targets were to be fixed and published. This was to be called a compliance year. Retailers would have been required to comply with them and reduce their emissions by a quantifiable amount set by AEMO annually.


The shape that this could have taken included generating their own power with clean technologies, buying from a renewable generation source or purchasing carbon offsets (possibly even from overseas) in lieu of taking actual steps to really reduce emissions themselves.


Compliance was to be taken lightly. Failing to meet the emissions requirement for a year could be papered over with promises to meet them later. Compliance deference, it was called.


Or a retailer could overperform on paper (purchase a f-tonne offsets maybe) and that would be carried over to another compliance year to exempt them from complying for that one’s new target.


How the maths would work wasn’t definitively agreed on. Suggestions were offered, but bore me.


Enforcement would have been seen to by the Australian Energy Regulator (AEG), an ACCC body.



This was envisaged to extend to administrative undertakings (the retailer will volunteer to fix it internally), infringement notices (strongly-worded emails and public shaming by publishing the infringements), enforceable undertakings (the AEG will demand that they fix it internally), civil proceedings (injunctions or penalties possibly to follow) and finally suspension or revoking of retail authorisation (the legal right to sell power in Australia).


However, the ideal was a “culture of compliance.” Proactive and preemptive informing, educating and engaging of retailers before a breach can occur.


Reliability Requirement


Among the main concerns that the NEG intended to address was grid reliability.


An average modern home’s degree of dependence on consistent electricity can hardly be overstated.


Still, some States suffer from sporadic energy supply.


South Australia in particular is open to regular outages and extra exorbitant prices per kilowatt.


All States are prone to routine rate rises.


Wha—, why?


The primary problem is poor planning, or an absolute absence of any.


Without concerted coordination and accountability, homeowners are at the caprices of retailers and generators.


Should a generator be closed on short notice, a gap gapes in between the real-time demand and the ready supply.


Retailers offer to fill it in — but entirely on their terms. Predatory pricing is possible (probable perhaps) when there are no alternatives available.


It may, to be fair, even genuinely be tricky logistically to arrange an alternate source for the amount required on so short a timeframe. To do tricky logistics in little time often is expensive.


The whole thing needs to be taken by the scruff of the neck if we’re honest.


Finally, renewables, while the best chance to correct many reliability related problems, in the short-term increase instability if installed in a shortsighted manner.


Touch and go, poorly regulated, completely unintegrated, installations on a large scale pose as much a challenge as offer a solution in the form of a clean source of generation.


It needs to intelligently implemented.


Realistic Reliability Properly Planned For


The reliability component was, to this author’s thinking, the strongest suit of the NEG.


Broadly put, it would become a legal requirement to notify AEMO of a plan to close a generator a minimum of three (3) years before the day.


AEMO undertook to publish this intention which would then signal to the retailers an opportunity to cover the forecasted power loss posed by the closure.


What would have been a market disruption and supply interruption, instead could be turned into an avenue of attracting investment.


Some of these solutions may even have included power procured from PV arrays installed on residential properties.


The tenders won — all contractual obligations were to be carefully monitored with appropriate punishments for failure.


Finally, as a last resort, AEMO designated Reliability and Emergency Reserve Traders (RERT) could have been called up to honour reserve contracts of 10MW minimum to fill up the demand/supply gaps left open by retailers failing to follow through on their agreements.


There’s a safety net underneath if even the rope breaks. Or there was. Now there is no safety net or rope for that matter.


Benefits


The benefits were potentially immense.


Less outages.


Low prices.


Fewer unpredictable rate rises.


Even possible incentives for solar homeowners to help meet upcoming gaps and keep the relevant retailer’s emissions within the compliance range for that year.


Never Mind Though


But, after all, none of this is important anymore.


The Morrison government seems to have set about deliberately undermining and overturning all of the above at the outset.


Began by separating out the environment and energy policies after ages of working at integrating them. Totally tipping over the careful, constructive plans by experts to forge a coherent, effective and long-term system for supply security and reliability while meeting international commitments on emission reductions.


Don Quixote is now energy minister.



A former lawyer for a mining company is the minister for the environment.


The current cabinet is a cabal of climate change sceptics.


They pay plenty of public lip service to the place for renewables and the importance of keeping up Australia's international committments on emission reductions — "clean" coal comes out the other side of their mouths and costly upgrades to dying power stations.


Methods to extract coal "cleanly" are literally the most expensive way we could possibly produce power today.


The life-extensions for existing power plants are multi million dollar capers. And we know it full well from really recent memory.


$150 million in SA at Playford plant for 7 added years of service life. $308 million in Melissa Price's own WA for 4 more out of Muja AB. AGL has prudently refused to throw $920 million over 5 years as an alternative to accepting it and setting a closure date.


The ideology doesn't fit with the party promises. You can't insist on coal and drive down electricity prices.


While renewables are consistently and demonstrably less expensive, more popular with average Australians and fairly obviously go toward honouring the country's commitments to clean its energy act up.


From the Finkel Report and the NEG to the Aussie everyman: everybody knows renewables are best and inevitable.


But expensive clean coal tech and obscenely priced plans to keep existing outdated coal power plants open it is.


So here we are. Back to below square one.

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