NEG worse than thought- penalising rooftop solar and large scale projects

We have now had a chance to review the Energy Security Board’s (ESB) final National Energy Guarantee (NEG) design sent to COAG Energy Ministers this week, which has not been made public but is widely available.

The bad news for the clean energy industry is that the restrictive and discriminatory features in the design of the NEG have not been addressed.

These include:

• the ESB is still not recognising emission reductions from roof-top solar, whereas those from pre-existing large-scale hydro gets recognised;

• only electricity retailers can register and carry forward emission reductions, which disadvantages renewable generators and potentially hands windfall gains to electricity retailers; and

• allows electricity retailers the use of Australian Carbon Credit Units (AACUs) to meet their emissions liability but does not allow renewable generators and energy efficiency projects to create ACCUs.

This paper, however, is not going to deal with the above issues in detail but rather focus on the ESB’s claim that the NEG will deliver lower power prices and lower greenhouse emissions than would otherwise be the case.

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The ESB’s NEG is claiming credit for the emission and price reductions associated with renewable projects that are already contracted or subject to tenders that would have happened anyway.

ESB still understates the level of renewables and emissions reductions that would be implemented in the absence of the NEG

ACIL Allen has undertaken modelling for the ESB and under their “Business as usual” scenario (without the NEG) have assumed that only those renewable projects that have already reached financial close would proceed.

They have included the initial Victorian and Queensland government renewables tenders but exclude any other tenders and also exclude any other projects that have been contracted but not yet reached financial close (refer to ESB’s Chart below).

The ESB have assumed that 7,800MW of large-scale renewable and battery projects come on line between 2018-19 and 2020-21.

The ESB claim that anything that is delivered beyond this is attributable to the NEG. This is false and misleading, as there will be considerably more renewables and emission reductions that will take place from 2020-21 in the absence of the NEG.

The ESB is claiming the NEG policy will deliver more than 5 million tonnes of emission reductions in 2020-21 alone (refer to the ESB’s chart below). This would require very roughly 2000MW of new wind and solar capacity to achieve.

This is all rather interesting given:

• The NEG emission liability does not come into force until 2020-21;

• The ESB will allow retailers to defer compliance for their entire liability in this first year to a later period;

• The scheme is still yet to be legislated and the regulatory rules remain to be drafted; and

• It typically takes around 18 to 24 months for a significant renewable energy project to move from being contracted to construction and then fully operational.

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