The Federal Government has laid the plan for a significant shift on energy policy aimed at delivering reliability of electricity supply and meeting our emission reduction obligations. Put simply, it’s about getting better outcomes for the future of energy consumers and businesses by placing priority on energy affordability and reliability.
We should not delude ourselves. Energy prices will not miraculously reduce in the short term. The plan estimates price reductions could be achieved over the 2020 to 2030 period. It’s interesting to note the language used to estimate the reductions, “It’s expected that the Guarantee could lead to a reduction in residential bills”. Many will say, “vague”. Some will question the extent of modelling performed. Regardless, it highlights the uncertainty in our markets until more energy generation and security is brought forward and action is progressed on the other elements of the plan.
Investors in future renewable projects will need to reassess their position in this market and navigate through new complexities. Only time will show us how this will affect investment in the growing renewables market. However a plan to move forward is better than no plan.
The need for a more stable path is urgently needed to get out of the mess Australia currently faces, which includes having amongst the highest energy prices in the world and unreliable supply. Business as usual is not an option, as reinforced by Dr Finkel. The non-stop media coverage in recent months and the chorus from industry demanding bi-partisan agreement has been relentless.
The calls for making a link between our energy reliability needs and emission reductions has been addressed with this plan – although many will ask, “at what cost to the Paris Agreement and climate change?”.
The 17 October 2016 announcement of a National Energy Guarantee puts the focus on curbing rising electricity prices, securing new dispatchable generation and meeting our global emission commitments. The centerpiece of the National Energy Guarantee requires energy retailers and some large users across the National Energy Market (NEM) to meet the reliability and emissions guarantees. The emissions guarantee will be set by the Commonwealth and enforced by the Australian Energy Regulator (AER) to assist meet our international commitments.
Retailers will be required to meet the reliability target by procuring energy from coal, gas, pumped hydro and batteries based on requirements set by the Australian Energy Market Commission (AEMC) and the Australian Energy Market Operator (AEMO). It won’t be a one-size fits all. The needs of each state will be assessed and it is unlikely they will all be in agreement.
In order to offset emissions, retailers could invest in low emissions generation, contract with renewable energy developers, or trade with one another.
So far, industry, consumer and business groups have largely been receptive. This is not be surprising given that the plan was largely put forward by the new Energy Security Board supported by our foremost energy advisors in conjunction with our market operators.
The days and weeks ahead are vital for engaging stakeholders and state governments on the plan’s merits. It won’t please everyone and the detail still needs to be worked through.
Australia needs a game changer to focus on outcomes that will benefit the nation. The status quo is simply not an option.
This article originally appeared in the KPMG NewsRoom.