The National Energy Guarantee (Guarantee) is an opportunity to resolve some of the most vexing policy issues challenging the National Electricity Market today. But the Guarantee cannot solve all of these policy issues alone. As recommended in the Finkel review, Energy Security Board members are also simultaneously exploring a range of other complementary measures including strategic reserve/s, demand response and day ahead markets to ensure we have the operational flexibility we need in the rapidly changing electricity market.
Fifteen years of climate policy instability has complicated long-term investment decisions and requited responses for system reliability and security have not been forthcoming. This has left our energy system vulnerable to escalating prices while being both less reliable and secure.
A well-designed Guarantee will bring together climate and energy policy for the first time in Australia to ensure we can meet the electricity sector’s share of our international obligation to reduce emissions while supporting the reliability of our electricity system. Providing long-term policy confidence is critical to bringing down electricity prices.
The Guarantee will provide a clear investment signal so the cleanest, cheapest and most reliable generation gets built in the right place at the right time. It can also signal opportunities for demand response which may help reduce the need for costly new generation infrastructure.
The emissions and reliability components of the Guarantee will require retailers to support a range of different generation technologies through their contracting. Increased contracting in deeper and more liquid contract markets is expected to reduce the volatility and high prices we’ve seen in our wholesale National Electricity Market over the last year further improving the affordability of electricity.
Over the last decade policy makers have attempted to design the perfect emissions trading scheme and every attempt has failed. The emissions requirement under the Guarantee is simply that – a requirement. It is a requirement on retailers to ensure that the energy they are purchasing is in line with the emissions reduction targets set for the electricity sector.
The Australian Government has provided a section for this consultation paper on the matters within its area of responsibility. This section sets out some possible options for how electricity sector emissions targets might be set, reviewed and adjusted along with the treatment of our emissions intensive, trade exposed sectors and the possible use of domestic or international offsets.
The Energy Security Board has built on this and considered some of the design options for the emissions component including how to calculate a retailer’s load and emissions, the provision of flexible compliance options and the necessary frameworks for reporting and compliance.
The reliability and emission components complement one another and are designed to ensure the market has a fair opportunity to deliver adequate reliability. That is, that we have sufficient investment in dispatchable megawatts or demand response to meet peak demand. This will require retailers to enter contracts to deliver their share of the required MWs in a region at a point in time for a given duration.
This initial consultation paper seeks your feedback on the high-level design options for the Guarantee. The consultation process will be short and targeted to enable us to offer a preferred high-level design to the COAG Energy Council at their April 2018 meeting. With COAG Energy Council agreement in April, we will commence the detailed design of the Guarantee through intensive consultation with stakeholders over several months before putting a preferred detailed design to COAG Energy Council later this year.