Exclusive: technical framework of scheme outlined for first time in a 54-page document circulated by the Energy Security Board

This article is more than 2 years old

This article is more than 2 years old

A document outlining the design principles of the Coalition’s national energy guarantee – which has been obtained by Guardian Australia – reveals the Turnbull government is keeping the states guessing over critical elements of the scheme, including the level of emissions reduction, and its implementation.

The government has indicated it will instead circulate its own policy paper outlining controversial elements of the new framework.



The Energy Security Board has now circulated a copy of the design principles of the national energy guarantee – a document that state and territory ministers were expecting ahead of next Friday’s meeting of the energy council.

But some key elements have been left to the commonwealth’s paper, like the proposed emissions reduction target and what offsets market participants will be able to use.

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That development has caught some jurisdictions on the hop, because they believed the ESB – an advisory body which is a creature of both federal, state and territory governments through the Council of Australian Governments – was leading the process, with the Turnbull government standing on the sidelines.

Guardian Australia has obtained a copy of the ESB’s advice to the energy council of Coag. The 54-page document outlines the technical design of the new scheme and the mechanisms that will be deployed under the policy that would impose a reliability obligation and an emissions reduction requirement on energy retailers and a small number of large electricity users from 2020.

The paper makes it clear that energy regulators have been listening to feedback from stakeholders that the NEG could entrench the market dominance of the big energy companies at the expense of smaller retailers, and proposes a number of steps to minimise those risks.

As well as addressing competition concerns, it also makes it clear that regulators will take a technology neutral approach rather than seeking to prolong the life of coal plants, or favouring gas, noting that “the guarantee will incentivise investment in low cost dispatchable resources, which may include intermittent renewables firming up their capacity, for example, by investing in storage”.

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On competition issues, the paper suggests the ESB has listened to advice from the Australian Competition and Consumer Commission. The competition watchdog used the process of consultation to warn that the national electricity market is already highly concentrated, and the NEG could potentially further entrench that negative trend.

The ESB paper says that vertically integrated electricity generators will not be able to use their own generation to comply with the new reliability and emissions reduction targets unless they have entered into contracts purchased off centrally cleared trading platforms.

It says only contracts bought from centrally cleared trading platforms and/or reported through centralised trade repositories will qualify under the reliability requirement of the NEG.

That development will expose trades within the so-called “gentailers” – electricity generating facilities that are also active in the retail market.

Vertically-integrated retailers, like AGL Energy, Origin Energy and EnergyAustralia, already boast substantial market share, which lessens competition, which drives up prices for consumers.

The ESB notes that in each region of the national electricity market, the combined market shares of the two or three most significant generators exceeds 70%, with South Australia the most concentrated market. It notes “it is important the guarantee not be designed in such a way that vertical integration is the only viable option for compliance”.

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It also proposes that the Australian Energy Market Operator be given powers to conduct a voluntary book build – which is a mechanism for capital raising – to match up buyers of electricity with smaller retailers, and new market entrants, again as a measure to enhance competition.

On the reliability standard, the paper says Aemo will forecast conditions ten years out and identify gaps, then update the assessment each year, with the reliability obligation triggered in the event of a shortfall.

The ESB proposes that reporting emissions reductions piggy back on existing mechanisms, including the reporting obligation under the National Greenhouse Energy Reporting Scheme.

It says under the system it envisages, retailers would continue to enter into financial contracts to hedge their position on the spot market and manage any obligations under the reliability standard.

The next week is critical for the fate of the NEG because any single jurisdiction has the power to make or break the concept. Changes to the national electricity market rules requires a consensus – meaning agreement between the Commonwealth and the states.

The separate paper covering off emissions reduction and offsets prepared by federal officials for the energy minister Josh Frydenberg is likely to be circulated to the states and territories late on Friday.

The Commonwealth argues this should be no surprise because it flagged its intention to provide more guidance on those areas earlier in the process, given it has responsibility for setting the emissions reduction target through legislation.

While the Labor states have signalled they won’t commit one way or another until they are across all the design elements of the NEG, the ACT government has been on the frontline of the pushback, warning it won’t sign up if the national scheme penalises its efforts to deliver 100% renewable energy by 2020.

On Friday, the ACT’s minister for climate change, Shane Rattenbury told Guardian Australia the ESB’s design principles left too many questions open for the territory government in Canberra to be able to telegraph a position.

“Having now received the ESB paper there are still many outstanding issues of policy which we believe will be addressed in a separate Commonwealth paper,” Rattenbury said.

“Our early analysis of the ESB paper suggests the guarantee will use mechanisms that are not significantly different to the present situation but do add further process and administration”.

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Rattenbury said the policing of the new reliability obligation looked very like the work the AEMO was currently doing to ensure there was sufficient capacity in the market.

“In the absence of the Commonwealth paper, there is still so much information not available that it critical to how we interpret the whole package, that at this stage, we are not in a position to make any decision”.

Frydenberg said the National Energy Guarantee would deliver a more affordable and reliable energy system.

“It involves no new subsides, taxes or trading schemes and is technology neutral ensuring a role for coal, gas and renewables as part of Australia’s energy mix,” he said.

“The strength of the guarantee is that it will get the market working again for consumers delivering the right investment signals to generate the right investment in the right place at the right time.”

“This is the first opportunity to effectively integrate energy and climate policy and it cannot be missed.”