Energy experts split over effect that NEG will have on renewable energy generation when subsidies are scrapped

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Bloomberg New Energy Finance has given the seal of approval to the Turnbull government’s National Energy Guarantee, saying the NEG could even become a policy that will be copied around the world, but other experts claim that it will stifle the growth of renewable energy.

The independent international energy research firm’s Australian head Leonard Quong said that “although still in the early stages of development, the concept is innovative and elegant, and could well prove ingenious”.

That analysis is at odds with Australia’s state governments which do not think that the plan is feasible. Bloomberg, says that it is “innovative and elegant” and could be  “a template for policymakers worldwide”.

NEG will replace Finkel’s CET and come into effect in 2020

In short, the NEG which replaces Chief Government Scientist Alan Finkel’s Clean Energy Target aims to curb emissions and introduce reliability obligations by energy retailers which would be free to purchase energy from whichever sources they like, provided that they stick to the deal.

The NEG will also see the removal of subsidies on renewable energy sources, which other experts say will have an impact on the sector. The government, on the other hand, says that the tumbling prices of renewable energy generation will mean that the industry will be able to stand on its own two feet after 2020.

The government also predicts that the NEG will result in businesses and households saving an average of $115 per year, but this is in relation to current prices. No short-term measures to combat skyrocketing prices have been introduced, meaning that businesses are still at the mercy of market volatility and exorbitant current and future prices.

Australian Solar Council says NEG could spell disaster for renewables

The Australian Solar Council, however, believes that the NEG could spell disaster for renewable energy sources.

ASC chief John Grimes, former chief of the Clean Energy Finance Corporation Oliver Yates, and energy industry analyst Tim Buckley said the details of the policy proposal remained extremely vague – and were most likely 12 months away from becoming any clearer. They expressed serious concerns that the NEG would fail in all of its key goals, of creating electricity market reliability, sustainability, and affordability, while also crippling the renewable energy industry along the way.

“This (NEG) just continues the farce of the energy policy uncertainty that we’ve seen for the past four years,” said Buckley, the IEEFA’s director of energy finance studies, Australasia.

“It’s not a policy, it’s a way of leaving us in limbo for another year while they debate and put another proposition.

“The words and the meaning of energy security seem to be absent from this plan,” Buckley added. “I don’t think a system that is increasingly reliant on coal-fired power is diverse, and I would also challenge the argument that it’s going to deliver affordability for Australians anytime soon,” he said.

The issue is about a small but crucial detail, of whether new wind and solar projects built after the RET is met in 2020 will be able to generate new certificates.

The legislation currently says yes, but this will send the price to zero. Even though many contracted projects currently ascribe no value to RECs, the ability of merchant plants to access any sort of RECs price was considered important.

The Coalition has said it will not now change this feature and said it would create $7.5 billion in extra subsidies to renewable energy generation built before 2007, referring to hydro.

NEG proposal ambiguous on Renewable Energy Certificates

That inflated number assumes the price of RECs stays around $80/MWh for a decade, which is absurd and not what anyone is suggesting and ignores the impact of any plant that might be built “independently” – that is, not contracted by an incumbent retailer – between now and 2020.

The issue was reported extensively by RenewEconomy, which also says that it has a list of 30 questions about the NEG which must be answered. Other questions about the future of renewables are also asked by The Conversation, which asks whether the NG will ‘hit pause’ on renewable energy generation.

Bloomberg is upbeat though, predicting that the NEG could achieve the same level of renewable energy in the system as the proposals set out by the Finkel review.

Bloomberg said: “In our view, the NEG has a good chance of achieving its objectives of reducing emissions and ensuring reliability, principally because of its elegant integration with the energy market and the very strong penalty for non-compliance. “Void of any politically unpalatable features and yet likely to be environmentally effective, it could end the climate and energy wars that have claimed so many prime ministers and begun to weaken the Australian economy.”

Bloomberg says NEG could see 42% of energy generated by renewables by 2030

The firm says that its calculations suggest the plan would result in “42 percent of national generation being renewable by 2030, as the cost of renewable energy and storage continues to plummet”.

The firm says the risks in the scheme are caused by a lack of price visibility which could “increase the strategic advantage of the big retailers, and reduce competition”.

However, the success of the plan relies on the agreement of the states. While the federal government would legislate a national emissions reduction target, the main mechanics of the scheme would have to be constructed in state-based legislation.

South Australian Premier Jay Weatherill said on Friday his state is not yet willing to agree to support the policy.

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