National Energy Guarantee draft design consultation paper

The National Energy Guarantee emissions requirement risks being costly and ineffective if is not part of a long-term national decarbonisation strategy.

The National Energy Guarantee (NEG) reliability requirement appears to be a functional if complex solution to the risk of a shortfall in flexible dispatchable resources in some regions of the NEM at some periods. The NEG emissions requirement is not the Academy’s preferred policy to achieve emissions reduction. However, in the current environment, the NEG may be Australia’s best opportunity to remove the policy uncertainty that is hampering energy sector investment. It therefore has the Academy’s qualified support.

ATSE makes the following recommendations to the Australian Government to assist in the design of the NEG emissions requirement:

• Develop a long-term emissions reduction strategy, including an evidence-based decarbonisation trajectory to achieve net-zero emissions and a cross-sectoral analysis of efficient and cost-effective decarbonisation pathways to achieve this trajectory.
• Adopt an emissions reduction target for the electricity sector based upon this analysis.
• Do not weaken the emission requirement by exempting energy-intensive trade-exposed (EITE) activities from the NEG or allowing carbon offsets to be used.
• Implement policies to drive emissions reduction in the WA and NT electricity systems, not just the NEM.

ATSE makes the following recommendations to the Energy Security Board to assist in the design of the NEG reliability requirement:

• Carefully calibrate the reliability requirement to avoid excess cost and to reflect properly informed community expectations.
• Ensure that the reliability requirement enables different resources and technologies, including generation, storage, and demand management to contribute.
• Ensure that the NEG does not entrench or increase the market power of the incumbent vertically-integrated generator-retailers.