Golden opportunity

Experts among stakeholders will pore over the Energy Security Board consultation paper on the “national energy guarantee” in the next three weeks; what interests me right now is the commentary with which the famous five – Kerry Schott, Claire Savage, Paula Conboy, John Pierce and Audrey Zibelman – open the exercise.

They cut straight to the chase: the NEG is an opportunity to resolve some of the most vexing issues bedeviling the NEM, but it “cannot solve all of these issues alone.”

This brings us back to a point that has been made over and over again during the past five years – there is no silver bullet to address Australia’s energy and climate policy mess but there is probably a fair bit of silver buckshot and, even then, some solutions will come with their own baggage.

As the ESB says, “15 years of policy instability have complicated long-term investment decisions and required responses (the paper says “requited,” typos creep in everywhere) for (power) system reliability and security have not been forthcoming.”

This, the five add, “has left our energy system vulnerable to escalating prices while being both less reliable and secure.”

That “15 years” says such a lot about how we have institutionalized ineptitude in energy management across the political system (we are talking late-term Howard through Rudd, Gillard and Abbott to Turnbull here and that’s just the federal scene; the States are as much to blame as anyone for today’s situation). Turnbull and Frydenberg are entitled to say they are trying hard to address the “crisis” they have inherited but, even so, the Coalition government is as riven by dissension on energy and climate issues as CoAG itself.

The five’s claim for the NEG is that, if CoAG backs the plan, it “will provide a clear investment signal so the cleanest, cheapest and most reliable generation gets built in the right place at the right time.” That’s really a huge statement, given the source (ie it’s not pollie-speak) and that delivery of such a promise requires years, not months, and expenditure of many billions of dollars (when support infrastructure is taken in to account, as it must be) in a political environment that shows signs of being even messier than in the past 15 years.

Another important point is also set out in the ESB’s opening salvo: “Over the past decade policymakers have attempted to design the perfect emissions trading scheme and every attempt has failed.”

Let’s not loose sight of the fact that those who failed are not just politicians but the Treasury, Prime Minister & Cabinet Department and the various contortions of the environment and energy bureaucracies plus assorted expert advisers.

The five assert that their NEG is just a requirement on retailers to ensure that what they buy is in line with the abatement target politicians agree to set for power generation.

How hard is it for CoAG first ministers to agree such a target? Answer so far: apparently much too hard.

Perhaps we should force them to listen to the tale of how Alexander dealt with the impossibility of unraveling the Gordian Knot – he took his sword and sliced through it.

For me, what this passage in the paper highlights is (a) the critical need for the CoAG leaders to take the high ground on this key point and (b) just how hard this is going to be in a period of four State elections, and very possibly a federal one, in barely a year.

Moving along, the ESB is attempting to create a framework of eight steps for the NEM. They are:

  1. Forecasting the reliability gap: AEMO forecasts whether the reliability standard is likely to be met (or not) in any NEM region over a forecast period.
  2. Updating the reliability gap: AEMO updates the forecasts of any reliability gap over time, as the market changes, for example to reflect a notification of retirement of a particular generator.
  3. Triggering the requirement: If a reliability gap has been identified, the market would be expected to react and start to invest in new capacity or offer additional existing capacity to the market to close the gap. When a gap persists, there will be a point in time in advance of any forecast reliability gap at which the reliability requirement is ‘triggered’ and retailers are then expected to respond.
  4. Qualifying instruments: Retailers will be incentivized to make investments or enter into contracts that underpin new investment that can alleviate the identified gap. Participants will need to know what instruments will ‘qualify’ for meeting the reliability requirement. Retailers will be required to demonstrate that they have entered sufficient eligible contracts to cover their share of the peak demand requirement at the time of the reliability gap.
  5. Allocating the requirement: If there is an identified gap and the obligation has been triggered, there will be a defined process for filling or allocating the gap to retailers.
  6. Compliance: At the compliance date, the AER will need to assess whether retailers have met their reliability requirement.
  7. Procurer of last resort: If retailers do not meet the requirement by the compliance date, AEMO will need to procure resources to fill any remaining gap.
  8. Penalties: Penalties will need to be assigned to retailers that have fallen short of their reliability requirement.

Of course, the imps of detail will immediately start to nip at this approach – just wait for the submissions – but, as a bridge across the market swamp, it makes broad sense to me.

The ESB devotes most of the 58 pages of the discussion paper to addressing NEG detail with a broad brush, but the five rightly make the point that a key element is the capacity of governments to work together in a federal system, which has been the great big failure through this century to date.

Fatih Birol of the International Energy Agency, on his brief visit to Australia, told the politicians that the NEG, at least conceptually, represents a “golden opportunity.” Given what else was going on last week, was anyone in federal parliament alone even listening?

Reading the coverage of the ESB statement in the mainstream and greenstream media in the past several days, I doubt that anyone in the community other than energy nerds will have got anything they can understand from it – and therefore there is no community pressure on governments in eastern Australia and in Canberra to knuckle down and create the environment for the “golden opportunity” to be seized.

What we need is a modern Paul Keating, modern Wayne Goss and modern Nick Greiner, at the pinnacle of power and public influence, to run with this – and we don’t have them, do we?

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