Australia's National Energy Guarantee: Proposed design up for discussion

Australia's current energy trilemma - providing energy security, reducing energy costs and reducing emissions from the energy sector consistent with Australia's international commitments - can only be solved by bringing together climate and energy policies. Energy sector participants have until 8 March to provide written submissions on the draft design of the proposed solution, the National Energy Guarantee (NEG).

The NEG imposes obligations on retailers to meet two requirements - a reliability requirement and an emissions requirement, which we address in detail in two separate articles.

What's next for the National Energy Guarantee?

The Energy Security Board (ESB) must provide a draft design paper to the COAG Energy Council in April 2018. Assuming that Council provides direction for the ESB to continue its work on the NEG, a high-level design paper will be released, followed by papers on specific design elements over the next few months. The intention is to finalise the design of the NEG before the end of the year to enable drafting of legislation and rules to begin.

What should you consider when reading the National Energy Guarantee consultation paper?

In addition to some of the issues we identify with the reliability and emissions requirements, participants in the National Energy Market (NEM) will need to consider the following potential issues arising from the draft design:

• how will the NEG run in parallel with the Renewable Energy Target (RET) until 2030? Counterparties to LGC Purchase Agreements will need to consider how the "Change in Law" clause of those Agreements will operate once the NEG design is finalised and implemented;
• what impact will the NEG have on the nascent market for Corporate PPAs, pursuant to which large corporate consumers (rather than retailers) have been contracting directly with renewable project delivers for green products?
• the absence of price and investment certainty in the short term - should retailers, off-takers and project developers hold off entering into contracts or making investments until the design of the NEG has been clarified? For example, can a retailer decide to purchase offsets instead of contract at a particular price point in advance of knowing whether that will work with the NEG design?
• what protections will be put in place to level the playing field between gentailers and smaller NEM participants?
• will the complexity of the changes to the National Electricity Rules required to implement the NEG be a barrier to entry for smaller participants (the Rules are currently over 1,600 pages in length)?

For a policy of such complexity and potential significant impact, the ESB's timetable is an ambitious one and presupposes that each of the States and the Territory participating in the NEM will agree with the NEG as a policy and its design elements. Recent press suggesting that Tasmania may withdraw from the NEM, and South Australia's announcement of ambitious renewable and energy storage targets may yet prevent policy becoming law.

If you want to better understand the potential impact of the NEG on your organisation's business or require assistance in preparing a submission, please come and speak to us.

Related Insights

• Reliability requirement under the National Energy Guarantee: Proposed design up for discussion
• Emissions requirement under the National Energy Guarantee: Proposed design up for discussion