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Don’t gold-plate power through onerous NEG reliability rules: BCA

Don’t gold-plate power through onerous NEG reliability rules: BCA

Energy regulators have been warned to avoid “gold-plating” the electricity supply industry and driving up costs to meet reliability obligations set to be imposed as part of the National Energy ­Guarantee.

Both the Business Council of Australia and the Energy Users Association of Australia called for regulators to adopt a minimalist approach in designing the reliability obligation and avoid requirements that would rarely be used but would push up prices.

Even so, the BCA threw its support behind the Turnbull government’s proposed National Energy Guarantee.

The BCA said states wanting to pursue their own targets should be forced to identify any additional costs that would be imposed on consumers and the implications for system reliability before retailers are required to meet more onerous reliability obligations.

The peak body for the nation’s 100 biggest companies, including the networks and generators, said it supported placing a reliability requirement on retailers to create an incentive to invest in dispatchable generation.

“The reliability and security of our energy system must be prioritised as we transition to a lower-emissions future, the BCA said.

But it said the ESB should take a minimalist approach to market intervention when designing the reliability obligation.

“The costs associated with an intrusive, complex and burdensome mechanism are likely to be significant,” the BCA says in a submission to the Energy Security Board obtained by The Australian and due to be released today.

It said the National Energy Guarantee should aim to maintain liquidity in the electricity contract market and backed the use of existing contracts such as exchange-traded and over-the-counter contracts for reliability.

The BCA also warned that any attempt to shift the existing financial market for meeting the NEG’s emissions targets towards physical settlement should be resisted “as preserving the liquidity of the market is essential for competition, as well as affordability”.

The submissions supported the emissions reduction target in­serted into the consultation by the federal government and set at 26-28 per cent below the 2005 ­levels. However, submissions were divided on whether emissions-intensive trade-exposed industries should be excluded from the National Energy Guarantee’s pollution reduction targets, as they are from the renewable energy ­target.

Energy consumers and suppliers are hoping the ESB can build support for the National Energy Guarantee among the states ahead of next month’s meeting of state and federal leaders.

“While reliability is a priority for consumers it should not be sought at any price, nor should it be restricted to supply-side solutions,” the Energy Users Association of Australia said.

“The EUAA is concerned that consumers will end up with a gold-plated supply solution in the same way that we have a so-called gold-plated network solution.”

The association, which represents large business users, said consideration of the reliability guarantee should start with “asking consumers what level of reliability they require and how much they are willing to pay”.

It says the consultation paper put out by the Energy Security Board last month assumes that building more electricity supply is the answer to bringing prices down. It said this approach had resulted in overbuilding of assets and calls instead for more demand-response to reduce costs and improve reliability. “We would encourage the development of a demand response mechanism to focus on maximising consumer participation, including consideration of estab­lishing a day-ahead market that allows consumers to engage directly in the NEM should they so desire at a time that is best for them and that allows the full benefit of their participation to accrue to them.”

The Australian

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