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Energy needs and climate policy are finally working in sync

Energy needs and climate policy are finally working in sync

By Clare Savage

The National Energy Guarantee consultation paper released last week sets out the framework necessary to deliver a secure, reliable and affordable energy system that is in step with our international emission reduction obligations.

The guarantee will bring together energy and climate policy for the first time in this country. Delivering policy confidence to investors is critical if they are to make the big investments necessary to bring down power prices and ensure a reliable system.

Unfortunately, energy and climate policy responses to date have been a bit like the left hand not seeing what the right hand was doing.

The Renewable Energy Target has been great at building renewable generation but it has been entirely disconnected from the needs of the energy system as a whole.

Our efforts to reduce our emissions need to be in lock step with the needs of the power system if we are to keep the lights on and improve the affordability of electricity.

Retailer requirements

Retailers contract with generators on behalf of their customers. The guarantee will require retailers to do two things in their everyday contracting.

Retailers will need to purchase enough dispatchable capacity or demand response to meet their share of our energy needs and ensure the energy they purchase is consistent with the emission reduction obligations for the electricity sector.

Increased contracting, in deeper and more liquid contract markets, is expected to reduce the volatility and high prices we've seen in our wholesale National Electricity Market over the last year, further improving the affordability of electricity.

The implementation of the guarantee through existing governance arrangements for the National Electricity Market will provide certainty for market participants about the operation of the guarantee and allow for long-term investment decisions to be made in the electricity sector.

In the consultation paper, the Commonwealth government has set out its position on how the emissions reduction target for the sector could be set and reviewed. This is in line with Australia's commitments under the Paris Agreement and these are matters for the Commonwealth government.

Some states and territories have expressed concern about the level of ambition in the Commonwealth government's target but this should not be a reason to reject the guarantee itself.

No time to waste

The guarantee is the mechanism for achieving our current targets and any future targets set for the National Electricity Market while ensuring we have sufficient investment in dispatchable MWs or demand response to meet peak demand.

Without the guarantee, we will be unable to resolve some of the most vexing policy issues challenging the National Electricity Market.

The supply-demand balance in our electricity system is already tight and we've seen record peak-demand days across a number of states this summer, and in Queensland just this week.

We don't have time to waste.

Everyone needs to be aligned on our ultimate objective – secure, reliable and affordable energy for all Australians that meet our emissions targets.

The detailed design of the guarantee, along with the complementary measures necessary to ensure we have operational flexibility in a rapidly changing market, will require robust debate.

All potential solutions welcome

But in these debates there is no room for personal attacks. As part of the design process, we need serious, open and considered discussion that is respectful of the diverse and valuable range of views in this space.

Governments, consumer bodies and industry stakeholders, together with the Energy Security Board, are more than capable of working through these issues to ensure we get the cleanest, cheapest and most reliable generation built in the right place at the right time.

Consultation will generate a range of opinions and potential solutions. The Energy Security Board welcomes this. This is the path we take to scrutinise all options in the long-term interests of consumers.

We are confident this will ultimately lead to the adoption of the best framework possible for the future.

The consultation paper sets out a clear framework for how the guarantee will operate but includes a number of design options for the consideration of stakeholders.

Critical input

Over the coming weeks and months, it will be critical we have the opportunity to consider the views of stakeholders to ensure the design of the guarantee is most efficient.

In considering design options, the guarantee must not unintentionally entrench the market position of existing players or create barriers to entry for smaller participants. The Energy Security Board will continue to work closely with the ACCC on this but stakeholder feedback on particular design options and their potential impact on the competitive landscape will be a critical input.

This is an exciting yet challenging time for the sector but with careful consideration of the issues, we may finally have the opportunity to put some of these challenges to rest.

Financial Review

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