Chair of the Engineers Australia Electrical College, Mark Lendich and Policy Advisor at Engineers Australia, Mark Stewart do a deep dive into the Government’s newly released energy policy and how it stacks up to scrutiny.
This month the Federal Government released its latest energy policy document “Powering Forward: A better energy future for Australia”.
At the core of this announcement sits the proposed National Energy Guarantee or NEG.
The NEG is the flagship policy measure within the energy plan and is made up of two separate items, which together, aim to provide energy reliability and reduce Australia’s emissions.
The first is a reliability guarantee. The guarantee aims to provide enough dispatchable supply in each state and is proposed to be implemented in 2019.
The second is an emissions guarantee which will be used to help achieve the electricity sector’s share of emissions reductions to meet Australia’s international commitments to the Paris climate agreement.
The level of this guarantee will be determined by the Commonwealth and this is proposed to be implemented in 2020, while the Australian Energy Regulator (AER) will enforce both guarantees.
The Government’s policy is based on advice received from the Energy Security Board (ESB).
The ESB was recently established as a result of the Independent Review into the Future Security of the National Electricity Market (The Finkel Review) which delivered its Final Report earlier this year.
The ESB says these obligations will encourage much-needed capacity investment in the electricity sector.
They also expect the obligations could lead to a reduction in residential bills in the order of $100-115 per year over the 2020-2030 period.
This would address the much-talked about issue of energy affordability, which is the third player in the energy ‘trilemma’.
The Government’s plan can be seen as a potential solution to a long-term political problem. Energy policy in Australia has been ferociously fought on both sides of politics for the better part of a decade.
While the new policy was initially criticised by the opposition, there are indications that Labor will not stop the plan being passed through the Senate once they have seen the detailed modelling attached to the plan.
If the Government can implement this plan without resistance from the federal opposition and the state governments (who would need to agree to this through their COAG Energy Council membership), it could be a step towards ending the uncertainty in the electricity sector.
Business and industry groups have already indicated they could back the plan, as it promotes investment certainty.
How does the NEG differ to what was proposed by The Finkel Review?
Dr Finkel has said publicly the NEG incorporates different but credible mechanisms to what he proposed for addressing reliability and emissions concerns.
But, as always, the devil will be in the detail of how this plan is implemented.
For example, the Finkel Review had recommended the onus be put on new generators to ensure they fulfilled reliability obligations.
In contrast, the ESB recommended retailers should be responsible for the guarantees.
In this new framework, the Australian Energy Market Commission (AEMC) as the rule-maker would set the National Electricity Market (NEM) reliability standard.
While the Australian Energy Market Operator (AEMO) would then determine how the standard is translated into the operating requirement (minimum level and type of dispatchable resource) for each NEM region.
Retailers would then enter into contracts with generators for a proportion of their capacity that is deemed to be dispatchable.
Questions such as what is defined as dispatchable capacity, how this would work in what is currently an energy-only market, and what effects this would have on existing NEM ancillary services markets, remain to be answered.
Another recommendation of the Finkel Review was a System Security Obligation that would require transmission network service providers (TNSP) to provide and maintain a sufficient level of inertia in each region.
Inertia is required to withstand disruptions like generator outages and interconnector failures. The NEG is silent on this, but it could be expected that this sits under the Reliability Guarantee.
The role of engineers and Engineers Australia
The Finkel Report also specifically recommended that professional power systems engineering experience be represented on the Board of market bodies, specifically AEMO.
Engineers Australia has publicly supported this position.
Given the ESB is calling for retailers in Australia to assume responsibility for the Reliability Guarantee, they also should consider the need for employing engineers with these skills.
We shouldn’t forget this policy started from the 2016 blackout in South Australia.
The NEG is a result of the Finkel Review that was commissioned because of that event. At the end of the day, it was the performance of the power system and the laws of physics that made the state go black.
There have been no advancements in implementing this recommendation on engineering skills in the NEM governing bodies since the government first adopted it, and 48 other Finkel recommendations, earlier this year.
Engineers Australia has written to and met with the Energy Minister Josh Frydenberg, urging for the increased involvement of power systems engineers in the executive levels of the ESB, and the energy market bodies, to be initiated.
The association will keep advocating on the profession’s behalf, and our primary message to government continues to be the same: to implement a national energy transition plan, which is outlined in our The Future of Australian Electricity Generation report, launched in March 2017.
Engineers Australia has also been a big contributor to government inquiries, which have shaped energy policy in Australia. These include:
• The Independent Review into the Future Security of the National Electricity Market (2017)
• Modernising Australia’s Electricity Grid (2017)
• Review of Climate Change Policies (2017)
• The South Australia Nuclear Fuel Cycle Royal Commission (2015)
Engineers are vital to providing a fair and balanced solution to the energy trilemma, and Engineers Australia will continue to be your proactive voice in this important and ongoing debate.