Back to square one in energy policy: we now have a plan to produce a plan

A year and a day — that’s how long it took Frydenberg to kill off “Finkel”.

On 7 October 2016, just nine days after a series of tornados took out at least 22 transmission pylons in South Australia and set off a cascading series of events resulting in a state-wide blackout, federal environment and energy minister John Frydenberg commissioned chief scientist professor Alan Finkel to review the stability of our energy system. Finkel’s expert team met with regulators around the world, considered 390 submissions, held 120 meetings and commissioned modelling from multiple experts.

A week later, Frydenberg announced the national energy guarantee (Neg). In just three weeks, with no public process, no modelling, no consultation with the Coag energy council, whose approval it requires, the newly formed Energy Security Board (ESB) had knocked together an alternative “conceptual framework”, described in an eight-page letter and a media release, that proposes to push responsibility for reliability and emissions reduction to electricity retailers.

Many energy analysts have been surprised at how quickly many in the electricity sector have fallen in line, especially when so little detail exists. Perhaps they are all punch-drunk, and at this stage in the fight, perhaps anything looks better than another round. More likely, the apparent truce will endure only for as long as details remain scant.

The easiest part of the Neg to deliver is the reliability guarantee. Retailers already use so called “cap” contracts which act as a de facto capacity market. With minor tweaking and regulatory oversight, existing mechanisms are likely to suffice. Further, there is no urgent need for additional capacity on reliability grounds — the Australian Energy Market Operator (Aemo) announced last week that it has contracted all the reserve capacity it figures is needed to get us through the coming summer.

In fact, we never did have a reliability crisis — not even in South Australia — so “fixing” it won’t be an issue. Given Aemo’s clear advice to the government that baseload power is not the same as dispatchable power, expect the ideologues to be disappointed that the Neg won’t end up throwing a lifeline to coal.

The most contested part will be the emissions guarantee. The Neg proposes to leave the details to the commonwealth. Battles loom on at least five fronts:

Ambition

A wide gap exists between expert advice and the entrenched position of the same backbenchers who scuttled the proposed emissions intensity scheme (EIS) in 2016 and the CET.
The independent Climate Change Authority has recommended electricity sector emissions cuts of 69% from 2015 levels, while the government has signalled a much lower target of 26% from 2005 levels. Analysts have calculated that we’ll come close to meeting the lower target with household solar alone — implying an emissions guarantee that’s no better than business as usual.
Trajectory
Liberal MP and chair of the Coalition’s Energy Committee Craig Kelly had been quite clear that his support is conditional upon a “hockey-stick” trajectory, which loosely translates to “do nothing until 2029”. Many will argue strongly for much flatter curve.

Additionality

The ESB proposes that any emissions reduction arising from state-based schemes is to reduce the need for action elsewhere. Schemes such as ACT’s (100% renewable), Queensland’s (50%) and Victoria’s (40%) would lower the emissions targets in other states — a zero-sum game. State energy ministers and community groups will fight this battle to the death.

Carbon offsets

The recommended framework proposes to allow retailers to use carbon credits to achieve at least part of their emissions target. International carbon credits won’t be popular — buying credits overseas at best transforms other economies, leaving ours still vulnerable to carbon risk. Using Australian carbon credit units (ACCUs) might sound reasonable, but dig a little deeper and it’s apparent that the emissions reduction fund (ERF) has gifted millions of highly questionable ACCUs to projects that were happening anyway.

Stability

Will the emissions target be legislated? Will Coag approval be required? Will the goalposts continue to move with each change in government? With such a divergent and partisan views around emissions reductions, it is difficult to see how the the framework can deliver the regulatory stability required for retailers to make long-term investments.

A stated goal of the Neg is to address high prices. While Frydenberg is “absolutely confident” that prices will fall, no modelling currently exists and the justification by the ESB is entirely unconvincing. In fact, the Neg arguably places more power in the hands of the incumbents, suggesting higher prices. This is ironic, given that the Australian Competition and Consumer Commission (ACCC) is currently applying a blowtorch to competition in the electricity sector (it’s telling that no small retailer has come out in support of the Neg).

If we permit Frydenberg and Turnbull to introduce the phrase “energy trilemma” into the debate — the supposed challenge of delivering reliable and affordable power while meeting our emissions reduction commitments —allow me to announce the “quadlemma”: the same trilemma, but with the additional challenge of keeping the Coalition from blowing apart.

Solving the trilemma isn’t actually difficult. Professor Finkel showed how it can be done, but evidently, the CET opened old wounds in the joint party room and handed a political advantage to Labor.
With the Neg, the ESB has handed the Coalition a tool that appears to have stemmed the bleeding.

As to whether the Neg will address the rest of the trilemma, consider that the next stage in the process will be the process to implement the reliability guarantee. The ESB expects this will take at least until 2019. As for the emission guarantee, this is proposed to be implemented in 2020 (nothing in the framework will address prices this decade).

A shift to clean energy will come but politics remain vile until the next election

The Finkel review gave the Coalition a year’s cover for its complete lack of anything resembling a national energy policy, but sadly, the panel’s genuine effort failed to win the hearts and minds of the backbench.

In kicking the entire issue down the road for the next two to three years, well past the next federal election, the Neg may well deliver exactly what Turnbull and Frydenberg need — peace in the party room.

As for cheap, reliable, low emissions power — the Neg is currently little more than a plan to produce a plan. Excuse me if it feels like we’re back at square one.

Simon Holmes à Court is senior advisor to the Energy Transition Hub at Melbourne University

Article originally published Wed 26 Oct 2017 in The Guardian Australia