Australia: Is the Clean Energy Target dead or just resting?

WHO SHOULD READ THIS

  • Current and potential participants in the Australian energy market.

THINGS YOU NEED TO KNOW

  • The Federal Government has announced a new energy policy, the NEG, walking away from Finkel's proposed Clean Energy Target.

WHAT YOU NEED TO DO

  • Consider your current and potential projects and assess if the window of opportunity for existing benefits can be utilised.

Yesterday the Federal Government announced its long awaited final response to the Finkel Energy Blueprint, rejecting the Chief Scientist's proposal for a nationwide Clean Energy Target.

As telegraphed in recent weeks, the Turnbull Government has walked away from a Clean Energy Target in favour of a National Energy Guarantee (NEG) which was apparently recommended by the (very new) Energy Security Board. The NEG is made up of two parts; a reliability guarantee and an emissions guarantee.

National Energy Guarantee
The reliability guarantee will require that electricity retailers source a yet to be specified part of their energy mix from 'dispatchable energy' such as coal, gas, pumped hydro and battery technology. It is referred to as 'dispatachable' because it is not subject to environmental intermittency risk, such as solar and wind. This will be regionalised.

The emissions guarantee has even less detail, but is said to contribute to Australia being able to comply with its international obligations. The suggestion is that emissions from electricity generation will have to contribute proportionately to Australia's 26-28% Paris emission reduction target to be reached by 2030.

The details of the NEG policy are still to be provided so we are all still somewhat in the dark about its precise mechanics. All we have is the eight page letter of advice to the Federal Government from the Energy Security Board (ESB). However, what we do know is that the driving force behind this move away from the Federal Government's preference for renewable energy to fuel neutrality is the need for consistent and reliable energy to keep the lights on, full stop. Post the close of the Renewable Energy Target (RET), there will be no apparent Federal subsidies or other tax concessions for any type of energy generation, including renewables.

The prominent place of pumped hydro and battery technology within the listed forms of 'dispatchable energy' suggest that such renewable forms of energy or low emission technology are still favoured by the Federal Government. There was no mention of new coal-fired powered stations as being part of the energy supply future.

What next Although the NEG has been designed to be implemented via the National Electricity Rules, therefore bypassing the Federal Parliament, the changes must still be agreed to by the States through COAG. However, initial State reactions have not been supportive. It would not be a surprise if the Labor-governed states will continue to go it alone and encourage renewable energy investment aggressively in their backyards. States like Queensland have made it clear that renewable energy projects will still be the favourite form of energy development (and this is recognised in the ESB advice). However, the Queensland Labor Government has held off specifying how they were going to achieve their 50% renewable energy target beyond the initiatives we outlined in our June 2017 Alert on the Powering Queensland Plan, pending decisions on the Finkel Review.

These most recent announcements and the initial reactions from the Labor states and the Federal Opposition suggest that the Australian energy debate is far from over. However, given the ever-decreasing price of renewable energy, and the fact the NEG does not give an advantage to conventional energy (other than ensuring it must make up part of the energy mix), it seems certain that renewable energy will have a continued and growing role in the Australian energy landscape.

At a minimum, we can be certain that the current RET will remain open to new projects until the end of 2020. This window provides an opportunity for investors looking to establish a renewable energy project in Australia to take advantage of existing RET concessions. Investors relying on RET certificate revenue now have some certainty until 2030 (provided projects come on line before the end of 2020). Further, nothing in the Federal Government's policy package calls into question a continuation of the work of the Clean Energy Finance Corporation or the Australia Renewable Energy Agency.

We now await the formal response to the NEG policy from the opinion poll-leading Federal Opposition and from the states, which they say will be informed by the detail about the NEG that is not yet on the table. The odds must be with the Labor side of politics rejecting the NEG. They may well decide to breathe life into Finkel's Norwegian Blue (print), despite the Turnbull government insisting the CET has 'ceased to be'.

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