Bloomberg New Energy Finance says proposed guarantee could be ‘template for policy makers worldwide’
The Turnbull government’s proposed national energy guarantee has been given enthusiastic support by the renewable energy analysis firm Bloomberg New Energy Finance, which has described the concept as “innovative and elegant” and said it could be “a template for policy makers worldwide”.
Earlier this week Malcolm Turnbull persuaded the Coalition to support an energy policy that includes measures intended to drive down emissions (the “emissions guarantee”) and ensure reliability of the grid (the “reliability guarantee”).
The policy has only been partially outlined, but it involves direct regulation of electricity retailers and large energy users.
When it was announced, green groups denounced it as a “dirty energy target” and said it showed Turnbull was “abandoning any credible effort to maintain a safe climate”. The Greens have said the policy will be more detrimental to the renewables sector than if the Coalition did nothing.
Many groups quoted a figure from the Energy Security Board, which devised the policy, suggesting it would result in less renewable energy entering the system by 2030 than no policy at all. But that figure was not based on any real modelling.
The intervention by Bloomberg New Energy Finance is therefore significant, as the firm is considered credible and pro-renewables.
“Although still in the early stages of development, the concept is innovative and elegant, and could well prove ingenious,” said Kobad Bhavnagri and Leonard Quong from BNEF in Sydney.
“If effective and efficient, it would be a template for policy makers worldwide. Void of any politically unpalatable features and yet likely to be environmentally effective, it could end the climate and energy wars that have claimed so many prime ministers and begun to weaken the Australian economy,” they said.
Most of the information known about the policy is contained in an eight-page document written by the Energy Security Board.
It notes non-compliance with the obligations would result in financial penalties imposed on regulators, and eventually deregistration of the retailer.
The BNEF analysts noted this “very strong penalty for non-compliance” as a key reason the policy might achieve its aims of reducing emissions and increasing reliability.
The ESB suggested the policy would result in renewables making up only 28-36% of energy generation by 2030, but the BNEF analysts suggest it would drive more renewables into the system, based on their estimate of the falling cost of renewables.
“By our calculations, the plan would result in 42% of national generation being renewable by 2030, as the cost of renewable energy and storage continues to plummet,” they wrote.
They noted that if the emissions targets were increased – which Labor has said it would legislate for if the policy was adopted – then more large scale renewables would have an incentive to enter the market.
The modelled emissions reduction aims of the policy are based on a blunt application of the economy-wide emissions cuts Australia has committed to as part of the Paris agreement. But the analysts note those targets are intended to be ratcheted up, and there will be pressure on Australia to do so at the next major round of climate talks in 2020.
However, the analysts noted the national electricity guarantee risked further increasing the market power of the retailers, allowing them to push up prices even further.
“A possible remedy could be to force registration and public disclosure of all energy contracts with the regulator,” they said. “This would be a generally advantageous development, but likely to be fiercely resisted by incumbents.”
Bloomberg’s backing of the policy came as the Australian Energy Market Operator confirmed Drew Clarke, a former chief of staff to Turnbull, would join the organisation as chairman of the board.
AEMO said in a statement Clarke’s appointment followed “an extensive national search with an independent appointment selection panel”. It said his appointment had been signed off by the board, AEMO’s members and approved by state energy ministers through the energy council of the Council of Australian Governments.
Clarke was a long time bureaucrat, including in the department of resources and energy, before joining the Turnbull office. As a bureaucrat, Clarke oversaw the creation of national energy market rules and the energy market bodies.
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