Energy Security Board National Energy Guarantee (NEG)
What is the NEG? The National Energy Guarantee (NEG) is a mechanism designed to integrate energy and emissions policy in a way that encourages new investment in both low emissions technologies and in dispatchable energy such that the electricity system operates reliably. Providing long-term policy confidence is critical to lowering investment risk in the National Electricity Market (NEM) and bringing down electricity prices.
Reliability The NEG requires retailers to have contracts in place to support a minimum amount of dispatchable energy to meet consumer and system needs.
Reliability • AEMO forecasts annually whether the reliability standard is likely to be met (or not) in each NEM region over a 10-year period • Where reliability gaps are identified, the market will have the opportunity to invest to resolve any gap in resources • If a material gap persists or emerges 3 years from the period in question, AEMO will apply to AER to trigger the reliability obligation.
Simplified timeline for various components of the reliability obligation
Emissions Reduction The NEG requires retailers to have contracts in place that support Australia’s international emissions reduction commitments.
Emissions Reduction • An emissions registry will allow market customers to be allocated a share of a generator’s output and its associated emissions, for which they have obtained the rights • The registry automatically matches emissions to each market customer based on the generation allocated against their load • The AER will compare each market customer’s average emissions intensity against the electricity emissions intensity target to assess compliance
Simplified timeline of compliance period for emissions reduction requirement
Will NEG Lower Electricity Price?
“The price savings from the Guarantee are expected to be broad-based, with all NEM Jurisdictions expected to benefit from lower electricity prices as a result of the Guarantee.” – ESB , NATIONAL ENERGY GUARANTEE 01 August 2018
$85 /MWh NEM Wholesale Prices $75 /MWh Without the NEG $65 /MWh $55 /MWh With the NEG $45 /MWh $35 /MWh
$105 /MWh $95 /MWh South Australia New South Wales Victoria Tasmania $85 /MWh Queensland $75 /MWh $65 /MWh $55 /MWh $45 /MWh $35 /MWh
HOW?
NEG provides policy confidence and stability. • Removes additional financing costs associated with policy uncertainty • Underpin the continued confidence in the market resulting in further commitment of 1,000 MW renewables • Increase long-term contracting volumes as all retailers and large market customers will be required to have a reliable level of firm contracts • Reduce ‘strategic bidding’ typically employed during periods of tight supply and demand
Will NEG reduce Emissions?
Great Question?
“The Guarantee has been designed as a technology-neutral mechanism that applies to the whole market so that it can achieve emissions reductions at least-cost. – ESB , NATIONAL ENERGY GUARANTEE 01 August 2018
NEM Generation mix No Policy vs NEG 2.00% 1.50% 1.00% 0.50% 0.00% -0.50% -1.00% -1.50% -2.00% Black coal Brown coal Natural gas Liquid Fuel Hydro Wind Solar Rooftop solar PV
Source: ENERGY SECURITY BOARD FINAL DETAILED DESIGN 1 August 2018 http://coagenergycouncil.gov.au/publications/energy-security-board-%E2%80%93-final-detailed-design-national- energy-guarantee
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