Yesterday we received some further information on the National Energy Guarantee in the form of a consultation paper. We have summarised this for you below.

Also of interest was the release of the following (thanks to the Smart Energy Council for the heads up):

Climate Council energy storage report http://www.climatecouncil.org.au/battery-storage-2018

International Energy Agency report on Australia (link to report here)

When we first discussed the National Energy Guarantee (NEG), details were thin on the ground. New materials have just been released by the Energy Security Board (ESB) providing a significant amount of information about how the NEG might operate and asking for stakeholder input. As this is a significant piece of reform we look at the two key components of the NEG separately. In today’s piece, we look at the emissions component, while in the next piece, part two, we will look at the reliability component.

National Energy Guarantee
Photo by Dan Schiumarini on Unsplash

Background

The reliability component, based on information from the Australian Energy Market Operator (AEMO) about overall electricity needs, would set a standard for the appropriate level of dispatchable energy that must be available. The emissions component would set greenhouse emissions at a certain level in order to meet Australia’s international commitments (at a level to be determined by the Commonwealth Government). Today we discuss the latter component.
This consultation is testing the ‘high-level design’ of the reliability and emissions components. More detailed elements will be tested at a later point after feedback from this initial consultation. The ESB seeks input on the contracting and compliance associated with the emissions component. It gives an account of how the component might work, prompting feedback, as well as asking general questions.
Below we explore each area of the consultation in turn.

1. Compliance year and calculating emissions

The ESB asks whether the compliance year should be set at a calendar year or a financial year.

The ESB proposes a general approach to calculating emissions per Megawatt Hour (MWh). First, the total amount of emissions per MWh would be determined. Then, any emissions per MWh ‘traded’ to another retailer (to offset that other retailer’s liability) would be deducted. A default emissions factor would then be applied. Finally, the emissions component would be adjusted for any deferral of compliance or offsets permitted by the Commonwealth Government.

2. Assigning emissions to contracts

Contracts between retailers and generators referring to the emissions component could satisfy this requirement in several different ways. Some could do so by specifying a generation source. In such cases, the emissions component could be satisfied by multiplying the MWh settled under the retailer’s contract with the weighted-average emissions per MWh of the plants specified in those contracts. A centralised registry could be used to confirm that contractual allocations do not exceed actual generation.
Alternatively, contracts might specify the emissions level for each MWh of electricity but not link this to one specific generation source. For example, a certain level of emissions per MWh could be ‘stapled’ to existing derivative contracts. Again, a centralised database (perhaps utilising similar functionality to a registry currently kept by the Clean Energy Regulator (CER)) could be used in order to report the emissions of particular generator assets.

Contracts that wouldn’t specify either a specific asset or emissions level for each MWh include those currently sold via intermediaries such as the Australian Securities Exchange (ASX). In these contracts, a deemed emissions level could be assigned, such as one based on the emissions of those generators who sold that type of contract in that region in the previous year.

As well as these matters, ESB also seeks feedback on whether there should be a default emissions level for any ‘unhedged’ loads.

3. Flexible compliance options

ESB seeks feedback on how flexible to make compliance requirements for the emissions component. It proposes that, where a retailer ‘overachieves’, that is, substantially exceeds the emissions guarantee, then that retailer would be permitted to carry forward a portion of a previous year’s overachievement, for use in the next compliance year.

In the reverse case, deferral could be enabled for retailers that consider they may not achieve the guarantee in one year. Retailers could be allowed to defer up to a limit (for example 20 percent of their emissions in a given compliance year, excluding any deferral from the previous compliance year) to the next compliance year.

4. Offsets

If the Commonwealth is to permit off-sets (this has not yet been determined) against the emissions component, the ESB asks whether the use of offsets should be set at an absolute level, regardless of retailer size. Or, alternatively, it asks whether limits on individual retailers’ use of offsets be based on the size of retailers’ loads, so that the off-sets are proportional.

5. Voluntary programs

The design of the emissions requirement needs to account for interaction with voluntary green programs. A prominent example is the GreenPower program. The emissions component could be designed such that voluntary programs like GreenPower are additional to the emissions requirement. That is, participation in such a program will mean that a retailer can have greater emissions but still meet the emissions component.

6. Regulator and Registry

It is proposed that the Australian Energy Regulator (AER) would be best-placed to monitor and enforce compliance with the requirements of the NEG. It would do so using information provided by other agencies such as the AEMO and the CER. The AER already has a variety of compliance tools available to it and could publish high-level compliance outcomes.

A centralised compliance registry could be used to match information from retailer their load with a power station’s dispatch and emissions data provided by AEMO and the CER.

7. Enforcement

AER could utilise or adapt a variety of existing enforcement tools in relation to the NEG, and the ESB seeks your views on the use of these tools, including:

  • Administrative undertakings;
  • Infringement notices;
  • Enforceable undertakings;
  • Initiating civil proceeding, including injunctions and civil penalties
  • Suspending or revoking authorisation.

8. Jurisdiction

The ESB asks the general question whether there are any matters relating to a stakeholder’s particular jurisdiction (state or territory) that would impact on their meeting their emissions component.

Consultation details

The ESB will hold a public forum and webinar on this consultation paper in Sydney on 26 February 2018. Information about how to register for this public forum and webinar is available on the COAG Energy Council’s website.

The ESB invites comments from interested parties in response to this initial consultation paper by 8 March 2018. All submissions will be published on the COAG Energy Council’s website, subject to any claims of confidentiality. All submissions should be sent to [email protected]

National Energy Guarantee Discussion Paper
http://www.coagenergycouncil.gov.au/publications/energy-security-board-national-energy-guarantee-consultation-paper

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