Ministers reintegrate the environment into the rules of the energy market in a key move for renewables

Finley Solar Park
State and federal energy ministers are ready next week to bring the environment back into the country’s national electricity target in what will be a key move to support the shift from fossil fuels to 100% renewable energy.

The lack of environment in NEO – mysteriously abandoned at the last minute by the Howard government when the rules of the current system were finalized more than two decades ago – has hampered the switch to renewable energy because it has hampered key decisions issued by regulators. and manufacturers.

Its inclusion is likely to lead to a rethinking of key rules and regulations, and their interpretation, and pave the way for tens of billions of dollars in new infrastructure, generation and storage that will accelerate the shift from coal and gas to energy. renewable grid based.

The exclusion of the environment from NEO forced regulators to make some clearly absurd decisions, such as approving new diesel generators rather than a storage option in Broken Hill, mainly because they were forced to consider only limited economic factors.

See: Regulatory Madness Promotes Dirty Diesel on Renewable Mini Grid in Broken Hill

It has also led to poor results in assessing the equity of new transmission projects, causing delays that have left the country short of grid capacity even as the new government assumes that the country will somehow reach 82% renewable energy. by 2030.

The issue has come to a head in the redesign of the market rules managed by the Energy Security Board, particularly in its proposal for a so-called “capacity mechanism” which even its own modeling shows will favor existing dirty heat generators over new clean ones. firming technologies.

A proposal to put the environment in the NEO has been worked out by the ACT government since the last meeting of energy ministers – when there was general agreement on the move, but not on how – and will be formally presented to other state ministers before a joint meeting next week.

RenewEconomy understands that the proposal has overwhelming support from all energy ministers, although some of the finer details on how to implement it exactly will be discussed at next Friday’s meeting.

The move follows an appeal by BSE itself – in response to the controversy over the nature of its capacity market proposals – for guidance from ministers on whether emissions should play a role in its considerations.

The answer is obviously that it should, given that the country has a net zero target for 2050 that will soon be legislated and a 43% emissions reduction target for 2030 that will have to be lifted in the coming years.

“There are many, many capacity markets around the world, many of which have been implemented to manage the transition, which tend to have the complementary emission reduction mechanisms that accompany them,” said Anna Collier, head of Australian Energy. Markets Commission last month.

“So that’s what we’d like to get further advice on, so we can do it deliberately and build what we see we need, in terms of that right mix of resources.”

The inclusion of an environmental target, and even an emissions target, will also make it easier for important planning projects such as the Australian energy market operator’s Integrated System Plan, which has already accelerated its core scenario towards a ” change of pace “and could lead him to” Hydrogen Superpower “next time.

A similar proposal was backed by a Green-led Senate inquiry in 2016 and put forward by Victoria, but rejected by the then coalition government because it said it would be “too complex”.

Then Labor Energy spokesman Mark Butler said that market rules were not fit for purpose at the time due to the absence of environmental targets, and it meant that policy implementation, such as the renewable energy target. , “ends up feeling like you are trying to smash square peg into a round hole.

It is understood that current Federal Minister of Climate and Energy Chris Bowen supports the move. And it must do so, if Labor is to meet the 82% renewable energy target it is now loudly promoting after securing reluctant Greens support for the more modest 43% emissions reduction target.

Clean energy investors hope that incorporating the environment and an emissions target into the considerations of policymakers and regulators will help change their current thinking on capacity market design and other key decisions such as pricing by location.

Simon Corbell, ACT’s former energy minister who now leads the Clean Energy Investment Group, which includes many of Australia’s largest renewable energy and storage investors, says environmental reform would be a landmark event.

He says the CEIG – among others – has lobbied ministers and departments for an environmental and emissions outcome, and it will be a key moment if approved as planned next week.

CEIG’s latest poll of its members shows a bleak outlook for short-term investment, despite the need to mobilize dozens of gigawatts of new capacity to meet the federal government’s 80% renewable energy scenario painted by labor and by the Australian energy market operator.

Corbell says the current crisis sweeping Australia’s energy markets could and should be the last if the country can switch to renewable energy and storage, but it will require comprehensive market and governance reform.

“The latest clean energy investor survey reveals how much work the new federal government needs to do to repair investor confidence that has been degraded by years of political uncertainty and market risk,” he says.

“Ministers must provide a clear signal to urgently reform the governance of the NEM and direct market organizations to accelerate the transformation,” he says.

“If Australia establishes a solid framework for becoming self-sufficient from our vast clean energy resources, that would ensure this is the latest energy crisis Australia faces.”

Bruce Mountain, of the Victoria Energy Policy Center, says bringing the emission reduction targets into NEO will be a huge leap forward.

“And not a moment too soon,” he said. “But it’s not a panacea and it’s not easy. For example, how should regulators be required to translate economic emission reduction targets into their energy sector regulations?

“But at least it will bring much greater transparency and save us from the kind of out-of-this-world nonsense when, in the midst of a climate crisis, BSE promotes ‘technologically neutral’ solutions, as if it were a good thing.”

Corbell believes that an environmental and emissions target would help address some of the key issues that its investors focus on, capacity mechanism and location pricing.

As for capacity, Corbell, along with almost every other player in the industry, wants issues related to managing coal withdrawals and incentivising new flexible capacity to be dealt with separately, because the hybrid solution currently on the table of ESB “does not work well”.

Coal withdrawals, various analysts suggest, could be managed through bonds, auctions or other mechanisms, as long as there is transparency, Corbell says.

As for location-based pricing, Corbell says the NSW state government has the right idea in designing its renewable infrastructure roadmap, which includes selling access rights that more or less protects wind projects. solar and storage from excessive reduction.

But he says it still does not address what happens to projects located outside the renewable energy zones and that a national scheme was needed to solve this problem. But this was difficult as long as key agencies had unrealistic views on the pace of change and the likely closure of coal-fired plants.

“If Australia sets a solid framework for becoming self-sufficient from our vast clean energy resources, that would ensure this is the last energy crisis Australia faces,” says Corbell.
“The latest clean energy investor survey reveals how much work the new federal government needs to do to repair investor confidence that has been degraded by years of political uncertainty and market risk.

“It gives energy ministers a clear signal to urgently reform the governance of the NEM and direct market organizations to accelerate the transformation.”

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