Energy Security Board – Final Detailed Design of the National Energy Guarantee

The Energy Security Board (ESB) has today published the Final Detailed Design of the National Energy Guarantee. The Council considered the Final Detailed Design at its meeting on 10 August 2018. 

The Chair of the ESB, Dr Kerry Schott AO, said the design was the culmination of almost a year’s work and a collaborative effort by people and organisations from across the energy sector and the community.  

“Stakeholders have been clear with the ESB that the status quo is simply not acceptable and have come together to help design a robust, flexible mechanism that can respond to the changes that are underway in the energy market.

“The mechanism is designed to be technology and fuel neutral, to boost competition in wholesale and retail markets, and to deliver more affordable, reliable and clean power for Australian households and businesses.

“The Guarantee mechanism ensures the electricity sector contributes its share towards Australia’s Paris emissions reduction commitments. and importantly, can accommodate different levels of emissions ambition overtime. It also works-in with State and Territory targets and renewable energy schemes.”

“Any delay, or worse a failure to reach agreement, will simply prolong the current investment uncertainty and deny customers more affordable energy. The average household bill is expected to be $550 lower each year through the 2020s than it is now, and $150 of those savings are because of the Guarantee. 

Dr Schott said fifteen years of climate policy uncertainty had impeded investment, affected the security and reliability of the power system, and increased prices for households and businesses.    

“The National Energy Guarantee can give the energy sector the certainty it needs to plan, source and invest over the longer-term in dispatchable, low emissions energy generation and demand-side energy resources in a transforming market.”

“Once implemented, the Guarantee will produce a clear investment signal so the cleanest, cheapest and most reliable generation can get built in the right place at the right time,” said Dr Schott.

To deliver this transition, the Guarantee requires retailers to contract for generation or demand response to meet a minimum level of dispatchable ‘on demand’ electricity where there is an identified gap. Retailers must also keep their emissions below an agreed level.

“In concert, these two requirements will enable long-term policy confidence and stability that is critical to lowering investment risk in the NEM, and bringing down electricity prices. Increased contracting in deeper and more liquid contract markets will also reduce the level and volatility of spot prices further improving affordability,” said Dr Schott.

Detailed Design Process

The final design of the Guarantee has been developed over twelve months, and builds on:

• The model the ESB initially proposed in its November 2017 advice
• The draft design consultation paper published on 15 February 2018
• The high-level design published on 20 April 2018, and
• The draft detailed design released for public consultation on 15 June 2018.

The ESB also benefited from engagement and feedback from a range of stakeholders on the design of the Guarantee:

• The ESB convened technical working groups to advise on certain detailed design elements. The technical working groups were comprised of a broad range of stakeholders with relevant expertise from more than 30 organisations.
• Stakeholder forums were held on 26 February 2018 in Sydney and 2 July 2018 in Melbourne.
  More than 90 submissions from a range of stakeholders were received on the draft detailed design consultation paper.

The detailed modelling assumptions and underlying data for the modelling results that are presented in the final detailed design have been provided below.

Next Steps

If the COAG Energy Council agrees to the final design of the Guarantee mechanism at its 10 August 2018 meeting, draft legislative amendments to the National Electricity law will be released in the week following the meeting and will be finalised for introduction into the South Australian Parliament during 2018. Rule changes will be presented to the COAG Energy Council at its April 2019 meeting.