National Energy Guarantee – the answer to energy woes?
Will the National Energy Guarantee (NEG) save our energy future? According to Dr Alex Wonhas – global managing director of Energy, Resources and Manufacturing at global engineering advisory firm Aurecon, and former executive director leading CSIRO’s environment, energy and resources sector – the answer will depend on setting a realistic expectation of what the energy sector can technically and economically deliver. Malcolm Turnbull and Minister for the Environment and Energy Josh Frydenberg’s National Energy Guarantee (NEG) might suggest that we can ‘have it all’: more reliability, lower costs and lower emissions. However, there is a real risk that reality will fall short of expectations and energy outcomes will be inefficient, if we don’t get critical design steps right.
In Turnbull and Frydenberg’s defence, they could be forgiven for aiming for the impossible. Aurecon’s recent survey of over 100 business executives drawn from the Energy and Government sectors has revealed that even the experts, who should know better, want the impossible. “Almost two out of three respondents (62 percent) want a combination of reliability improvements, cost and emissions reductions that we believe the sector cannot deliver,” says Wonhas.
What’s more, the Aurecon survey also indicated an insufficient willingness by participants to compromise on the three crucial factors at the heart of the energy trilemma that would allow us to reach a technically feasible compromise.
“The first step in the political debate needs to help us navigate a sensible national compromise on how to trade-off price, reliability and emissions outcomes. It’s the foundation of the bi-partisan support for energy policy that everyone in the sector wants,” says Wonhas. “This debate must not be driven by pre-conceived ideas or political agendas. Instead, it needs to be informed by engineering and economic facts. Even though we can’t have it all, thanks to recent advances in technology, it is much easier to achieve a sensible compromise today than it would have been only five years ago.”
He adds, “It is crucial not to lose sight of implementing the 49 recommendations adopted by the Government which Dr Finkel and his team of experts have crafted over many months of hard work and in close consultations with stakeholders in the energy sector.
“The promise of the NEG is that by relying on the existing market mechanism, an invisible hand will almost magically lead us to the lowest cost outcome. There is plenty of evidence to suggest that while the energy market is very good at guiding short-term decisions in the presence of low uncertainty and good information, e.g. the dispatch of generators, markets in general are not as well equipped to guide longer-term decisions, such as network investments. This means that Dr Finkel’s approach for better long-term planning of our energy system will be as important as ever for the success of the NEG. Without the right network footprint, future renewable power stations are likely to be less efficient and more difficult to reliably integrate into our energy system. The market on its own will not fix this,” says Wonhas.
“In short, we need an honest and technically informed political debate that brokers a realistic compromise. And we need a balanced approach that combines the NEG’s market based approach with better integrated plan for our energy future. If we achieve this, the NEG could be a vital component of a functioning energy system that delivers affordable, reliable and lower emissions energy for Australia,” he concludes.
Image, Dr Alex Wonhas, courtesy of Aurecon.