Environment

Government’s energy plan would guarantee a ‘nightmare’ of complexity

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The Turnbull government's National Energy Guarantee is "terrifically complex", and its problems will become "more significant" if its emissions reduction goal is increased, according to the first report by the Victorian government's new energy policy hub.

The report by Bruce Mountain, director of the Victoria Energy Policy Centre, argues thorough economic analysis of the impact of the two arms of the policy – to reduce emissions and to improve reliability – has yet to be done even though state and energy ministers are being asked to approve it by August 10.

The country's electricity market will be made a lot more complex if the National Energy Guarantee gets up, a leading analyst says.

Photo: Nick Moir

The emissions component of the scheme, which obliges retailers to contract with generators according to the carbon pollution associated with the electricity production, is particularly complicated because transactions won't be public but stored instead in a registry.

Mr Mountain said market participants would have buy a combination of electricity volume and emissions intensity without knowing the alternatives, nor penalties if they buy too much or too little.

Unlike current National Electricity Market operations, they would have no access to the range of hedging instruments that help them minimise risk.

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The effort to suppress price discovery is to avoid the emerge of a carbon price that is politically toxic to the Coalition, he said.

“Its that complexity which makes it a nightmare and its unavoidable as long as you are seeking to hide the underlying emissions price,” Mr Mountain said.

Fairfax Media sought a response from Environment and Energy Minister Josh Frydenberg. His office referred to recent comments by Mr Frydenberg that the guarantee would "deliver a more affordable and reliable energy system and has the backing of business, industry and community groups”.

The paper said existing renewable energy generators, including Snowy Hydro, Hydro Tasmania and operating wind and solar farms would enjoy a windfall from the scheme.

"Some part of this windfall will be funded by the more emission-intensive retailers, but the greatest part will fall onto the shoulders of consumers who will be required to pay more without any matching reduction in emissions," the report said.

"While we do not expect that windfalls will be a major issue as long as the emission reduction target is no more demanding than [business as usual] emission reductions, windfalls funded by customers could become significant if meaningful emission reduction targets are set."

The fact the emissions target of the scheme will likely be met within the first year of its operation meant that even it were to work well "it would be pointless since it will deliver no more than what would happen anyway", the paper said.

That weak target also meant any hope that the plan would deliver investment certainty was "wishful thinking".

"Australias inability to hold a steady course on emission reduction policy reflects deep-seated disagreement on the objective – emission reduction – not on the methods by which this is to be achieved," the paper said. "Implementing the [guarantee] does nothing to resolve the fundamental disagreement."

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