On 15 February 2018, the Energy Security Board (ESB) produced its first discussion paper on the National Energy Guarantee (guarantee) aimed at bringing together climate and energy policy to support Australia in achieving its international emissions reduction obligations.

The guarantee is aimed at delivering more affordable, reliable and cleaner energy. It requires retailers to contract with or invest in generation, storage or demand response to ensure:

  • A minimum amount of dispatchable energy is available to meet consumer and system needs (the reliability component); and
  • That the average emissions level of the electricity they sell supports Australia’s international emissions reduction commitments (the emissions component).

Reliability requirement

Retailers will be required to enter contracts connected to dispatchable resources. This requirement is aimed at encouraging investment in dispatchable resources to give the Australian Energy Market Operator (AEMO) more control in the management of the system. If retailers do not meet the reliability requirements, AEMO can procure resources to fill the gap. The guarantee identifies eight steps to secure reliability:

  • Forecasting the reliability gap;
  • Updating the reliability gap;
  • Triggering the requirement;
  • Qualifying instruments;
  • Allocating the requirement;
  • Compliance;
  • Procurer of last resort; and
  • Penalties.

Emissions requirement

Each entity registered as a customer by AEMO will be required to comply with the emissions requirements. This means that your electricity load for each year will need to meet the emission target set for that year. Performance will be determined by reference to:

  • Load; and
  • Emissions associated with contracted and uncontracted purchases.

The emission requirement implementation date is expected to be 2020 and will be subject to consultation.

The Commonwealth will be responsible for the design of the emissions requirements, which are expected to include the:

  • Emissions reduction target for the National Electricity Market (NEM);
  • The treatment of emissions intensive trade exposed activities; and
  • The eligibility of offsets and limits on the use of eligible offsets.

It is anticipated that the design will “express the target as a trajectory of annual average emissions per MWh levels for retailers in the NEM”. However, at this stage all electricity used to conduct emissions intensive trade exposed activities would be exempt from the emissions requirement.

Governance

The guarantee acknowledges that market certainty around the operation of the guarantee is crucial for investors. For this reason, the ESB has proposed that implementation of the guarantee be through existing NEM governance arrangements. This would see amendments to the Australian Energy Market agreement, the National Electricity Law (NEL) and the National Electricity Rules (NER).

Implementation would involve the following steps:

Submissions in relation to the guarantee can be made until 8 March 2018, with the final design consultation due in the second half of this year.