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Australian power play

Not all states are prepared to back the federal government's pledge to put reliability of power supply over green considerations

Traumatised by the "System Black" failure that cut power to large areas of an entire state a year ago, Australia's federal government has done an about-face on energy policy: it's adopting reliability of supply over reducing emissions. But will Prime Minister Malcolm Turnbull be able to make the new policy stick?

In late 2017 he was trying to convince state governments that the new National Energy Guarantee (NEG) was the appropriate replacement for the Clean Energy Target (CET) that, it's widely believed, lay behind the outages in South Australia. This state relies much more heavily than others on renewables to keep the lights on.

However, those states with Labour governments continue to insist on much tougher emissions targets. These can only be met through a rapidly rising percentage of renewables-provided power. For instance, the Queensland government has set a target of 50% renewables; but experts regard it as arbitrary because the state hasn't explained how it will be achieved.

Meantime, sitting on the sidelines, the Australian Petroleum Production & Exploration Association (Appea), the trade organisation of the oil and gas industry, underlines the merits of reliability through dispatchable sources of energy. "Gas-fired generation is essential to maintaining reliable energy supply while reducing emissions from the electricity sector," argued Malcolm Roberts, Appea chief executive, in a release in mid-December. "On-call gas-fired peaking plants are the ideal back-up for intermittent renewable energy." Natural gas had a major part to play in the transition to lower emissions.

Details of how NEG will work are sketchy, but it's built around two main planks—a reliability guarantee and an emissions guarantee. As a mid-November briefing by law firm Marque Lawyers explains, the former requires power retailers to buy energy from a mix of sources. These "must include a minimum amount of generation that can be called on at any time". In short, dispatchable sources, which may be coal or pumped hydropower, as opposed to intermittent sources such as wind or solar.

40%—Victoria's 2025 renewables power share goal

As for the emissions guarantee, it obliges retailers to buy energy at "certain emissions levels consistent with international obligations". Australia is a signatory of the Paris Agreement.

But there's so little flesh on the skeleton of the NEG that the energy industry isn't yet sure what to make of it. For instance, no clarity has been provided over how NEG will encourage new investment in clean energy, if at all. Nor does it mark the death knell of coal, as the CET effectively did. As Marque Lawyers adds: "So far there have been limited details on how the policy will work [and] we're left wondering if it will be good, or bad, or a bit of both."

The uncertainty has cast a shadow over investment in renewables. According to a late-November report by Bloomberg New Energy Finance, the NEG "could slash investments in large-scale wind and solar projects if the government fails to increase its 2030 emissions reductions target". The NEG has set a target of 28% by 2030, which would require only an additional 1.6 gigawatts of new, large-scale renewables. By contrast, Labour advocates a 45% reduction.

However, one company that's prepared to take the plunge is Ireland-based renewables group DP Energy. In late December, DP Energy and Vestas announced plans for a $A0.6bn [$470m] renewable energy park in Port Augusta, South Australia, reportedly the biggest hybrid wind and solar facility in the country. Due to start construction in late 2018, it will have a maximum capacity of 375 megawatts.

Meantime, the state of Victoria is going in a diametrically opposite direction to the federal government. It has become the first to embed its renewable energy targets into legislation, despite having imposed a moratorium on exploration for unconventional gas. By 2020, a quarter of electricity generated in the state must come from renewables, rising to 40% by 2025. Both targets are considerably more ambitious than the federal government's goal. The 2020 target will require about 1,500MW of renewable energy and the 2025 one about 5,400MW. With those goals up in lights, the Victorian government has just launched Australia's largest-ever renewable energy auction.

Although the federal government is far from turning its back on renewables, it's clearly gone for a grid that's guaranteed to keep the power flowing above any other consideration. As Prime Minister Turnbull declared, the CET has "ceased to be". However, his Liberal government, which is lagging in the polls, faces an election in late 2018. The Labour party appears so sceptical of NEG that many political observers think it could revive the CET.

Source: Petroleum Economist
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