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National Energy ‘Guarantee’: can our power ‘trilemma’ become a policy trifecta – or quinella?

By Geoff Carmody - posted Wednesday, 25 October 2017


The ends-means framework behind the National Energy 'Guarantee' (NE'G')?

The Government has announced a new policy to address Australia's electricity market 'trilemma': achieving reliability, affordability and sustainability (now called 'responsibility'). The details need work, and it's largely up to the States and Territories to agree to manage and deliver.

What can we glean from this latest Government 'announceable'?

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The NE'G' prescribes two policy instruments for the three objectives in the 'trilemma'.

First, retail electricity suppliers must use enough dispatchable generation to support reliability: the 'reliability guarantee'. Electricity suppliers must also use enough renewables to support 'responsibility': the 'emissions' guarantee'. Third, there are some assertions about cost reductions from the NE'G'. But relative to what, and based on what analysis, is not clear.

Will the 'trilemma' be transformed into a quinella, if not a trifecta?

Government claims for what the NE'G' will deliver

The Commonwealth bases its assertions on an 'advice' letter, dated 13 October 2017, from the Energy Security Board (ESB) to the Environment and Energy Minister. The ESB letter notes the Government's request for advice on the three 'trilemma' conditions that (i) the reliability of the system is maintained; (ii) emissions reductions required to meet Australia's international commitments are achieved; and (iii), objectives (i) and (ii) are met at lowest overall costs.

The States are yet to agree. The Commonwealth claims that, if they do, the following will be achieved.

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1. Reliability (governments can prescribe, monitor and enforce standards, if they want to)

Reliability will be maintained.

Maintaining reliability is quantifiable. Since 1998, within the NEM, this has been that no more than 0.002% of the annual consumption of a region, as noted in the ESB letter, will be at risk of not being supplied. Will this standard be continued?

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About the Author

Geoff Carmody is Director, Geoff Carmody & Associates, a former co-founder of Access Economics, and before that was a senior officer in the Commonwealth Treasury. He favours a national consumption-based climate policy, preferably using a carbon tax to put a price on carbon. He has prepared papers entitled Effective climate change policy: the seven Cs. Paper #1: Some design principles for evaluating greenhouse gas abatement policies. Paper #2: Implementing design principles for effective climate change policy. Paper #3: ETS or carbon tax?

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Creative Commons LicenseThis work is licensed under a Creative Commons License.

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