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Federal Government’s proposal on a National Energy Guarantee (NEG) has been among the top news items in Oz for some time now. The government is touting the NEG as a centrepiece of its policy reform in the electricity sector, which will ensure stable, reliable and affordable electricity supply to households and businesses beyond 2020.

There are critics left, right and centre. In fact, critics from the left and right may come together in opposition to the NEG, and attempt to block it in the Parliament.

On 1st August, the Energy Security Board released the Final Detailed Design of the National Energy Guarantee. This is really the document that should be evaluated in order to have a rational debate on the proposed reform of the electricity supply chain and markets. An impression that I get from reading this document is that it is highly-professionally prepared, with obviously a lot of thought and effort put in from engineers and economists who understand the details of how our electricity system works. Overall, I think that it is a good document, and that the design of the NEG indeed addresses many of the shortcomings of the current electricity system, perhaps most notably the shortcomings on the National Electricity Market, where speculative and manipulative behaviour has been bordering legality, and has undermined the effectiveness of the system.

However, when it comes to the ‘reliability guarantee’ it seems that it effectively amounts to guaranteeing a role for the fossil fuel power generation in the future electricity system, by requiring the retailers to contract with at least some fossil fuel generators. Supposedly this is going to be offset by the ‘emissions guarantee’, which in a way secures a role that renewables will play in the proposed new system. But, the trade-offs between the guarantees are not well described in the document, and indeed, are hard to justify. Guaranteeing the place of fossil fuels in the electricity generation mix is going to prevent closures of coal-fired plans and perhaps (but not likely) encourage building new ones. In other words, it is going to slow down our transition to less/no fossil fuel electricity system. This hardly seems like a good energy policy goal for the 21st Century.

At the end, I can understand why the designers of the NEG wanted to have something for everybody in the proposal. They must have been trying to strike the balance between the proponents of the ‘old’ fossil-fuel based electricity system, and those of the ‘new’ renewable-based system. That’s precisely why the proposal is drawing the wrath of the extreme views on both sides of the political spectrum. It is hard to say whether striking the balance was the right strategy, or perhaps the designers should have gone bolder towards embracing the future, which certainly doesn't lie in energy from fossil fuels. But, guaranteeing the place of fossil fuels in electricity generation might prove to be necessary for even getting a green light on the NEG from Government’s own ranks. Another example of politics as the ‘art of the possible’. We've seen too much of that from this Government!

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