South Australian Election Result Brings NEG Closer

It is no secret that Australia’s national energy policy has gone through a period of inconsistency over the past decade. This has included inconsistency at a national level with changes in laws and policies, as well as inconsistencies between the national and state levels. This fact has been identified from all corners – from politicians of all persuasions through to business, community and environmental groups – as a reason why Australia is now facing concerns regarding the reliability, security, and affordability of energy supply. Whilst it is far too simplistic to sheet home blame to this alone (competition/market power questions, retailer behaviour, (over?) investment in transmission and distribution networks, declining baseload generation, and higher cost of gas are other examples), a lack of certainty ultimately hurts investor confidence, which will place upward pressure on prices.

However, the national Energy Minister Hon. Josh Frydenberg (pictured below) and the Federal Government are nearing completion on finalising the National Energy Guarantee (NEG), which promises to provide long-awaited certainty.

There has been a breakthrough on two fronts to get the NEG closer to reality, which requires the agreement of all states and territories.

The first is that the new South Australian Government led by Premier Marshall has indicated the desire to align state energy policy more closely with the national government. This prima facie agreement, ensuring that any South Australian concerns are met, is an important part of implementing the NEG and differs from the approach of the former State Government. The second breakthrough was agreement from all state and territory energy ministers to move to the final design and drafting of legislation and rules to implement the NEG at the most recent COAG meeting. The paradox in Australia is that federal government is looked to for setting a stable and predicable policy framework, but implementing the NEG is only possible if states agree to changes through the COAG process. The changes required to implement the policy are set in state legislation (South Australian actually, with mirror legislation in the states and territories within the National Electricity Market).

The recently established Energy Security Board will now work on the detailed design of the scheme for a final decision in August. Given that the federal government has had to work closely with the states to make this happen and that any future unwinding of the legislation would again require COAG endorsement, if agreement does come in August, then the NEG is poised to deliver national policy and investment certainty that can be banked on.

The change of Government in South Australia will play no small part in facilitating this achievement.

The NEG’s goal is to implement a framework for Australia to achieve it’s Paris Agreement emissions reduction targets in the electricity sector, whilst ensuring a reliable and secure supply is maintained. As the design of the scheme is now considered in more detail, the key sticking points with state governments will be their insistence that the NEG does not remove the ability to implement their own schemes that are different to, but do not compromise, the NEG – for example, more ambitious emissions reduction targets beyond what Australia agreed to under the Paris Agreement. An additional suggestion has been to make the NEG scalable so that it can be updated to reflect additional emissions reduction targets made in the future.

If you’re interested in discussing Australian and South Australian energy policy or investment opportunities, please contact Investment Director, Joe Doleschal-Ridnell via email or on 07428 416 841. You can also visit our energy resources page to find out more about South Australia’s position in the sector.