Designing the NEG – keeping the focus on practical, implementation issues

Author Alister Alford

Date August 2018

Featuring in the news headlines once again has been the evolving design of the National Energy Guarantee. On 1 August the Energy Security Board released:

While we await the meeting of COAG to determine the fate of the NEG, what we see in the latest reports is that the ESB has considered the feedback from the consultation process and addressed a range of practical implementation issues. However, they have not substantially altered the primary design elements. In this brief update, Energetics looks at the changes.

Recognising the need to efficiently allocate generator emissions and the inherent incentives for scheme participants to balance emissions allocations, a number of unnecessarily restrictive elements of the draft design Emissions Guarantee have been relaxed. The changes are:

  • The emissions reduction requirement has been designed as a whole-of market mechanism. In line with this, the updated registry design incorporates features that automatically assign unallocated generator emissions to unmatched load. The ESB has reconsidered the need for action against unreasonably withholding allocations, and a general anti-avoidance regime. The approach to over-allocation of generation has similarly been revised such that any over-allocation will not attract a civil penalty.
  • The ESB has also responded to concerns from large customers that the Reliability Guarantee’s draft design would place unnecessary constraints on contracting activities with little overall benefit to the scheme objectives. The revised design provides most large customers with an ‘opt-in’ regime and permits retailers to adjust their contract position within a compliance year when they take on C&I sites with a historic peak load less than 30MW. The wholesale contract market has also avoided the high cost of establishing and maintaining a trade repository to record qualifying contracts.

Should the COAG Energy Council agree to the Final Detailed Design it is important for end users to remain alert to the technical implementation details. The Qualifying Contracts framework will need to be developed into a detailed and practical design.

Energetics’ energy markets and policy advisors can help your business to assess the impact of the NEG’s implementation, particularly if your business is considering new supply arrangements.  We can also help to understand the interaction of the Reliability Guarantee and the RERT which, as referenced in our previous article, “Will the NEG provide relief from high costs in the Reliability and Emergency Reserve Trader mechanism?”

We will provide further insights following the meeting of COAG. Please contact your Energetics’ account manager or the author if you have any questions or seek assistance.

Relevant services: Energy and carbon markets