Grattan Institute shares view on the NEG

We only need to look at our skyrocketing electricity bills to know that balancing energy and climate policy has proven difficult.

Energy policy is meant to deliver reliable, affordable electricity.

Climate policy is designed to deliver lower emissions.

Unfortunately, based on available technologies, the two objectives are incompatible. You can't have cheap power and low emissions without abandoning reliability.

As with most things in life, the solution lies somewhere in between. The current solution proposed by the Federal Government is the National Energy Guarantee (NEG).

The Grattan Insitute's Tony Wood has provided the below view on the NEG.

In the NEG's attempt to balance lower emissions and reliability, it's taking a technology-agnostic approach.

Tony highlights the most important component:

"The case for renewables or new coal, whatever the costs look like today, then will rest on the economic merits. In that world, there is no case for subsidies for new coal or for subsidy extensions for renewables."

Tony goes on to show that since 2009, electricity demand has been flat or falling. Wholesale prices averaged around $50 per MWh just three years ago. For 2018-19, prices ranged from an average of $72MWh in Queensland to $98MWh in South Australia.

He then lays out the challenges faced by new coal, gas, wind and solar:

• New-build coal - $75-$85 per MWh
• Wind and solar off-take agreements are being reported at $60-$80 per MWh
• Add the cost of backup to wind and solar; $25-$30 MWh

So, the system cost of new wind and solar is between $85 and $110 per MWh.

What Tony seems to miss is the largely hidden subsidy of $80 per MWh currently received by renewables. This brings the real cost to between $165 to $190 per MWh.

Renewable advocates are fighting to maintain this subsidy, despite claims wind is now cheaper than coal.

There's no doubt that wind and solar will continue to fall in cost. Whether they fall far enough to compete on their own merits while delivering reliable, affordable power is the real question.

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