The last few months have been a tumultuous time for the renewables sector. The federal government has recently moved away from the proposed National Electricity Guarantee (NEG) and it is not clear what will replace it in the near future.
What was the NEG?
The Large-scale Renewable Energy Target (LRET) is intended to incentivise the development of renewable energy though the creation and sale of large-scale generation certificates (LGCs). Recent predictions indicate that, at the current rate of investment, a sufficient number of LGCs will exist to meet the requirements of the LRET by around 2020. The NEG was, amongst other things, intended to help drive renewable investment going forward and to compensate for a future slowing demand for LGCs.
The NEG was a long-term outcome of significant consultations by the Energy Security Board and a central policy platform of the Turnbull federal government. The NEG sought to unify energy and emissions policies and was composed of two elements:
The NEG was intended to be source-agnostic and did not expressly favour a particular technology or energy source (fossil fuel or otherwise). However, the implication of having an emission target coupled with guaranteed baseload ensured that suppliers would likely need at least a partial blend of traditional and renewable generated energy for the respective targets to be met.
Life beyond 2020
The current status of the NEG remains uncertain. While the current federal government appears to no longer be pursuing the NEG as a policy, the ALP has recently announced that it will be taking it to the next federal election.
The LRET has been largely successful, with some stops and starts, in driving renewable investment in Australia. It is possible that it will not be replaced, in which case it is expected that renewable investment will remain to be driven by the following:
Why does this matter?
Renewable energy projects are commonly typified by long design lives (20-25 years, with options to operate beyond that period not uncommon). Coupled with the usual gestation period required to secure land rights, planning permissions, PPAs and finance, it is likely that the current gap in federal policy will lead to significant investor uncertainty going forwards. Participants in the renewable sector will readily recall the precipitous drop off in new large-scale renewable energy investment in 2014–2015 as a result of the then Abbott government’s views on the Clean Energy Funding Council and the Renewable Energy Target.
Uncertain government policies (both now and future) appear to be one of the few certainties in the renewable energy sector going forwards. Participants should keep a close eye on the following over the short term:
We look forward to keeping you across further regulatory developments in the renewable energy space.
Stephen Natoli, Partner
T: +61 3 9321 9796
Scott Alden, Partner
T: +61 2 8083 0419
Carl Hinze, Partner
T: +61 7 3135 0630
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