Joint NEG submission calls for ‘optimal mix of resources’

ERM Power has released its submission, jointly signed by 10 retailers, on the National Energy Guarantee (NEG) urging policymakers to get the design right to drive investment in the right resources in the right locations while supporting competition and reducing cost.

The Energy Security Board (ESB) discussion paper opens up the conversation on how to deliver affordable energy, well-placed and well-timed dispatchable resources, such as batteries, demand response and fast-ramping generation, while also reducing Australia’s carbon emissions.

ERM Power CEO Jon Stretch said the NEG needed to break the policy nexus to drive investment.

“The ESB has been genuinely consultative and keen to explore options,” Mr Stretch said.

“It’s also refreshing to see the Prime Minister recognise the importance of deep and liquid markets in saying that the NEG would ‘use the existing dynamics of competitive markets, its contracts and trading, to deliver reliability and meet our climate commitments’.

“We believe deep and liquid markets are the key to price transparency, competition and lower costs.”

Mr Stretch said a transparency and competition model with a procurement safety net was the recommended solution to align reliability and emissions obligations with cost-effective and well-placed investment and this should be the alternative, not an addition, to obligations sitting with retailers.

“We suggest a lighter touch safety net model which would ensure the benefits that liquid markets bring to price transparency and hedging efficiency remain for competition and consumer outcomes,” he said.

“It would avoid the risks and costs associated with change in law complexities to existing retail and wholesale electricity contract arrangements. Our model requires no penalties or costly compliance mechanism.

“The model we have proposed to the ESB firstly allows the market to solve the problem economically without intervention.

“The central procurement safety net would only take effect in the unlikely event that the market didn’t first invest in the required solutions. Similar mechanisms exist in energy markets globally, including in Western Australia, where the market has always invested ahead of a need for intervention.

“Like the current NEG proposal, our alternative involves a degree of centralist planning and procurement that isn’t ideal but our proposal addresses the fact that loss of market liquidity and market power abuse are greater risks under the current option than is the risk of over-build.”

The model proposed by the group of retailers:

  • will not exacerbate generator market power issues by tilting the balance of power further in favour of the large incumbents;
  • will not put all the risk on retailers who have no control over generation, dispatch and reliability;
  • will not increase cost through the risk of economic withholding by generators; and
  • will not push out smaller retailers who bring innovation and build competitive tension in retailing.

The Energy Security Board (ESB) released its consultation paper last month.

The consultation paper seeks stakeholder views on the design of the NEG, which the COAG Energy Council will consider at its April meeting.