The National Energy Guarantee published by the Australian government has received a mixed reaction from energy industry players. In a few words, the NEG establishes emissions reduction targets, but also mandates a minimum dispatchable generation capacity, which does not include solar and wind power. On one hand, this favors coal and natural gas as electricity sources, but can also set the stage for large-scale deployment of energy storage in Australia. Hydroelectric power also benefits from the NEG, being a renewable and dispatchable energy source.
However, the energy modeling information used by the Energy Security Board (ESB) for the NEG does not tell the real story when it comes to solar and wind power. The electricity prices assumed by the ESB for solar and wind power are 30-40% higher than the actual contract prices as of late 2017. As a result, the ESB models do not reflect the electricity price reduction that is possible with increased use of photovoltaic panels and wind turbines.
The ESB assumes a cost of $90-100/MWh when dealing with utility-scale photovoltaic arrays, and $78-90/MWh for wind farms. However, this does not reflect the reality of the Australian energy market: according to the Australian Renewable Energy Agency, wind power is in the range of $50-60/MWh, while utility-scale solar PV is at $70-75/MWh. Under ESB projections, solar power doesn’t reach this price range until the year 2030, while wind power is still above this price range until 2040.
Another limitation of the ESB model is that the cost of capital is assumed 3% higher to account for policy uncertainty. As a result, existing generation assets such as coal and gas power plants get a slight cost advantage over new solar and wind farms in energy models. Finally, the ESB was ordered to assume no more emissions reductions beyond 2030, further diminishing the expected role of solar and wind power in Australia.
A key consequence of ESB assumptions is that the National Energy Guarantee emerges as a cheaper alternative than the Renewable Energy Target proposed in the Finkel review. If the energy modeling procedure was repeated with realistic assumptions for solar and wind power, the RET could emerge as a better option than current policy.
Australian homes and businesses trust renewable energy even when government policies could be better. The public perception of battery systems is very favorable, and most Australian homeowners with solar PV systems are considering energy storage in the near future. Large Australian firms are also carrying out significant investments in renewable energy to reduce reliance on the power grid, and some are even deploying hybrid systems that combine renewable generation and energy storage.
It is also important to note that solar power continues to decrease in cost, breaking its own records. Even when government projections and policies indicate otherwise, energy consumers are becoming aware of the potential of solar power in Australia.