Ai Group Chief Executive, Innes Willox, said "Industry badly needs a competitively priced, clean and reliable electricity system, but we are currently falling short on all fronts and deep political uncertainty stands in the way of solutions. The Guarantee can be the basis for a workable settlement if the design avoids unintended damage to electricity sector competition.
"Widely voiced concerns about the potential impact of the Guarantee on competition would be largely answered if the final design contains the ESB's proposed options to recognise financial contracts in the Reliability Obligation and a new class of contracts in the Emissions Obligation that specify emissions intensity but not a generation source.
"These options would allow the continuation of existing markets for futures, caps and swaps that support competition, liquidity and transparency. Using these new and existing forms of contract can also help minimise administrative costs.
"The remainder of the Guarantee's design also needs to minimise costs while maximising investability. For example, emissions offsets can be one of several useful sources of compliance flexibility. International offsets are currently highly uncertain: it may be many years before their international legal status and likely prices or volumes are clear. So, while we strongly support international offsets in other areas of climate policy, the need for greater electricity sector certainty means only domestic units should be initially available for the Guarantee.
"COAG should now encourage the ESB to narrow the current broad options and consult further on a workable design. Ultimately the States and the Commonwealth are going to have to bridge their divides and find a workable and durable agreement, particularly around emissions reduction targets. Without compromise we are not going to see electricity prices come down as far and fast as they should," Mr Willox said.
Full Ai Group submission to NEG Draft Design Consultation Paper
Ai Group blog on NEG
Tony Melville – 0419 190 347