National energy policy update…more uncertainty to continue

By Alistair Francis - November 2, 2017

With the recent dramatic escalation in energy prices, politicians at both the State and Federal level have been keen to provide voters with insights as to who is to blame for this outcome, along with recommendations on how to solve this challenging problem.

Read the full Month in Review Newsletter here

On 17 October, 2017 the Federal Government released its much anticipated energy policy called the National Energy Guarantee (NEG). The NEG has two components:

  1. The Reliability Guarantee, which requires retailers and large users to procure a certain percentage of electricity from generators that meets a certain level of dispatchable energy (from ready-to-use sources such as coal, gas, pumped hydro and batteries); and
  2. The Emissions Guarantee, which requires retailers and large users to procure a certain percentage of electricity from low emissions generators to meet emissions targets set by the Commonwealth Government.

The proposed policy is expected to lead to retailers procuring a significant percentage of their electricity from generators via contracts. The Energy Security Board (ESB) expects these contracts will provide revenue certainty to generators, and revenue certainty that should lead to new (lower emissions) generation investment. The increase in supply versus a flat demand outlook would in turn lead to lower wholesale prices, with the ESB estimating wholesale electricity prices could fall by 20-25% from 2020-30.

The technology-neutral approach of the policy means no more indirect subsidies to support renewables projects beyond 2020, which many expect will lead to a slowdown in renewables investment.

The next step by the Federal Government is to take this policy to the Coalition of Australian Governments (COAG) meeting in November. If endorsed, details of the policy (and key parameters) will be prepared during 2018, with the reliability guarantee to commence in 2019 and the emissions guarantee in 2020.

Our view is that the reduction in wholesale prices will depend on:

  1. The industry gaining confidence that this policy will remain in place long enough to justify material investment in new generation capacity; and/or
  2. Generation technology costs declining to make the investment more cost-effective versus contracts with existing thermal generators. 

Generation capacity in the NEM, by region and fuel source, 1 January 2017

Source: Australian Energy Regulator (AEMO) (October 2017)

So will East Coast electricity prices remain elevated over the next 3 years?

We believe so for 4 key reasons:

  1. Higher gas prices (leading to higher gas fired generation costs)
  2. Hazelwood power plant closure, increasing reliance on older coal power stations and increasing gas usage
  3. The requirement to replace Australia's ageing coal fleet (average age 31 years)
  4. New supply from the Snowy Hydro and other initiatives won't be available in the medium term.

Policy appears good for ASX-listed generators

It is worth noting that the policy announced by the Government doesn't require new legislation to be passed by the Federal Government, i.e. it cannot be blocked by the Senate. On the face of it, the announcement is positive for AGL and Origin’s generation assets, most of which satisfy the Reliability Guarantee. These businesses have also developed significant operations focusing on developing their renewable energy portfolios.

We await the Labor Party's response to the Government's move away from adopting a Clean Energy Target, which was the recommendation proposed by the recent Finkel Review. Even if the policy is adopted, we anticipate some uncertainty will remain regarding the longevity of the National Energy Guarantee until beyond the next Federal Election.

Contact our experts

Other articles


Top of Page


Rob Southwell

Rob Southwell's picture


Managing Partner and Partner – Private Business and Family Advisory

> View profile

Michael Minter

Michael Minter's picture


Managing Partner

> View profile

Leon Mok

Leon Mok's picture


Managing Director

> View profile

Brendan Britten

Brendan Britten's picture


Managing Partner and Executive Director/Partner- Business Advisory and Assurance

> View profile

Nigel Fischer

Nigel Fischer's picture


Managing Partner - Private Business and Family Advisory

> View profile

Tom Verco

Tom Verco's picture


Managing Principal - Private Business and Family Advisory

> View profile

Partnership fraud


Paperwork and independent advice saves partnerships from fraud

Discover more

Kia Ora Horse Stud


Pitcher Partners fills a Financial Manager gap to keep the business on track

Discover more

Fuel Injection Company Administration


A fuel injection company began life as an Australian public company before being acquired by a UK publicly listed company while in the research and development stage of a “green...

Discover more

@PitcherPartner DUCKS IN A ROW | SMEs play a key role in keeping the economic wheels turning & employ millions of Aussies – but man…