Finkel Review Releases Recommendations for Energy Reform

COAG

Jun 14
Finkel Review Releases Recommendations for Energy Reform

Australia’s Chief Scientist, Dr Alan Finkel, provided a report entitled “Independent Review into the Future of the National Electricity Market” on 9 June 2017 (the Finkel Review).  The report contains a list of recommendations for improving reliability and efficiency of electricity supply through the National Electricity Market (NEM).  Although focussed on the NEM, many of its recommendations may ultimately also find its way into Western Australia’s markets.

The key recommendation is to provide certainty to the energy industry on the national policy settings to achieve carbon reductions in light of Australia’s commitments under the Paris Accord.

The Finkel review considered both an Emission Intensity Scheme (EIS) and a Clean Energy Target (CET) scheme, with the CET being preferred.  Both schemes would involve setting an industry-wide yardstick for emissions of CO2 for each unit of electricity produced.

Under the EIS, generators producing electricity with a higher carbon intensity would make payments whilst those producing at less than the target intensity would be financially rewarded.  The CET is similar but achieves the target by providing certificates to generators producing at less than the target intensity with an obligation on retailers to purchase and surrender a certain number of certificates each year.

The CET would, therefore, operate in a similar way to the current Renewable Energy Target (RET) and it may be possible to build on existing systems and policies for administering the scheme.

The CET would be technology neutral, meaning that any generator could earn credits as long as its intensity is below the target level.  It would, therefore, be possible for a coal-fired generator with the right emission reducing technology in place to produce certificates.  There would be no specific penalties on generators producing above the target intensity.

Early indications (recent discussions at ABC’s Q&A programme) are that there may be some bipartisan support for the CET, providing the industry with long-term stability for investing in new generation capacity.

Some of the other recommendations of the review were:

  • A review of connection standards and technical standards with a requirement on new generators to be able to always provide certain levels of ancillary services such as frequency control.
  • New intermittent generators may be required to provide a certain amount of controllable output. This could be achieved via integration of battery storage and/or inclusion of gas fired components (or other controllable technology).
  • Generators should have an obligation to inform the market at least three years ahead of any planned retirements.
  • AEMO should be given wider role in centralised planning of the transmission system.
  • A new Energy Security Board should be established to review the progress of the proposed reforms and provide whole of system oversight with all things security related.

The review did not provide much guidance on the impact of new technologies such as electric vehicles, smart meters, further penetration of distributed generation, battery storage technologies and peer to peer trading of energy.