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Finkel: Let’s not be railroaded into a bad deal on clean energy

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The last decade of climate wars has ground everyone down. People, understandably, want to see a resolution. They want to see a consensus on climate and energy policy and they have looked to the Finkel Review to provide that consensus.

Some have even gone so far as to say that a bad deal is better than no deal at all.

But a bad deal IS a bad deal and neither industry nor the community should put up with a climate change or energy agreement that locks in poor climate change and energy outcomes.

Source: ABC

Source: ABC

A false consensus has emerged over the Finkel Review and it is important to point out the significant weaknesses with this approach.

It is particularly important that State and Federal Energy Ministers, meeting tomorrow, do not lock in poor climate change and energy outcomes and continue to push for energy market reform.

The Australian Solar Council and Energy Storage Council, as peak national bodies for the solar and energy storage industries, strongly supported the Finkel Review as an independent exercise and we appreciated and applauded the consultation process undertaken by the Review.

The preliminary Finkel Review report stated “we have a once in a generation opportunity to reform the national electricity market” and we agreed.

We expected a blueprint for energy market reform, but the final Finkel Review report fell well short of that mark.

Instead of a blueprint, the Finkel Review delivered a set of piecemeal recommendations that do not represent a design for a 21st century electricity market or pathways to the necessary transformation of our electricity system.

The Finkel Review has five major shortcomings:

  1. Ignoring the evidence demonstrating the need for major cuts in greenhouse emissions from the electricity sector to meet current and future international greenhouse gas emission targets;
  1. Underestimating the transformation that is occurring and accelerating in the electricity sector and downplays the likely uptake of household batteries and smart energy systems and fails to recognise the capacity to integrate these systems by a transition to a distributed energy storage system, as envisaged by the CSIRO-ENA Energy Transformation Roadmap;
  1. Seeking to impose unfair obligations on new renewable energy generation whilst imposing no obligations on existing coal or gas-fired generators – requiring energy storage to be attached to specific projects rather than taking a network systems approach to energy storage will drive up the cost of new renewable energy projects;
  1. Recommending a Clean Energy Target and proposing emission levels which would lock in higher emissions, when its own evidence indicates the cheapest and most efficient option for the electricity sector are the ‘lowest’ emissions renewable technologies; and
  1. Recommending an additional regulatory body and giving existing energy regulators additional responsibilities rather than consolidating the number of regulators and reforming the regulatory environment.

 Greenhouse gas emissions

The Finkel Review has modelled the Federal Government’s emissions reduction target of a 26-28% reduction in Australia’s emissions by 2030, rather than responding to the recognised emissions reductions required to meet Australia’s current international treaty obligations.

Further the Review has recommended that the electricity sector targets should be proportional at 28% – ignoring that worldwide the electricity sector offers a greater opportunity for emissions reduction using existing commercial technologies and systems.

It is widely recognised that electricity generation is one of the easiest and lowest cost means of reducing emissions and that the electricity sector can contribute much more than a simplistic proportional share to achieve emissions reductions.

The Climate Change Authority has suggested the electricity sector could reduce its emissions by 66 per cent by 2030 to meet Australia’s international climate change commitments.

The Finkel Review should have modelled significantly greater reductions in electricity sector emissions and drawn its conclusions and recommendations from that.

 Transformation of the electricity sector

 The Finkel Review states “battery storage is poised to be the next major consumer-driven deployment of energy technology. Upfront costs for solar photovoltaic systems with storage are currently high, with long payback periods for most consumers.

Bloomberg expects the average payback period for residential consumers to fall below 10 years in the early 2020s, with around 100,000 battery storage systems to support rooftop solar photovoltaic generation predicted to be installed by 2020.”

The Australian Solar Council and Energy Storage Council is currently undertaking a comprehensive analysis of the Australian energy storage market and we estimate 120,000-500,000 battery storage systems are likely to be installed in Australia by 2020.

CSIRO and Energy Networks Australia have forecast there could be almost eight gigawatt hours of storage in Australia by 2020.

It is likely the Finkel Review will significantly underestimate the uptake of battery storage and the capacity to integrate residential and small business energy storage systems into a much larger peoples power plant or virtual power station.

This is not simply a large missed opportunity, it is a failure to plan for the likely reality.

The history of solar technology deployment shows us that cost reductions and uptake have always exceeded forecasts. Bloomberg itself draws attention to the innate and consistent conservatism in its new energy technology forecasts.

Generator Reliability Obligations on new renewable energy plants

The Finkel Review’s recommendation to require all new generators to have energy storage could significantly increase the number of large-scale energy storage projects up to and beyond 2020, although it may also artificially drive up the cost of large-scale renewable energy projects, reducing their viability.

This is a requirement not imposed on current generators of any technology. Coal and other fossil fuel generators, are intermittent generators: they provide firm power only when they are generating – and in Australia that is around 85% of the time. The other 15% is provided by providing additional capacity into the network.

The proposed Generator Reliability Obligation (GRO) will almost certainly be a higher cost approach than a market-based approach to firm capacity in the network.

It is discriminatory ultimately at the customers’ expense and ignores the engineering and network systems-based solutions that are being implemented world-wide to meet the outcomes sought.

The GRO may also ignore the potential for off-river pumped hydro to provide a range of services to the network including firm power to the grid complementary to variable renewable generators.

The Review has proposed a backward-looking engineering solution when it should have simply defined the outcomes desired.

The world is moving to transform grids to intelligent distributed two-way energy flow systems because they offer increased security, reliability and quality of supply at a lower cost than new fossil fuel or nuclear based generation.

There are more effective ways to add storage to the national electricity market through a system-wide approach.

One option would be to encourage the market to develop proposals through reverse auctions, which would determine the price and locations of energy storage systems. Another option would be through a capacity market.

Evidence was given to the Review on the importance of demand response and demand management tools and the critical role of digitisation and software management which it appears has not been understood.

Closure of coal-fired power stations

The Finkel Review has suggested there be a minimum notification period of at least three years for the intention to close coal-fired power stations.

This is an administrative arrangement with no financial or planning signals for closure and is not as efficient as a market mechanism. It provides no mechanism for the orderly closure of coal-fired power stations.

All this proposal does is to provide a small amount of certainty over a three-year period. It provides no means of ensuring continued operation, or operation on demand, and provides no specific incentive for new generation.

It also fails to match closures to emissions reductions. Less polluting power stations could close before more emissions intensive power stations.

We urge COAG Energy Ministers to take a different approach and develop a plan for the orderly closure of coal-fired power stations. We believe the model from the ANU, developed by Professor Frank Jotzo and others, offers a better path using market based mechanisms.

Clean Energy Target

The proposal for a Clean Energy Target appears to be a political solution to a political problem, rather than an attempt to introduce the most effective mechanisms for reducing emissions and encouraging renewable energy generation and energy storage.

The Australian Solar Council and Energy Storage Council support the continuation of current state government reverse auction programs in the absence of a national reverse auction scheme for renewable energy or a national price on carbon.

If the Government proceeds with a less efficient Clean Energy Target, the emissions intensity threshold must be set at a level that helps deliver Australia’s international climate change commitments and must be flexible enough that it can be changed to capture Australia’s future climate change commitments.

Governance

The National Electricity Market is not functioning effectively and the multitude of agencies responsible for the NEM adds to the confusion and inefficiency. Australia is the only country where the two energy market functions sit in separate bodies.

In its 2012 report on network regulation, the Productivity Commission was particularly critical of what it saw as the unusual role of AEMC in setting policy, rather than serving policy makers.

Unfortunately, the Finkel Review increases this complexity by recommending a new body, the Energy Security Board, and giving new responsibilities to existing agencies.

Governance arrangements need to be streamlined, with the Australian Energy Market Operator and the Australian Energy Market Commission merged. The new body should be led by someone who understands the extraordinary transformation that the electricity sector is going through globally and in Australia.

We believe that Energy Ministers need to take responsibility for preparing a national energy plan that takes a broader view of the changes needed for the future and puts implementation in the hands of governments as far as possible. The previous issues caused by outsourcing policy making to the AEMC should be avoided.

Other Matters

The Australian Solar Council and Energy Storage Council calls on all Energy Ministers to endorse the following measures:

  • Establish a plan for the orderly closure of coal-fired power stations;
  • Make action on climate change a key objective of the National Electricity Market and ensure that all climate change and energy policies are consistent with Australia’s international climate change obligations;
  • Commit to at least 50 per cent renewables by 2030;
  • Introduce a 5-minute settlement rule;
  • Enable markets in peer to peer trading and demand response; and
  • Replace the Australian Energy Regulator and Australian Energy Market Commission with a new combined energy market rule maker and regulator.

A bad deal is not better than no deal at all.

A bad deal locks in poor climate change and energy outcomes.

Energy Ministers still have a “once in a generation opportunity to reform the national electricity market” and we urge them to continue that work.

John Grimes is chief executive of the Australian Solar Council and the Energy Storage Council  

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  • MaxG

    “A bad deal is not better than no deal at all.” Hence, it needs to be opposed and pushed for improvements!

  • solarguy

    John’s proposal is echoed around the RE industry. It sounds like a common sense plan to me. Let’s hope the ministers follow the ASC and ESC recommendations tomorrow, every one is counting on it.

  • Ken Dyer

    Whilst the Finkel Review is a valuable document and clearly written with an eye to nudge our conservative political masters along the track to renewable energy nirvana, the reality is that its time has come and gone just as the Federal Government’s time has gone, if the articles that appear in Renew Economy and all the other publications (Coalwire, Free Technica, etc) shouting out the inexorable rise of renewable energy and the inevitable demise of fossil fuels are to be believed. Apparently, the States will put the nails in the fossil fuel coffin, and more power to them (renewable, that is).

  • David leitch

    Well written John. At a minimum the GRO needs to be revisited. The saving grace of Finkel is that it was so vague on detail as to be useless in practice.

  • Alastair Leith

    “The Finkel Review has suggested there be a minimum notification period of at least three years for the intention to close coal-fired power stations.”

    It’s also stated in the review this measure is “non binding”. So what they all just nominate every three years and then decide on the day to honor it or keep generating? It’s a sop.

  • Alastair Leith

    The requirement for “firming” of wind and solar with storage is similar to the (mistaken) belief that renewables need needs paring with fossil generation. Here’s what the latest American Wind Energy Association report has to say about pairing with fossil generation.

    “Renewable Energy Builds a More Reliable and Resilient Electricity Mix”:
    9. Don’t grid operators need to add backup to integrate wind?
    No. One of main reasons grid operators built an integrated power system is so that all power plants can back up all other power plants. As explained under Questions 4 and 7 above, the variability and uncertainty that affect all sources of electricity supply and demand are largely canceled out by other sources of variability and uncertainty. As a result, having a dedicated backup source for each source of variability would be highly inefficient and counterproductive, as counteracting that resource’s variability would often increase total power system variability. As an analogy, it would be highly inefficient and counterproductive to have a dedicated resource at your house accommodating all fluctuations in your electricity demand, such as a battery or small dispatchable power plant, as nearly all of those changes are canceled out anyway by other changes on the aggregate grid.129 Unfortunately, as NREL has noted,130 the misconception that renewable resources must be paired with dispatchable resources has been used as the flawed assumption for many studies.131
    Moreover, any total power system variability and uncertainty is most efficiently accommodated by the large pool of flexible resources available on the power system. Like any generation resource, wind works best as part of a mix of other resources on the power system. As explained above, a major challenge and expense faced by grid operators is how to keep the lights on when individual power plants break down, as all power plants do from time to time. The challenge is particularly great for failures at large fossil and nuclear power plants, which because of their size can take offline in a fraction of a second enough electricity to supply a large city.
    Over the last century, power grid operators have perfected tools for combining hundreds of power plants that are each individually unreliable into a power system that is very reliable. By using most power plants to “back up” all other power plants, grid operators ensure that the lights stay on when even the largest power plant on the grid breaks down. This process works so well that most people are not aware that it occurs, even though the expense of maintaining that backup 24/7 for the unpredictable failure of conventional power plants is quite large, as explained under the answer to Question 8 above.
    Grid operators typically make a distinction between operating reserves, which were addressed in this answer and the preceding answer, and “planning reserves,” which were discussed in more detail in Chapter 4. The primary distinction is that grid operators think about planning reserves on a years-ahead basis when they are deciding what power plants to build, while they think about operating reserves on a day-ahead to real-time basis when they are deciding what power plants to operate. Planning reserves are essentially the cushion of extra power plant capacity that grid operators build so that they will have enough power plants even if some of those power plants are not available on a particular day. For both operating reserves and planning reserves, the answer is that wind can be reliably added at low cost, as the power plant capacity and flexibility that is needed already exists on the power system.
    http://www.awea.org/About/content.aspx…
    129 Discussion of pairing dedicated storage or a dedicated “backup” power plant with a particular resource, or combining several resources to create a virtual power plant or a microgrid, often falls into this trap. The power system was built to realize the diversity benefits of having all resources backed up by all other resources and all sources of variability canceling each other out, so dis-aggregating the grid would be a step backwards.
    130 http://www.nrel.gov/docs/fy11osti/51860.pdf, page 27
    131 Examples of studies that are flawed because they have relied on this incorrect pairing assumption include http://pubs.acs.org/doi/full/10.1021/es801437t and http://instituteforenergyresearch.org/…/07/IER_LCOE_2016-2.…; That claim was debunked here http://www.aweablog.org/koch-groups-try-debunked-wind-atta…/.

  • Alastair Leith

    WA’s SWIS grid already has a Reserve Capacity Mechanism, just saying 🙂