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Finkel offers cheaper, cleaner energy – all carrots and no stick

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Australia’s chief scientist has called for the adoption of a “technology neutral” Clean Energy Target, the staggered “orderly” closure of existing coal and gas plant, and tighter governance of the incumbent power generation sector, as key planks for reform in his major review of Australia’s troubled energy market.

The highly anticipated report – tabled by Alan Finkel on Friday, eight months after it was commissioned following the system black event in South Australia in late September – tackles the key issues of electricity supply cost, security and reliability, as the nation transitions away from fossil fuels and towards distributed renewable energy generation.

And the overriding message from Dr Finkel is clear: “To achieve this…. we need a plan.”

Crucially, says Finkel, this plan must be based on a national emissions reduction trajectory that everyone – Australian, state and territory governments from both sides of the political spectrum – agrees to.

But his modelling, and his policy suite, is based only on the Coaliton’s modest target of a 28 per cent cut in emissions below 2005 levels by 2030, heading towards zero emissions only in the second half of the century (2070).

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Finkel said in his report on Friday that he and his Review Panel – which included Chloe Munro, Karen Moses, Mary O’Kane and Terry Effeney – had quickly discovered that “beyond the cost of gas, uncertainty around emissions reduction policies was pushing up prices and undermining reliability.”

“Our plan removes that uncertainty,” he said.

The plan’s key feature is an “orderly transition” that would bring new generation – based on low emissions, not technology type – into the national electricity market to improve reliability.

“There are no prohibitions, just incentives,” Finkel said.

The report argues that bringing new generation into the market at lowest cost, and without “prematurely displacing” existing coal and gas plants, will put downward pressure on prices, while also reducing emissions.

So while the existing Renewable Energy Target will continue to its scheduled 2020 end, the report recommends that it should not be extended, but replaced with a Clean Energy Target.

The CET, rather than incentivising the roll-out of more large-scale renewable energy capacity, would have a goal of lowering long-term emissions:

“For example, a mix of wind, solar and coal generation would be equally acceptable as a mix of wind, solar and gas generation as long as the emissions reduction trajectory is achieved,” the report says.

However, the modelling suggests that it will throw coal a lifeline, and it will still account for more than one quarter of Australia’s generation by 2050, with large scale renewable energy only reaching 33 per cent by 2030.

This is despite the reports recognition that renewable energy, wind and solar in particular, are cheaper than new fossil fuel technologies, even with storage attached. The costings do not include a price on emissions or environmental impacts.

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Under the Clean Energy Target, the report recommends that existing large electricity generators be required to give three years’ notice of closure, to signal investment opportunities for new generation and give communities time to adjust to the loss of a large employer.

It would also place obligations on new generators to provide essential services to maintain voltage and frequency, as well as to guarantee supply of electricity as determined by the market operator.

This last point is a nod to the fact that renewable energy generation is not the only type subject to variability, with some of the nation’s key coal and gas plants repeatedly failing to deliver during periods of peak demand over the past summer.

However, in one of the most controversial aspects of the report, it recommends that the responsibility for dispatchability falls on individual generators, including wind and solar farms, rather than a system wide protocol, although the level of “dispatch ability will be decided by market regulators.

Reliability would be further ensured, the report adds, by introducing the means to financially reward consumers for participating in demand response and distributed energy and storage – a path that AEMO and ARENA are currently exploring through their 100MG demands response trial.

Along with an orderly transition, the energy market blueprint also recommends strengthened governance and system planning – the three pillars whose support is crucial, it says, to prevent the NEM from stumbling again in future.

On “system planning,” the report recommends a system-wide grid plan to inform network investment decisions and ensure security is preserved in each region.

Notably, this would include a list of potential “priority projects”, the report says, that would enable development of “renewable energy zones.”

Perhaps more notably, Finkel’s modelling also shows that the CET would result in more coal power than business as usual, a finding that will no doubt satisfy the federal Coalition government and the powerful fossil fuel lobby that still appears to have a major hold over the party’s right-wing rump.

This finding is tempered, however, by a note reminding policy-makers “that the current massive transformation in the operation of the electricity market is not driven solely by decisions of individual governments, no matter how large.

“It is driven by international trade competitiveness, innovation, business appetite for lower costs, competition to drive new technology, and consumers’ desire to take greater control of their energy costs and do their bit for the environment,” Finkel says in the preface to the report.

The report also calls for the establishment of an Energy Security Board, which it says would drive implementation of the blueprint and deliver an annual health check on the state of the
NEM.

Other key recommendations:

*By mid-2018, the COAG Energy Council should direct the Australian Energy Market Commission to review the regulatory framework for power system security in respect of distributed energy resources participation.

*By mid-2019, the Australian Energy Market Commission should report to the COAG Energy Council on proposed draft rule changes to better incentivise and orchestrate distributed energy resource participation to provide services such as frequency and voltage control.

*The Australian Government should lead a process to regularly assess the National Electricity Market’s resilience to human and environmental threats. This should occur by mid-2019 and every three years thereafter.

*By 2020, the Australian government should develop a whole-of-economy emissions reduction strategy for 2050.

*By end-2017, the Australian Energy Market Operator should require generators to provide information on their fuel resource adequacy and fuel supply contracts, to enable it to better assess fuel availability.

*By mid-2018, the COAG Energy Council or the Australian Energy Market Commission should commission financial modelling of the incentives for investments by distribution network businesses, to test if there is a preference for capital investments in network assets over operational expenditure on demand-side measures. If this work demonstrates that there is a bias towards capital expenditure, the COAG Energy Council should direct the Australian Energy Market Commission to assess alternative models for network incentives and revenue-setting, including a total expenditure approach. This should be completed by end-2019.

(This story will be updated)  

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  • Alastair Leith

    “But his modelling, and his policy suite, is based only on the Coaliton’s modest target of a 28 per cent cut in emissions below 2005 levels by 2030, heading towards zero emissions only in the second half of the century (2070).”

    If that was Finkel’s choice and not dictated by his terms of reference then he should be hanging his head in shame. Kevin Anderson of the TyndallºCentre for Climate Research that advises UK Govt. points out that developed nations must decarbonise their entire economy — of which electricity grids are typically only 25-33% of total — by 2030 to have a 33% of not exceeding 2.0º C.

    That’s all sectors including agriculture*, transport, buildings and industrial processes with a 10% p.a. decrease in in total emissions. So our grids really need to be decarbonised before 2030 so that transport and building heating and industry can electrified as much as possible after that with 100% RE. 2070 is tantamount to 5-8º C of warming, you can see why the rich tech crowd might be wanting to move to Mars. If >2.0º C is the end of civilisation as we know (Hansen et al), 5-8º is pretty much unthinkable except for sci-fi colonies on a largely uninhabitable Earth.

    *(currently land use sector is more like 56% of total GHG emissions according to the BZE LUR but that seems to be unspeakable in public discourse and to be left for another time when we have the electricity grid sorted and then the livestock industry has no skirts left to hide behind)

    • solarguy

      Where can I get a copy of Finkel’s review?

    • Joe

      Ah, I remember The Paris Agreement….limit warming to 2.0 Degrees but try for 1.5 Degrees. We are already at 1.0 Degree warming and emissions are still rising worldwide. The 1.5 Degrees is now pretty well obsolete and 2.0 Degrees is looking impossible when the binge on Coal just continues on…witness our very own Adani Mega Coalmine. What is it that the COALition, Minerals Council etc don’t understand. The mining and burning of more coal and gas is not compatible with The Paris Agreement nor is it compatible with a planet hospitable for human habitations. Mars is looking more attractive all the time.

  • Alastair Leith

    >“For example, a mix of wind, solar and coal generation would be equally acceptable as a mix of wind, solar and gas generation as long as the emissions reduction trajectory is achieved,” the report says.

    Accept gas can ramp and be replaced with biofuels, thus complementing a high penetration of solar and wind to 85% and beyond. Coal, not so much, couldn’t even cope with 40% RE in SA before walking away waving a white flag.

  • Alastair Leith

    Finkel seems to be making recommendations for a death spiral as people overload on solar and storage behind the meter and where possible defect the grid. Very disappointing.

    • solarguy

      Yes it is very disappointing, but I always thought he would come up with a way to please his masters. It seems to me he is hinting at what his real thoughts are, with the gun pointed under his left ear. All in all NOT GOOD ENOUGH. Were still in Noddy Land. Alan your a FINK.

      • Alastair Leith

        Yeah, I dont want to denigrate the Office of Chief Scientist of Australia saying much more.

        • solarguy

          You or me saying much more?

      • Steve

        Like so many in our sector – over-promise, under-deliver…and back to business as usual…

    • John Saint-Smith

      I agree, too little, too late, too timid. We have just had a decade of unpredicted growth of residential solar. What provisions are there for more disruptive technologies in the future. Yes, we need to include a provision to re-evaluate this whole approach by 2020.

      At the moment it looks like a recipe to save the LNP, throw the grid to the wolves, while losing the country and the planet.

  • Brunel

    I wonder if the report mentioned UHVDC transmission lines – building one would reduce transmission losses.

    • Alastair Leith

      Problem is how much capacity (power) can they be relied on to deliver when it’s required We’ve had this discussion before :- Economics needs to be preferable to any other zero emissions option.

      • Brunel

        I just went on the GC Map website and typed in: WRE-NLK-LDH-PQQ.

        So Whangarei to Norfolk Island to Lord Howe Island to Port Macquarie.

        960 km + 897 km + 591 km = 2447 km

        Seems doable and more worthwhile than building 12 submarines for $50 billion. And the submarines will only last 35 years each.

        “won a €350m order to supply the 320kV cable connecting Tourbe in France and Chilling in England. The subsea section will be 200km long.”

        “The subsea power cable for National Grid and ScottishPower’s £1bn Western Link transmission project has come ashore in Scotland.
        The 385km electricity cable has reached Ardneil Bay in North Ayrshire.”

        • Alastair Leith

          What problems are you looking to solve with UHVDC interconnectors?

          • Brunel

            Why build it?

            Maybe AUS will have a population of 48 million or maybe it will peak at 30 million.

            I think electricity demand will go up due to electric vehicles and if people heat residential and commercial buildings by using heat pumps instead of burning gas.

            We should probably even get electric ships! And they will need to be recharged at the ports.

            Iceland to Scotland would be 1000 km and transmit 800-1200 MW.

            So there is the answer to your capacity question.

            I am not sure how cheap wholesale electricity is in NZ compared to AUS. Here is live price data:

            https://www1.electricityinfo.co.nz/

  • DJR96

    Whilst I don’t disagree with anything much so far, it sure is pretty soft. In fact it actually seems to lack substance in my eyes at least.
    But then again I have been working on a technical plan that solves pretty much all the issues involved.

    He seems to have gone soft on coal, perhaps in the hope and understanding that no new coal will be built simply because the economics no longer stack up for it. Leaving the option open to satisfy the FF industry, knowing it won’t happen though.
    Otherwise a lot has been kicked down the road so to speak. And no technical plan to solve frequency control.

  • Steve

    The ability for a landmark decision, a road-map for the next 10 years, the end to political bitterness, even take the politics out of climate….no, business-as-usual….

  • Patrick Comerford

    Remind me again How long did we waited for this. Another wasted opportunity and finkle will not be remembered well for this effort.

  • Ian

    How awkward, the Finkel report was to guide government policy, but it seems government policy has guided the report. It’s like an echo, amusing to hear but not much solid advise.

    • Joe

      It was all a setup. Finkel is turned into another Liberal stooge.

  • Miles Harding

    It looks like figure 3.11 got the OCGT and CCGT labels confused and the fuelling costs also seem odd. OCGT is considerably less efficient than CCGT.

    I assume that the higher fuel cost of black coal is representative of its abundance and accessibility, which is declining. How long will black coal be relevant?

    The costs of new build coal seems rather low, making me think that this is for cheap and nasty power stations, which are becoming impossible to justify on social and environmental grounds. The queston here is: where is CCS on chart 3.11?