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.
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:
- 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;
- 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;
- 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;
- 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
- 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.
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.
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