You’d have to be living under a rock not to know about the Finkel Report and its recommendation for a Clean Energy Target (CET). However, the Report (formally the Independent Review into the Future Security of the National Electricity Market: Blueprint for the Future) is much more than the CET, and includes proposals likely to be of real significance to the smaller and mid-sized generation projects. If adopted, these proposals will change the rules, address system security and reliability concerns surrounding renewables, and improve the planning tools to enhance investment certainty. While they may increase initial project costs, these recommendations should make real improvements to the system, in turn building overall confidence. Whatever the fate of the CET, one can only hope that these less noticed recommendations are implemented.

The Report is a highly readable (and in light of the panel members and submitters we would suggest authoritative) survey of the current Australian electricity market, key trends and challenges. It sets out a roadmap, developed in the context of that survey, for transforming the failing electricity market into one which is reliable, secure, low emission and as low cost as possible, creating a robust system for the long term. The Report proposes whole of system architecture designed to manage the transition to a more sustainable future.

The Report, touted as “technology neutral”, focusses on the “outcomes” of increased security, future reliability, consumer “rewards” and lower emissions. These outcomes are enabled by three “key pillars” being orderly transition to the new electricity system, system planning and stronger governance.

New rules on new generation

A key trend noted by the Report, is the accelerating move away from large scale single point thermal generators to smaller dispersed variable renewable generation. The transition poses challenges to the system security of a NEM designed on past assumptions, as illustrated (at least in part) by last summer’s blackouts in South Australia.

The Report recommends changes to address these issues:

  • transmission networks to take responsibility for frequency control of their networks (which, in the absence of traditional generators can be provided by a range of technologies);
  • new generators to have frequency control capability and voltage control; and
  • changes to NEM standards and connection rules.

While the consequence may be some higher initial costs for new projects, implementation of the recommendations will facilitate a higher proportion of renewable energy, improved operation and improved credibility and community acceptability.

Another recommendation which will improve credibility is to impose a “generator reliability obligation” requiring new generation projects to guarantee a minimum supply of “dispatchable” electricity. For renewables, this means storage, whether by battery or otherwise. How much minimum supply is to be guaranteed would be determined on a policy and case by case basis.

Improved coordination and planning

The Report also contains a range of recommendations aimed at improving the interactions and planning of system participants.

It recommends:

  • improved coordination of relevant agencies (AEMO & AEMC);
  • better data collection;
  • more data publication; and
  • improved system planning, including development of a list of potential priority projects for possible government support if required.

Also widely publicised, it is recommended that generators provide three years’ notice of closure, assisting both planning and workforce transition.

The result should be better informed decisions by all market participants and greater certainty all round.

Gas

The Report also ventures into the troubled area of gas markets. Concerned about the security of gas supplies, the Report recommends that AEMO take on a role assessing the fuel adequacy of gas generators. It further recommends AEMO be empowered to engage in commercial arrangements to have gas fired generators available to support electricity supply in an emergency.

The Report also recommends regulatory regimes for gas production projects be evidence based.

Rewards for consumers

For consumers, the Report recommends a range of measures, largely reviews or investigations aimed at:

  • rewarding demand management (e.g. using energy efficient appliances and maximising use during off peak periods);
  • empowering consumers to make better choices in relation to energy supply; and
  • creating opportunities to improve access (including possible subsidies) to solar panels and battery storage for low income households.

There is also the promise of lowest cost electricity as a result of the improvements to flow from other recommended measures. In particular, (if bipartisan agreement on energy policy is achieved) from increased supply from the new investment on the back of the new policy certainty.

Other recommendations

Here we note the more controversial recommendations which, although central to the Report, are more likely to be mired in political controversy. Chief amongst these is the Clean Energy Target, discussed at length elsewhere. Less discussed, but likely to be equally difficult is the recommendation that the State and Federal Governments develop a national Strategic Energy Plan, with an agreed national emissions reduction trajectory. Whilst this is undeniably desirable, it is most probably unachievable.

The Report also recommends the establishment of a new Energy Security Board to drive the implementation of the Blueprint and undertake an annual “health check” of the system. Whether this is implemented probably depends on the fate of other recommendations. There may be little call for a new body with this role.