Today, an expert panel led by Australia’s Chief Scientist Dr Alan Finkel released its much anticipated Final Report on the Independent Review into the Future Security of the National Electricity Market, which has been titled Blueprint for the Future.
The Final Report is detailed and comprehensive, identifying the range of forces of change confronting Australia’s National Electricity Market (NEM) as well as a blueprint for policy, legislative and rule changes required to maintain the security, reliability, and affordability of the NEM.
This update summarises the key recommendations of the report. We will be following up next week with more detailed analysis and our response to the key policy recommendations.
The recommendations in the Final Report touch on all aspects of the energy market. The report outlines a vision for the NEM that includes four key outcomes:
- Increased security. Obligations on new generators to provide essential security services, more conservative operation through maintaining system inertia and tighter frequency control and a stronger risk management framework to protect against natural disasters and cyber security attacks.
- Future reliability. Obligations on new generators to ensure adequate dispatchable capacity in all regions, incentives for new generators to enter the market and mechanisms to provide for advance notification of closures of plant.
- Rewarding consumers. Measures to reward customers (both residential and large users) for demand management, mechanisms to ensure that system upgrades and new generation are achieved at lowest cost (including a commitment to analysing whether existing network regulation creates a bias towards capital over operational expenditure, and looking at alternative models for network incentives if it does) and measures to improve customer choice and retail competition.
- Lower emissions. A continuous emissions reduction trajectory delivering certainty, and a target of 28% emissions reduction below 2005 levels by 2030 heading towards zero emissions in the second half of the century.
The report also outlines three “key pillars” that this vision is to be built on:
- Orderly transition. Replacement of the RET with a Clean Energy Target (CET), after the RET ends in 2020, and a requirement that generators provide three years notification of closure.
- System planning. A system-wide grid plan to inform network investment decisions and regional security and reliability assessments.
- Stronger governance. A new Energy Security Board to deliver the blueprint and provide system-wide oversight and strengthened energy market bodies. The Final Report recommends that “COAG leaders re-commit all parties to taking a nationally consistent approach to energy policy” and provide advance notice to notify the COAG Energy Council if they propose to take unilateral energy market action.
In support of this vision, the Final Report contains 50 individual recommendations. It suggests that these recommendations be actioned by four different groups of organisations – the competition policy regulator (ACCC), the COAG Energy Council (and its members), the Energy Market Bodies (AEMC, AEMO, AER) and a newly created Energy Security Board. A timeline for implementation is suggested that would see all of the recommendations acted upon the next within 3 years.
As outlined in our White Paper released last month, ‘Wrestling with the Electricity market Transformation’, the Finkel Review comes at a critical time in Australian energy policy. Australia’s energy markets are currently being subject to an unprecedented level of pressure and disruption due to technology changes and competing policy objectives. Now, more than ever, Australia needs careful, thorough and coordinated energy policy if it is to avoid costly and lasting mistakes. This report is a comprehensive step in the right direction.
The question is whether this policy vision is sufficiently compelling to garner COAG support – and reverse recent fragmentation in the responses of various state governments to energy security and pricing concerns. We will explore that and other insights next week.