FINKEL REVIEW: A low emissions target is the best way forward for the nation's electricity supply

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A clean energy target is the best way for Australia to reduce greenhouse emissions cheaply and ensure reliable and security energy, the country’s Chief Scientist, Dr Alan Finkel, says in his long-awaited report into the national energy market.

The Finkel review into the future security of the nation’s electricity system, commissioned by the Turnbull government in the wake of mass blackouts in South Australia in late September, recommends large electricity generators be required to give a minimum of three years’ notice before closing a power station.

“This will provide time for replacement capacity to be built and for affected communities to plan for change,” the report says.

And any new power generators must to guarantee supply of electricity when ordered to by the market operator, Finkel recommends, saying the Australian Energy Market Operator (AEMO) should publish a register of expected closures to assist long-term investor planning.

But Dr Finkel also warns that while governments have committed to lower emissions: “the pathway is blocked by uncertainty about how to get there”.

The review offered no recommendation on thresholds or pricing, but said that when it comes to an emissions reduction trajectory, it should be consistent with the Paris Agreement and Australia’s national target of 26-28% reduction on 2005 levels by 2030.

The Finkel report issues a challenge to all levels of government, which have been embroiled in political bickering over the last 9 months, saying:

All governments need to agree to an emissions reduction trajectory to give the electricity sector clarity about how we will meet our international commitments. This requires a credible and durable mechanism for driving clean energy investments to support a reliable electricity supply.

Governments need to agree on and implement a mechanism as soon as possible. Ongoing uncertainty is undermining investor confidence, which in turn undermines the reliable supply of electricity and increases costs to consumers.

The 212-page “blueprint for the future” also recommends a system-wide grid plan to guide network investment decisions and ensure security is preserved in each region.

“This would also include a list of potential priority projects to enable development of renewable energy zones,” the report says.

The third aspect the review looked at calls for a new Energy Security Board to drive implementation of the blueprint and give an annual health check on the electricity system.

Dr Finkel presented his final report to Council of Australian Governments (COAG) leaders, including the prime minister and state premiers, in Hobart today.

“Our electricity system is entering an era where it must deal with changing priorities and evolving technologies. If the world around us is changing, we have to change with it. More of the same is not an option, we need to aim higher,” Dr Finkel said.

“If we adopt a strategic approach, we will have fewer local and regional problems, and can ensure that consumers pay the lowest possible prices over the long term.”

Dr Finkel said it was now up to the state and federal governments to deliver on his recommendations and ensure an “orderly transition” as the nation transitions from coal-fired power to renewables.

Dr Finkel’s five-member review panel, which included Professor Mary O’Kane, Origin Energy CFO Karen Moses, Clean Energy Regulator CEO Chloe Munroe and Energex CEO Terry Effeney, backed a Clean Energy Target, also known as a low emissions target, as “the most effective mechanism to reduce emissions while supporting security and reliability”.

“If we don’t take immediate action, or even if we continue as we have been, Australia risks being left behind,” the report’s executive summary says.

Here’s how the executive summary begins:

Australia’s electricity system is in transition. There is no going back from the massive industrial, technological and economic changes facing our electricity system. No country is immune to the change. What distinguishes countries’ approaches to the transition is how well-prepared they are in ensuring a secure, reliable and affordable
electricity system.

We are at a critical turning point.

The Finkel panel says “gas plays an essential role in providing secure and reliable electricity”.

It says the industry regulator, the AMEO, “should be given expanded visibility on gas contracts so that it can plan responses to shortages” to address rising prices.

The report also says governments need to work with communities “to encourage safe exploration and production” alongside appropriate financial rights for landholders.

“Consumers are at the heart of the transition. More attention should be paid to how we can best reward consumers for demand management and the power they generate through distributed energy resources like rooftop solar photovoltaic,” the report says.

Finkel says the future grid will be more distributed, with its security and affordability delivered via smarter grids, meter data information and clear data ownership rules to promote new ways of trading, including a demand response mechanism.

The report says AEMO should develop a list of potential priority projects to enable efficient development of renewable energy zones across the national market.

“The National Electricity Market is 5,000 kilometres long, spans five states and one territory and has more than 9 million metered customers. It’s essential that we get it right,” Dr Finkel said.

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