Finkel resets Australia’s energy future with compelling blueprint
Let’s not waste this opportunity. This is not a report that can go on the shelf.
The Finkel Report is being lauded as a ‘once in a generation’ energy review. If implemented well, it has the potential to bring value to consumers, enable security /reliability and meet our emission obligations. All stakeholders need to take time to understand the blueprint’s recommendations and its implications.
Today, Chief Scientist Dr Alan Finkel has tabled the Independent Review into the Future Security of the National Electricity Market to have a world-class electricity system, supporting our economy and prosperity.
KPMG applauds the impartial fact-based analysis, deep understanding of the problems facing the Australian electricity industry, and the comprehensive nature of Finkel’s recommendations. Importantly there is a comprehensive timetable of actions to addresses short term needs for next summer and includes concrete actions to achieve the stated four outcomes of increased energy security, future reliability, rewarding customers and lower emissions.
COAG’s correct assessment of the urgent need for a response by the COAG Energy Council by August is imperative to action the timetable. This is no time to waste.
The report has three pillars.
Firstly, an orderly transition to reliable and low carbon emissions electricity industry via a Clean Energy Target requiring all large generators to provide three years notice of plant closure. This is crucial given the impact of the recent Hazelwood closure on power prices. The recommendation for a long term emissions target for 2050 and alignment of the Clean Energy Target policy with this goal is to be applauded. Industry have long argued that a long term trajectory is important for investment decisions in new generation sources. Investors need certainty.
Secondly, better system planning with a nation-wide grid plan, rather than the current inefficient hybrid, with attention to regional and reliability assessments. This should ensure that the differing energy requirements of all states can be met.
Thirdly, stronger governance. Finkel recommends a new Energy Security Board. We argue this is crucial to drive the implementation of the blueprint and cut through the log jams and squabbles we have faced until now.
A series of rule changes and reviews are proposed. This was anticipated but will take some time to develop and implement with appropriate consultation and industry input.
The explosion of data and the interconnectivity of IoT needs to be harnessed. The insights this data provides is too valuable to be lost. The focus on improved data management through the new Energy Security Board’s data strategy, to be developed by end-2018 in collaboration with the Australian Energy Regulator, will provide a foundation for greater innovation and improved security of the market.
Although the report has put off recommending the all-important threshold emissions intensity for energy generation that would define ‘clean energy’ (rightly asserting that government should define this), there is clear signposting for how this metric should be consistent with a long term emissions reduction target and trajectory.
There is one reference to the physical impacts of climate change, calling for the Energy Security Board to improve the forecasting of demand and supply in recognition of the increasing severity of extreme weather events. This should help future planning and response to events such as we experienced in South Australia.
The recommendations of the Finkel Report are technology agnostic, recognising the fast pace of technology development and its impact on the evolution of the energy industry. Similarly, under the proposed Clean Energy Target, all fuel types will be eligible for the scheme, provided that their emissions are below a set emissions intensity threshold.
Impact on Consumer
Finkel recommends addressing low consumer confidence in the retail market through focus on greater availability of data and information. This is vital so the operation and outcomes of the competitive market are effectively monitored, ensuring they occur in the long-term interests of consumers.
In particular, by tracking price movements, and the movements in other cost components such as green schemes, energy market institutions should be able to determine whether increases in retail costs are working to cancel out lower costs in other areas of the energy price cost stack.
Demand response can play a significant role in improving reliability and reducing wholesale prices. A critical aspect of an effective mechanism is to encourage innovation among service providers to undertake demand reduction on consumers’ behalf. Going hand in hand with this is the need to address the issue that energy sector consumer protections do not adequately cover new technologies and new business models.
Appropriate consumer protections need to be applied to new energy services as soon as possible to keep pace with innovation and promote confidence.
Let’s capitalise on Finkel’s team’s seven months of work