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Review proposes Clean Energy Target

Energy Action

The Blueprint for the Future Security of the National Electricity Market review (Review), led by Chief Scientist, Dr Alan Finkel AO contains a wide range of recommendations designed to achieve the key outcomes of increased security, future reliability, rewarding consumers and lower emissions. 

 

Amongst the Review’s recommendations is the introduction of a Clean Energy Target (CET). Whilst the CET is essentially an expanded version of the Renewable Energy Target (RET), there are some important differences. The proposed CET scheme would extend to gas and potentially other sources of energy such as coal provided they are combined with carbon capture and storage technology, whereas the RET currently only subsidises renewable generation. If implemented, the CET would operate alongside the RET until the RET’s scheduled end date in 2020.

 

The proposed CET would have the following features:

  • all fuel types, including coal with carbon capture and storage or gas, would be eligible for the scheme provided they meet or are below the specified emissions intensity threshold;
  • eligible generators would receive certificates for the electricity they produce in proportion to how far their emissions intensity is below the specified threshold; and
  • electricity retailers would be obliged to purchase those certificates to demonstrate that a certain proportion of their electricity comes from low emissions generators.

 

Additionally, large generators will be required to provide 3 years’ advance notice of closure, to mitigate security shocks from the exit of large generation capacity.

 

The Review concludes that both the residential and industrial price of electricity would be lower under a CET scheme than under a business as usual approach or an emissions intensity scheme.

 

If the CET is implemented, much as was the case under the carbon scheme, businesses will need to check the Change in Law clauses of agreements to see whether they will bear (or be able to pass through) the costs of any expenses incurred by generators, retailers and other affected parties in complying with the CET.

 

Whilst attention has largely been focused on the recommended CET and what it means for reducing carbon emissions, ‘clean coal’ and electricity prices, a significant focus of the Review is on the importance of gas as a low emissions substitute for coal and a viable energy source to complement the renewables sector. It notes that gas and electricity markets are closely connected and a secure and reliable gas supply is crucial for secure and reliable electricity generation.

 

Even with the benefit of these reforms, the Review states domestic gas prices, in real terms, are likely to remain higher than historical levels. Improving the efficiency of gas-fired generators, both in their fuel use and flexibility, will help to ensure gas can continue to play a role in electricity generation.

 

The Review addresses many of the issues important to end-users and says that uptake of new technologies is putting residential, commercial and industrial consumers at the centre of the electricity market. Consumers of all sizes should be rewarded for installing distributed energy resources, such as rooftop solar photovoltaic and battery storage systems, implementing energy efficiency improvements, or reacting to demand response as they will not only benefit individually but will also help reduce overall system costs, leading to savings for all consumers.

 

While the West Australian market differs from the NEM, there are enough similarities that the Review has relevance. However market participants in WA should be mindful that if the Review’s measures are implemented, particularly the Clean Energy Target – it may have some ramifications for generation in the state.

 

The Review, whilst high level and conceptual in nature highlights the current issues in the National Electricity Market and quite rightly, calls for a clear strategy moving forward. As its title suggests, it is only a ‘Blueprint’ for the Future and so leaves out much of the detail and calls for new and existing regulatory bodies to take action and develop strategies.

 

The issues and recommendations raised in the Review are relevant to suppliers, generators, retailers and consumers alike. However it remains to be seen how and to what extent participants will be affected as any impact will be largely dictated by the detailed policy decisions made by Government and regulators.

The Finkel Review is available here: http://www.environment.gov.au/energy/national-electricity-market-review.

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