The way forward: Finkel review of Australia’s energy future

9 June 2017

With the release of Chief Scientist Dr Alan Finkel's blueprint for Australia's future electricity market, ANU experts below provide their thoughts on the way forward to ensure the country's energy security.

Professor Ken Baldwin, ANU Energy Change Institute

"The Finkel review provides a comprehensive suite of carefully considered measures to bring the national electricity market into the 21st century. It presents a flexible, technology-neutral approach to decarbonising the electricity sector - which is the first cab off the rank to address climate change. 

"The review's recommendations provide politicians with the tools required for a much-needed bipartisan approach to meet our energy security, affordability and sustainability goals. This will provide the policy certainty required for the urgent multibillion dollar, multi-decadal investment by industry.   

"Technology and the associated regulatory and market possibilities are moving so rapidly that we need to be agile to keep ahead of them. The Finkel review is the start of that process. In order not to be surprised by future developments in the energy sector, governments should take the recommendations of the review on board and consult with experts at the cutting edge of energy research to continually evolve our energy systems."

Professor Frank Jotzo, ANU Crawford School of Public Policy 

"Finkel offers a chance to start breaking down the political deadlock over energy and climate policy. The report rightly points out the need for policy and markets to be adapted to new the realities of new technologies, and the need to integrate emissions reductions policy with energy policy. Importantly, Finkel emhasizes the cost that continued policy uncertainty would have, and shows scenarios where electricity prices are lower under a stable low-emissions policy framework than under continued uncertainty. Policymakers should take heart to embrace reform to markets and policy, and to do so with a long-term trajectory in mind.

"The Clean Energy Target recommendation seems calibrated to political realities, as an emissions trading scheme is politically out of the question for the current government and an emissions intensity scheme was also rejected by government. How effective a clean energy target would be depends on the ambition that government fills it with, its design and implementation, and on whether industry will have confidence to invest on the basis of it. That, in turn, requires political stability around energy policy.

"However, the low-carbon ambition that Finkel suggests risks falling short of Australia's task and opportunities in reducing carbon emissions. Finkel calls for a minimum 28 per cent reduction in carbon emissions from electricity by 2030, proportional to the national Paris target. Twenty eight per cent would not be enough, because the electricity sector can and needs to deliver much greater percentage reductions than the economy overall. There are large opportunities to cut carbon before 2030 by replacing ageing inefficient coal plants with renewables. The opportunities for renewables are plentiful in Australia and costs are coming down rapidly, including for storage to manage intermittency.

"The worry is that governments will take Finkel's 28 per cent reduction for the electricity sector as its target and thereby fail to achieve the economy-wide reduction by 2030, because less will be done in other parts of the economy. This would set Australia on a long-term emissions trajectory that is higher than it needs to be and out of line with the larger objectives."

Dr Matthew Stocks, ANU Research School of Engineering

"The Finkel review is a great opportunity to take the politics out of energy policy.  The proposed Clean Energy Target will provide strong direction for the electricity sector to transition to a more sustainable energy mix to meet the Paris targets while maintaining energy security.   

"There is a need for clear policy that reduces uncertainty: the Climate Change Authority and the Australian Energy Market Commission have shown that risk associated with current uncertainty has contributed to under investment and price increases around $40/MWh. 

"Continued investment in renewable energy technologies at current rates will allow us to easily exceed the Paris target. The electricity sector is by far the cheapest and easiest sector to reduce Australia's emissions and should be taking a greater share of the Paris target. This is recognised in the report recommendation for a 'whole of economy emissions reduction strategy' providing scope for more ambitious efforts in future."

Dr Paul Burke, ANU Energy Change Institute and Crawford School of Public Policy

"One of the key problems facing our electricity sector has been policy uncertainty. There is much to gain from coming together to support a policy that provides a path forward for new low-carbon investment.

"The Finkel review has recommended a Clean Energy Target. The approach builds on Australia's current Renewable Energy Target, and would help to ensure that there is sufficient investment in renewables to replace our ageing coal-fired generators.

"In terms of emissions policy, a simple carbon price would be best. Absent that, it makes sense to focus on policies to bring renewables onto the grid. A Clean Energy Target would help to do this.

"The Clean Energy Target would involve certificates only for new low-emission generators and existing low-emission generators that increase their output. This targets the scheme on new investment.

"Rapid reductions in the costs of renewables and energy storage make this an exciting time for the electricity sector. Hopefully Australia will get on with the job of moving to a low-cost, low-carbon electricity system."

Honorary Associate Professor Hugh Saddler, ANU Energy Change Institute

"The report recommends what it calls a Generator Reliability Obligation. The obligation would be triggered whenever the proportion of dispatchable generation, which could include batteries and other forms of storage, in a region is falling towards a pre-determined minimum acceptable level. The obligation would fall on all new renewable generators wishing to connect thereafter and, in the words of the report, 'would not need to be located on-site, and could utilise economies of scale' through multiple renewable generation projects pairing with 'one new large-scale battery of gas fired generation project for example'.

"If implemented, this recommendation would seem certain to greatly complicate, slow-down and add to the administrative overhead cost of building new renewable generation. It would involve putting together a consortium of multiple parties with potential differing objectives and who would otherwise be competing with each other in the wholesale electricity market. A far better approach would be to recognise that dispatchable generation provides a distinct and higher value product than non-dispatchable generation. There should be a separate market mechanism, possibly based on a contracting approach, to provide this service. If well designed, this would automatically ensure that economies of scale, as may be realised by pumped hydro storage, for example, would be captured. This would be far more economically efficient, and thus less costly to electricity consumers, than the messy processes required under the report's obligation approach."