Energy: Finkel – Clean Energy Target to be introduced and Renewable Energy Target not to be extended past 2020
Dr Finkel’s final report, “Blueprint for the future: Independent Review into the Future Security of the National Electricity Market”, was released to the Council of Australian Governments today (9 June 2017). Finkel has recommended the introduction of a Clean Energy Target (“CET”) which is essentially an expanded version of the Renewable Energy Target. In particular, the proposed Clean Energy Target scheme would extend to gas and potentially other sources of energy such as coal, provided it is combined with carbon capture and storage technology. The Clean Energy Target would operate alongside the Renewable Energy Target (“RET”) until the RET’s scheduled end date in 2020.
In December 2016, chief scientist Dr Alan Finkel released his Preliminary Report into the Future Security of the National Electricity Market. It dealt with key issues such as the technology that is transforming the electricity sector, the integration of renewable energy and the rise in price of electricity.
After a period of public consultation and review, the Blueprint has now been released.
One of ‘three key pillars’ of the Blueprint is Orderly Transition. This pillar includes the introduction of a CET.
Clean Energy Target
Finkel recommended the introduction of a Clean Energy Target in order to incentivise new low emission generators, such as wind, gas and a combination of coal and carbon capture technology to enter into the market.
Finkel asserts that the CET will assist Australia in achieving its commitment to ‘reduce emissions by 28 per cent below our 2005 levels by 2030’. Additionally, Finkel’s modelling estimates that 42% of Australia’s energy can be sourced from renewable energy sources by 2030 through the implementation of the CET.
If adopted, the recommendation would require electricity retailers to purchase a certain percent of energy from eligible clean energy generators. Finkel has not recommended what that percentage should be.
Clean Energy Generators
Finkel recommends that generators eligible to receive CET certificates that they can then monetise by on-selling are those that produce electricity below a “specified emissions intensity threshold”.
Although Finkel has remained silent in offering an opinion as to the appropriate threshold, he has recommended that renewable energy and gas generators be captured by the scheme.
Additionally, the report suggests that coal power with carbon technology be an eligible generation source if such generators were to be established in Australia.
CET compared to other carbon reduction schemes
Emissions Intensity Scheme
An Emissions Intensity Scheme would differ from the CET as it would place requirements on generators rather than retailers by limiting the volume of greenhouse gasses they are permitted to emit. Although an EIS has gained a lot of support from industry members, it has been ruled out by the current Federal Government.
Renewable Energy Target
The proposed CET operates in a similar way to the existing RET, however the CET would extend to certain generators (including gas and potentially coal) that are not covered by the RET. Finkel is not proposing any changes to the RET scheme from its existing framework but recommends that it not be extended beyond its scheduled conclusion in 2020.
The mechanics of the phase out of the RET post 2020 and introduction of the CET would need to be carefully considered if the Federal Government elects to implement Finkel’s recommendation in order to ensure that there is no double dipping by renewable generators.
Another important recommendation is the proposed introduction of a 3 year notice period for any proposed closures of electricity generation facilities. This measure is intended to increase system security and facilitate an orderly transition to a reliable and low emissions future by restricting further sudden closures of generators, such as the Hazelwood power station.
In order to provide greater system security within the National Electricity Market Finkel also recommends, among other things:
the establishment of an Energy Security Board;
- a package of energy security obligations to ensure generators have appropriate technical capabilities (including a requirement for new generators to have fast frequency response capability);
- review of the national electricity rules and market framework; and
- development of strategies to improve the integrity of energy infrastructure and the accuracy of supply and demand forecasting.
The CET incentivises new low emission generators to enter the market and therefore reduce the price of clean electricity for Australian residents and industry.
Improvements to system security have also been identified as a critical element in Australia’s reliable and low emissions future.
While some commentators are applauding Finkel for the pragmatic solutions he has supplied for the future of the national electricity market, the success of the recommendations will depend wholly on how they are received and implemented by the Federal Government.
This Alert is intended as an alert only. It does not purport to be comprehensive advice. Readers should seek professional advice before acting in relation to these matters.