Swimming outside the flags

Alan Finkel is being kept very busy giving speeches about the report of his task force on the east coast electricity market and the level of stakeholder attendance when he talks is testament to to widespread concern about both the situation and how the federal government initially is handling what has quickly become a policy cause celebre.

Tomorrow Finkel will address what I expect to be a crowded room at Australian Energy Week in Melbourne and he will go on the speak at a Grattan Institute forum there tomorrow evening that I understand to have been sold out within hours of being advertised.

Today (Wednesday, 21 June) he has been in Canberra addressing the National Press Club. You can read the full talk at www.chiefscientist.gov.au/

Meanwhile the media continue to make a meal of how the federal Coalition government is wrestling with what they perceive to be the centrepiece of the report: the clean energy target.

For a number of months the media focus was more on the many claims being made that the NEM is a broken reed and needs to be at the very least substantially changed. The CET imbroglio provides them with a new hare to chase but the health of the NEM is central to what Finkel and his task force were asked to assess.

This afternoon Finkel has told the Press Club that the east coast power system is struggling to cope with disruptive change — “but I don’t want to exaggerate: the system is not broken.”

It is, however, he adds, at “a critical turning point.”

“We must improve on what we have to prepare for the growing wave of disruptive change sweeping markets here and around the world.”

In his travels overseas on task force business, Finkel says, the biggest impact on him was long-term policy certainty in other  countries. “It is clear they are ahead of us.”

A resilient market, he declares, actively integrates new technologies to ensure needs are met. “For example, when it comes to new technologies, we can’t afford to have them connect to the grid without giving due consideration to their impact on the whole of the system.” If this isn’t managed well, he adds, “we’ll end up swimming outside the flags.

Finkel has also used the Press Club talk to reinforce the concern Malcolm Turnbull and his government are expressing about energy prices. “everywhere we went in Australia we heard first-hand (about) the pain being caused by rising power prices. We heard from the irrigators in rural communities who need electricity to pump water, from copper miners, from meatworks, from welfare groups representing vulnerable consumers – we heard the message loud and clear.”

In the short term, he acknowledges, the biggest cause of high electricity prices is the cost of gas, which is increasingly setting the prices in the wholesale electricity market. “In this regard, I note that the government (has) made an important announcement about measures to increase domestic gas supply that will ultimately lead to lower gas and electricity prices.”

The task force, he says, shares the concern about gas supply and has made recommendations to address it.

Another factor contributing to high prices, he goes on, are “substantial transmission and distribution charges” and he notes approvingly that the Turnbull government is addressing this by strengthening the hand of the Australian Energy Regulator and limiting the ease of appeal.

But for the longer term, Finkel says,  it is clear that a more fundamental, underlying reason for rising prices in the wholesale market, especially in the price of forward contracts, is investor uncertainty.”This uncertainty revolves around current and future emissions reduction policies (and), in the long term, resolving this uncertainty will put downward pressure on prices by bringing new generation online.”

What this aspect of his report recommends, Finkel says, is a package of steps making up “‘an orderly transition package” — and, he warns, ” this cannot be rushed.”

He makes another interesting point.  The report, he says, takes the position that reliability, security, lowest cost, and reduced atmospheric emissions are the critically important outcomes.

“The generation mix is an input. The exact mix of coal, gas, solar, wind and hydro is not important as long as the outcomes are met. To minimise future price increases we will need a diverse energy mix, including fossil fuels.

“Our modeled emissions reduction pathway is not a dash for 2030. Instead, it is a continuous trajectory in the electricity sector that reduces steadily towards zero in the second half of the century, consistent with the Paris commitments for the whole of the economy. Along the way it delivers a 28 per cent reduction in emissions by 2030, also consistent with the Paris Agreement.

“Our modelling shows that under the clean energy target there will be 42 per cent renewable energy generation in 2030. The greatest proportion of that will be large scale solar and wind at 24 per cent.  In addition, 8 per cent comes from hydro, 9 per cent from rooftop solar and one per cent from biomass.

“This renewable energy will operate alongside existing coal generators (which) will supply 53 per cent of our electrical energy in 2030.”

Further, he says, because the clean energy target his report proposes is technology neutral, if the price of gas comes down in future to lower than what is currently estimated, then gas will contribute to a greater extent than has been modeled. “(As well) if a coal plant were to be built with carbon capture and storage it would benefit under the target at nearly the same rate as a wind or solar farm.”

You could easily miss this measured advice if you are relying on the shorthand reporting of the mainstream media, hunting for an attention-getting headline, let alone the strident noises that emit all the time from many of the “revolution now” boosters of green power.

Finkel says we need to embrace the future — not race towards it. “Move too slowly and we will miss out on what the future offers. Move too quickly and we put at risk the stability and affordability of our electricity system.”

There are plenty of people with views about what further territory the task force should have covered, including Snowy Hydro, which believes the report undersells the potential of its “2.0” project (a topic of a presentation at Australian Energy Week today) and, of course, the mining sector, promoting the role of new coal technology, not least in the Latrobe Valley.

But, it seems to me, that what is in the report deserves a little more careful attention than it is getting, at least with respect to the  points I have plucked here from his Press Club address.


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