Australian households would save about $90 a year, or up to $1000 on their electricity bills over a decade to 2030 under the Clean Energy Target proposed by the Finkel review of the electricity sector, compared to a business-as-usual scenario for it.
The review, released on Friday at the Council of Australian Governments meeting, argues Australia has a "once-in-a-generation" opportunity to reshape the national electricity market; take advantage of technological change; improve the security and reliability of the system; reward small and large consumers who reduce electricity demand and meet a 26-28 per cent emissions reduction target by 2030.
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It also highlights a warning from the Australian Energy Market Operator that next summer, both Victoria and South Australia could face electricity supply interuptions following the closure of the Hazelwood coal-fired power station.
Another key recommendation of the report is that power generators should in future have to give three years' notice before closing down.
"This will signal investment opportunities for new generation and give communities time to adjust to the loss of a large employer," Dr Alan Finkel said.
The Turnbull government should also, in its current review of climate change policy, which is due to be released at the end of the year, should look to set a post-2030 emissions reduction goal through to 2050 to give greater certainty to the sector, and investors.
The report focuses on four key outcomes: how to deliver energy security, reliability, affordability for households and business, and meet Australia's emissions reductions targets.
The call for a new Clean Energy Target (CET) is, as expected, one of the key recommendations of the review and its promise of lower power prices for households will be crucial in Mr Turnbull and Energy Minister Josh Frydenberg convincing conservative MPs the CET is the policy to adopt.
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| Chief Scientist Dr Alan Finkel's review of the electricity market promises lower prices under a Clean Energy Target. Photo: Alex Ellinghausen |
Under the scenarios examined, both a CET and EIS would deliver cheaper power prices for households and consumers, all the way through to 2050, compared to the "business-as-usual" scenario, but a CET would deliver slightly cheaper prices than EIS.
"In the long-term, the CET scenario saw more electricity produced by brown coal than the EIS scenario because there is no penalty for high emissions generators. However, marginally more renewable capacity was built in the CET policy scenario that led to slightly higher overall resource costs over the modelling period," the report notes.
"Under both the CET and EIS scenarios, the renewable generation mix in 2030 was 42 per cent of the generation sent out."
The Renewable Energy Target should be abolished after 2020 and replaced by the CET, the review said.
Dr Finkel's review noted that while energy sector stakeholders had pushed for an EIS, the federal government had ruled one out. Therefore a CET, which has similar ability to reduce emissions, was the preferred option.
The report warns the national electricity market is under stress because of policy uncertainty and says "action should be taken with the aim of creating a market environment in which the electricity sector has the confidence to invest."
"The impact of a high degree of market uncertainty is ultimately borne by consumers in the form of a more costly, less reliable system."
The report predicts that, under a business-as-usual scenario, a CET or an EIS, the use of coal power will decline in the decades to 2050 as older generators come to the end of their life and because "investors have signalled that they are unlikely to invest in new coal-fired generation".
Increasing energy efficiency, greater use of solar on homes and storage will partially offset this but, the report states, it is incumbent on state and federal governments to take "decisive action to ensure the transition to the future grid . . . is smooth and that the electricity system continues to serve the interests of all consumers".
Part of Dr Finkel's blueprint for a more secure electricity sector are measures including obligations on new generators to provide essential services to maintain voltage and frequency.
New wind and solar generators, for example, would have to be able to supply reliable despatchable power - meaning they would have to build a battery, have pumped hydro storage or gas-fired power.
New generators will be required to guarantee supply of electricity when needed at a level determined following regional assessments by the national market operator in a bid to avoid blackouts like the one that crippled South Australia earlier in the year.
Dr Finkel has recommended better system planning, with a system-wide grid plan to inform network investment decisions and ensure security is preserved in each region of Australia.
This would also include a list of potential priority projects to enable development of renewable energy zones.
"Security and reliability have been compromised by poorly integrated variable renewable electricity generators, including wind and solar. This has coincided with the unplanned withdrawal of older coal and gas-fired generators," Dr Finkel said.
The report calls for a new "Energy Security Board" to drive implementation of the blueprint and deliver an annual health check on the state of the electricity system.
Reliability would be further reinforced through a "Generator Reliability Obligation" implemented by the Australian Energy Market Commission and the Australian Energy Market Operator following improved regional reliability assessments.
"The National Electricity Market is 5000 kilometres long, spans five states and one territory and has more than 9 million metered customers. It's essential that we get it right," Dr Finkel said.
Links
- The Finkel review explained: what's in it, and why you should care
- The man who could bring peace to Australia's climate wars
- Independent Review into the Future Security of the National Electricity Market
- Blueprint for the future: Independent Review into the Future Security of the National Electricity Market
- Media Release: Blueprint for a world-class electricity system
- Australia can’t lose in the global race for cheaper, cleaner energy
- Turnbull’s energy game-changer
- Explainer: what is a ‘low emissions target’ and how would it work?
- Australia’s biggest emitters opt to ‘wait and see’ over Emissions Reduction Fund
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