On Friday June 9, Australia’s Chief Scientist Alan Finkel released his highly-anticpated review of the National Energy Market (NEM). In this article, which appeared in the Mercury, Institute for the Study of Social Change affiliated researcher Heather Lovell and her colleague Evan Franklin analyse what it could mean for Tasmania and Tasmanian consumers.
Finkel Finds Future for Fickle Electricity Sector
by Evan Franklin and Heather Lovell
Alan Finkel, via his much-awaited review of the National Energy Market (NEM) released last Friday, has attempted to break the long-standing political deadlock on climate policy in Australia by presenting a blueprint for our future energy system and by offering a politically expedient middle-ground route to long-term policy stability on climate and energy. The recommendations of the review, should they be adopted by federal and state governments, will go a long way to addressing the so-called energy ‘trilemma’ of security, affordability and emissions. But the review points to a great deal of work ahead, across many areas, if we want to make a successful transition to a clean energy future, and it also leaves a number of questions unanswered. We answer the question here: what will it mean for Tasmania, and for Tasmanian consumers?
The centrepiece of the blueprint is the Clean Energy Target (CET), designed to incentivise new, low-emissions generation in the NEM, via the creation of tradeable ‘certificates’ corresponding to the emissions intensity of the generator. Renewable generators like wind and solar and hydro will create more certificates, for example, than gas-fired generators, and more again than coal-fired generators. A ‘certificates market’ subsequently determines their value, based upon the required target, and hence a net emissions intensity, set by politicians. Such a scheme works much like the Renewable Energy Target (RET), which has successfully supported new renewable projects over the last decade and which ends in 2020. In a sense it can be considered an extension of that scheme, but with the inclusion of some incentives for low-emissions technologies too.
For a state built on hydro-electricity and with abundant untapped renewable resources, Tasmania has a natural advantage: clean, renewable energy is a part of Tasmania’s energy DNA. And so, as you would hope, Tasmania should stand to benefit from a transition to clean energy and from recommendations of the review, if implemented. To put this into perspective, Tasmania’s average emissions intensity over the three years to June 2017 has been about 35 Kg CO2-equivalent per MWh, already well below the NEM-wide average of close to 900 Kg per MWh. Alan Finkel’s suggested emissions intensity target meanwhile is in the range of 600 – 700 Kg per MWh, with any new generator being rewarded if it operates below this value. A new wind or solar or hydro generator, with zero emissions, would be rewarded most.
For Tasmania, a CET scheme would serve to reinforce the value proposition of new renewable energy projects in the state, such as for example the large wind developments proposed recently at Wild Cattle Hill in the central highlands and Robbins Island in the north west, or even large solar photovoltaic projects for the sunny east coast. The possibility to utilise more fully the export capacity of Basslink could become a reality too, via improved incentives to provide dispatchable clean energy into the mainland energy markets, and backed by the inherent flexibility afforded by existing hydro generation assets in the state. Stable and long-term incentives for Tasmania to develop into a clean energy powerhouse could even support the prospect of increased interconnect capacity to Victoria – a second ‘Basslink’, although Finkel stayed silent on this possibility.
Aside from coupling energy generation with emissions, the Finkel review also outlines key measures to ensure system security and reliability, much-needed under increasing variable renewable generation. This was brought into sharp focus recently after blackout experiences in South Australia and other parts of the NEM. And here the review also paints a positive picture for Tasmania, recognising that security and system stability services provided by technologies such as hydro, pumped-hydro and batteries are critical to power systems in transition. Tasmania has the opportunity not only to export, via Basslink, some of these services, but also the opportunity to export expertise and innovation too: an advantage Tasmania has, with its relatively isolated and small renewable-based power system, is that many such innovations and operations know-how are already implemented or being developed here.
Finkel in fact highlights the clear need for leadership within the electricity sector to have this kind of expertise in what is a fast-changing electricity sector. In its review of the board members of energy market bodies in Australia, for example, Finkel has identified power system engineering skills to be lacking. Universities have a role to play here in ensuring that courses are up to date and focused on the skills of today and likely future requirements, not stuck in the past. The University of Tasmania, with its close relationship with energy organisations and state government, can play to existing research and education strengths, but also has an opportunity to be pioneering in its approach. For instance, the recently established Future Energy group at the University of Tasmania – an interdisciplinary research network comprising social scientists, humanities scholars, engineers and economists – is in an excellent position to equip the professional workforce with the skills and expertise required to manage the energy transition.
So what does it all mean for the Tasmanian energy consumer? Well, Finkel himself notes that “Consumers are at the heart of the transition.” And overall the report has some encouraging news for Tasmanian households, with modelling suggesting that the proposed CET could not only reduce emissions but also reduce household bills across Australia by, on average, $90 per year. It is unclear at this stage how this will play out across the different states, but with Tasmania’s energy prices being determined at least in part by the prices in neighbouring Victoria, where emission intensity is currently the highest in Australia, energy price reductions should be felt on both sides of Bass Strait, if the CET is implemented.
But the benefits for consumers should not stop at reduced energy prices alone. Finkel highlights the need for rewards and incentives for appropriate use of demand response and distributed energy resources, enabling customers to be paid to help improve integration of renewable generation into the system. Tasmania, through an innovative collaborative battery research project on Bruny Island involving the University of Tasmania and The Australian National University, is already at the cutting edge of this kind of approach.
Importantly, the report also recommends measures to ensure equity, with a focus on ensuring low income households have equal access to energy efficiency programs and to new energy technologies. Whilst much of the detail of Finkel’s fifty recommendations will take a while to develop and for their implications to become clear, they likely will provide much needed stability for electricity infrastructure investment. As many have argued for some time, a continuing absence of mid- to long-term policy certainty has pushed power prices up, by creating confusion and uncertainty, thereby dissuading investment.
The Finkel review does acknowledge the fast pace of change, and the difficulties of governing a sector where technological innovation is taking place so rapidly. Gaps in data are typical of systems in transition, and Finkel does well to identify the importance of better data gathering, as a big risk is that significant areas of new activity are simply off the radar. One issue not considered by the review, for example, is whether consumers might choose to move off-grid in the future as battery storage becomes much cheaper. A scoping study done by researchers at the University of Tasmania in 2015 revealed that households in Tasmania are already making this choice, but there is huge uncertainty about how many are off-grid and where they are.
The Finkel review provides a positive plan for our future energy system, and Tasmania can be an important part of that plan. But for now we wait, hoping that there is the political will to take Finkel’s blueprint and get on and ‘build it’.
Heather Lovell is an Associate Professor at UTAS in the School of Social Sciences who researches the social and policy aspects of energy innovation.
Evan Franklin is a senior lecturer at the Australian National University’s Research School of Engineering, specialising in renewable energy and energy storage technologies. In July Evan will take up a position at UTAS in the School of Engineering.