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Finkel Electricity Review – A Blueprint for Future Success or Failure?

Sorted by Robert Barr

The Australian East Coast electricity industry has not been in such a perilous state since about 1975 when rolling blackouts in NSW caused major industry disruption. Recent blackouts in South Australia, the closure of the Hazelwood and other power stations, the continuation of the Portland Aluminium Smelter by government subsidy and soaring wholesale electricity prices are indications of the seriousness of the problems we face. The business as usual model is simply not working and these events have been the driver and background for the Finkel review.

While I agree and support many of the report recommendations concerning forecasting, planning, governance and network operations, there are glaring problems that would not be addressed by implementing the Finkel recommendations. These are the absence of a generator capacity market, the proposed Clean Energy Target and the three year generator notice of intention to close.

The Finkel plan retains the MWh “Energy Only” structure of the National Electricity Market (NEM) while promising to deliver much needed investment to provide the required MW peak demand capacity in each of the NEM regions of Queensland, New South Wales, Victoria, South Australia and Tasmania. Electricity customers need a generator mix that will provide both their MWh energy needs and the generation capacity to meet their peak MW demands. The continuation of “Energy Only Market” and the Clean Energy target will continue the current trend toward intermittent wind and PV solar generation – i.e. generation high in MWh energy and low in despatchable MWs. This is a recipe for future blackouts and national disruption.

While the requirement for large scale renewables to have energy storage is a step in the right direction, economic pressures will almost certainly prevent sufficient energy storage being provided to save the NEM. The Finkel review has missed the opportunity to develop a capacity market to stimulate green despatchable generation, load management initiatives and energy storage options like pumped hydro and batteries. To look at a fully functional capacity market in operation we have to look no further than Western Australia.

On the surface, the three year notice for generator closure appears to be a logical requirement that will benefit customers. From a generator’s perspective, this represents a large risk of bleeding vast sums of money over the three year notification period in what is potentially a very difficult market for all base load generators. The unintended consequence of the proposal is that we may see a mass exodus of base load coal generators existing the market prematurely, leaving the NEM in tatters before the 3 year requirement is implemented. This issue again highlights the benefit of a capacity market that locks in generators years in advance through capacity payments. The Finkel recommendations are trying to achieve forward capacity guarantees in a non-market way by decree for free.

I leave my major criticism for the Clean Energy Target. Like the existing renewable energy certificate market, it is a market devoid of providing customer supply and demand balance. It distorts an already poorly focused energy only NEM, failing to stimulate the MW despatchable capacity that customers need.

My conclusions are that the Finkel plan is set to fail the nation. It is a plan that has evolved without a detailed and thorough understanding of the fundamental engineering and economic power system problems. The plan is the least worst option available to government because it is the only plan on offer. We desperately need a better plan now. Where this plan will come from is difficult to see. Will we have to live through a few more years of higher electricity costs and power interruptions before the next plan evolves or can we develop a better plan now? Will governments have to fill the void and build the next set despatchable power stations like they did in the 1960s and 1970s?

Op-ed by Dr Robert Barr AM
EESA National President