Energy sector experts were on Thursday already speaking out on recommendations contained in the Finkel review of the Future Security of the National Electricity Market, especially on the expected Low Emissions Target (LET) ahead of its expected release on Friday.
In place of an Emissions Intensity Scheme, previously ruled out by the government, a more politically viable low energy or clean energy target was expected to be the centrepiece of Alan Finkel’s report to state and federal leaders. A CET or LET is expected to reduce prices faster than an EIS or business as usual and was also recommended by the Climate Change Authority, though only because an EIS had been expressly ruled out.
Energy Action’s director of innovation and sustainability, Dr Paul Bannister, said an EIS was a cost-neutral solution preferred by Australian business energy users, and was most likely to provide certainty over the long term.
“The LET has the potential to provide short-term market stability but as a scheme that seems open to future politically driven changes, there is a risk that it won’t provide the ongoing certainty that businesses need to plan and invest over the longer term,” Dr Bannister said.
A potential change to the system could lead to investor uncertainty, which had dire effects on renewable energy investment after the Abbott Government announced a review of the Renewable Energy Target.
ANU’s Frank Jotzo, writing in The Conversation, said a LET would give certificates to generators of electricity below a certain threshold of carbon intensity. Electricity retailers and industry would then be obliged to buy the certificates, which would create a market price and thus extra revenue for low-emission power generators.
The proposed LET is expected to set a threshold of 0.5-0.7 tonnes of CO2e for every megawatt-hour of electricity produced (the dirtiest brown coal station Hazelwood was at 1.52 tonnes), which aside from renewables would also allow for gas and nuclear energy to be included, though making it difficult for coal-fired power without carbon capture and storage.
Dr Bannister said the proposed threshold would only hold for a few years “as it is insufficient to meet our Paris Climate Accord obligations beyond the short term”.
“Australia’s key trading partners already have lower emissions intensities than this.”
Dr Bannister said the government’s response to the review also needed to include reform of market mechanisms and regulations to ensure stability in the context of rising renewable generation.
“Solar and wind generation will become an increasingly important part of our generation mix, so mechanisms need to be developed to properly value the support services needed to maintain grid stability, such as storage,” he said. “The market must also adapt to expected changes in energy demand, most importantly the rise of electric vehicles.”
He said the development of a smart grid where users could sell demand reductions and surplus on-site generation “in a free-market environment” was central to reform.
“This is essential to ensure a least-cost outcome for energy users and the economy as a whole.”
Conservative factions are already agitating against the idea of a LET, however, with former Prime Minister Tony Abbott saying a LET could see 70 per cent renewables by 2030 and a reduction of coal power to 20 per cent, which was a “big mistake”.
A joint statement released on Thursday by a number of industry players – including the Australian Industry Group, Clean Energy Council, ACTU, Australian Aluminium Council and WWF – said the report needed careful consideration rather than “knee jerk reactions”.
“Our organisations believe that the worst outcome for energy consumers and suppliers alike would be the absence of any credible and enduring energy and climate policy in Australia,” the statement said. “Without reform we will endure higher prices, reduced security, lost investment opportunity, and stubbornly high emissions.
“We need careful review and considered decision-making that leads to the return of a stable investment environment, affordable prices and reliable supply, even as we reduce emissions.
“We stand ready to support new reforms to achieve these outcomes.”