Post on 24-Jun-2020
ProfRossGarnaut’sPublicLecture:EnergySecurity,ReducingEnergyCostsandMitigatingClimateChange:DoesFinkelSolvetheTrilemma?
Hosts:FacultyofBusinessandEconomicsMelbourneEnergyInstituteAustralianGermanClimateandEnergyCollegeMelbourneSustainableSocietyInstitute
6.00pmto7.30pm
MondayJuly32017
CarrilloGantnerTheatreSidneyMyerAsiaCentre,SwanstonSt,Parkville,VIC
RossGarnautACProfessorofEconomics,TheUniversityofMelbourneChairmanofZENEnergyIamgratefultoYannRobiouduPontfromtheAustralianGermanClimateandEnergyCollegeattheUniversityofMelbourneforhelpwiththecharts,toGerardDrewofZENEnergyforhelpwiththenumbersandforAnnabelGebbieforhelpallround.
1
TheSouthAustralianlightswentoutonSeptember16lastyear.Anextremeweatherevent--unprecedentedinrecordedhistoryforitscapacitytodisrupthumanactivityinSouthAustralia—damaged23pylonsonelectricitytransmissiontowers.Inresponse,safetycontrolsautomaticallyshutdownamajorityofthewindturbinesinthestateandtheinterconnectorwithVictoria.Thesuddenlossofvoltageinthesystemcausedacompleteshutdownofpowersupplythroughthegrid.
Australianconsumerspayplentytothenetworkcompaniesforback-upservicestoavoidblack-outsortobringthesystembacktolifequicklyifitfails.The“blackstart”systemsthatshouldhavebroughtgasgeneratorsquicklytolifedidn’twork.SouthAustralianconsumerspaymillionsofdollarsayear,yearafteryear,tokeepdieselgeneratorsinplaceinPortLincoln.Theydothisincasethisbeautifulandproductivedistantcornerofourfar-flungnationalelectricitysystemiscutoffbyfailureofthetransmissionlinessomewherealongtheway.Thedieselgeneratorsdidn’tstartwhentheywereneeded.
SouthAustralianslostaccesstoelectricityforseveralhours—exceptingonlythesmallnumberwhohadbatterysystemsdesignedtooperateindependentlyofthegrid,andtheresidentsofafewplacesincludingKangarooIslandwhichhadindependentgeneratorswhichworkedwhenneeded.TheresidentsoftheEyrePeninsula,includingthefisherpeopleofPortLincolnwiththeirperishablecatches,werewithoutpowerforseveraldays.
LikeWorldWar1acenturyago,thefullseverityoftheSouthAustralianblackoutlastSpringhadmanycauseswithoutwhichitwouldnothavehappened.
Onecauseisthathumanityhasbeenslowinheedingtheclearconclusionsofresearchonatmosphericphysics.Failuretosharplyandquicklyreducegreenhousegasemissionsleavesusvulnerabletoincreasingseverityofextremeweatherevents.Anothercauseisthatpolicy-makersandthegridrule-makerfailedtoseetheimplicationsforindividualregionsofuniformnationalincentivestoincreasesolarandwindgeneration.Uniformincentiveshavehighlydifferentiatedeffectsacrossregionswithsolarandwindresourcesofwidelydifferentquality.UniformnationalincentivesencourageddisproportionateresponsesinSouthAustraliawithitssuperiorrenewableenergyresources.
Athirdcauseisthatpolicymakersandtherulemakerpresumedthatthegridcouldbemanagedinthesameoldwaywhenlargeincreasesinintermittentenergysupplywerechangingthenatureofstressesonthegrid.
AfourthisthatthemarketoperatordidnotmonitorthesafetysettingsonwindturbinestoensurethattheywereconsistentwithgridstabilityinAustralia’snewcircumstances.
Afifthisthattheregulatorauthorisedexpenditureonstandbygenerationwithoutensuringthatitwouldworkwhenitwasneeded.
AnydoubtsaboutthepriorityofenergysecurityincontemporaryAustraliawereremovedbytwosubsequentepisodes,twomonthsaftertheblackoutandtheninFebruarythisyear.AfailureonthehighvoltagetransmissionlinefromthelignitegeneratorsoftheLatrobeValleytoPortlandblackedoutalargepartofwesternVictoriaforlongenoughseriouslytodamagethealuminiumsmelter.ThelossofvoltageattheHeywoodsub-stationnorthofPortlandtrippedtheinterconnectorwithSouthAustraliaagain,andmanySouthAustralianhouseholdslostaccesstopowerforawhile.
AndthenaheatwaveofrareintensityanddimensioncoveredeasternAustraliaforseveraldays,increasinguseofelectricityenoughtothreatenthebalancebetweenpowersupplyanddemand.
2
SupplytootherfacilitiesinNewSouthWaleswassecuredonlybydenyingpowertotheState’slargestuser,takingtheTomagoaluminiumsmelterintheHunterValleytotheedgeofcatastrophicfailure.NewSouthWalesEnergyMinisterDonHarwincommentedlastweek:“There’snobetterwayofunderstandingthecapacitiesandvulnerabilitiesofourgeneratorsthanbeinginaheatwave”,theMinistersaid.Indeed,wereitnotforthesolidperformanceofsolar,henoted,andotherrenewables,andthe“demandresponse”fromconsumersvolunteeringtoreducetheload,theresultcouldhavebeenmuchworse.“Cleanenergyperformedasforecast”,Harwinsaid.“Thermalgenerationdidnot”.
TheFinkelReviewwassetupimmediatelyaftertheSouthAustralianblackout.TheCouncilofAustralianGovernment—CommonwealthEnergyMinisterJoshFrydenbergandhisStateandTerritorycounterparts--appointedanexperiencedandablegroupledbyChiefScientistAlanFinkeltomakerecommendationstoensurethesecurityandreliabilityoftheAustralianenergysystemaswereduceemissions.
TheanxietiesoverenergysecurityfromtheeventsoftheSpringandSummershapedtheinitialpoliticalandmediaresponsetotheclosureinAutumnthisyearofoneofthelargestandoldestgenerators,anddistinctivelyAustralia’sdirtiest--theHazelwoodpowerstation.Asitturnedout,themarkethasbeenabletohandleadjustmenttomassivewithdrawalofgenerationcapacitywithoutanychallengesofartothesecurityandreliabilityofthesystem.
ThewithdrawalofalargeamountofsupplycapacityhascompoundedthemassiveupwardpressureonpricesfromtheAustraliandomesticgascrisisandincomparablyhighnetworkcostsandretailmargins.Powerpriceshavemovedtothecentreofnationalconcerns.
Meanwhile,thereisstrongsupportwithintheAustraliancommunityforthiscountrytodoitsfairshareintheglobalefforttolimitthedamagefromhuman-inducedclimatechange.
Wehavetodealwithanenergypolicytrilemma:theneedtoprovideenergysecurely,atthelowestpossibleprices,withgreenhousegasemissionsthatareconsistentwithAustralia’sobligationsintheinternationalclimatechangemitigationeffort.
APPLYINGTHETHEORYOFECONOMICPOLICY
Oursisaworld-beatingtrilemma.
Ortrifecta.Australiain2017iswearingtheleader’sshirtinthedevelopedworldcontestforhighelectricitypricesforhouseholds(BruceMountainsaysthatwehaverecentlyputourwheelinfrontofDenmark).
Wearewellentrenchedasthedevelopedcountrywithbyfarthehighestelectricityemissionsperperson.
Itseemstomethatin2017wearewellinfrontoftherestofthedevelopedworldonanxietyaboutsecurityofenergysupply.
Weweartheleader’sshirtintwoofthecontestsonlythroughanextraordinaryincreaseoverthepastdozenyearsincostsandinsecurity.Andtomaintainourcomfortableleadinthethird,wehadtoreverseatendencyforelectricityemissionsperpersontofallrapidlybyglobalstandardsintheyearsofcarbonpricing2012-4.
WilldiscussionandacceptanceoftheFinkelrecommendationshelpustoresolvethetrilemma,andescapefromtheunhappywinners’circle?
3
Thethreepolicyobjectivesofenergysecurity,lowcostsandlowemissionsarepotentiallyinconflictwitheachother.Energysecurityinthecontemporaryworldcouldstillbewonbyholdingfasttooldsynchronousthermalenergyandduplicatingandstrengtheningcentralisedenergyinfrastructuretowithstandmoreintenseextremeweatherevents.Itwouldbemuchmoreexpensiveenergythanitusedtobebecauseofhighergasprices,andtheneedtoreplaceageinggenerationassetsatatimeofhighercosts.Wewouldhavetoforegoopportunitiesforturningourrichrenewableenergyresourcesintosubstantiallycheaperenergy.Andwe,thedevelopedcountrymostvulnerabletoclimatechange,wouldbestandinginoppositiontotheglobalefforttocontainthecostsofhuman-inducedclimatechange.
Theconflictsamongtheobjectivesarecomplex,andshifting.
Thetraditionalfossilenergywasoncecheaperthanthealternatives,withcoalasbaseloadandgasforbalancingfluctuationsindemand.ButthisisbeingchallengedinAustraliabythehugeliftinthermalenergypriceswithinternationalisationoffuelmarkets.Itisbeingchallengedaswellbytherapidfallinsolarandwindenergyprices,NewbuildrenewableenergyinAustraliaischeaperthannewbuildcoal,andmuchcheaperthangas.Newstorageanddemandmanagementtechnologiesallowdistributedgenerationandstoragetotakethepeaksoffdemandforgridaswellasgenerationservices,andreducecapitalcostsofthesystemasawhole.
Thetraditionalsynchronousgenerationwouldoncehavebeenthemostsecureandreliable.Buttheincreasingintensityofextremeweathereventsandcyberinsecurityaremakingtheoldcentralisedsystemsmorevulnerable.Thenewtechnologiesformanagingpartiallydecentralisedgridsisallowingpowersupplytocontinueacrossmostofanenergysystemwhenextremeweathereventshavecausedparttocollapse—astheyhavewithbushfiresinsouthernAustraliaandfloodsinQueenslandonseveraloccasionsinrecentyears;withHurricaneSandyinNewYorkandNewJerseyafewyearsago;andinSouthAustralialastyear.
Andthereductionofgreenhousegasemissionsrequireschangesintheenergymixandforthegridtobemanagedinadifferentwaytoprovidesecureenergy.
Therapidlychangingtrade-offsamongcosts,securityandemissionsmeanthatanyinitialchoiceoftheoptimalenergymixislikelysoontobeovertakenbyevents.
Inseekingtoresolvethetrilemma,wecandrawonoldwisdomfromthetheoryofeconomicpolicy.Thetheoryofeconomicpolicysaysthatweshouldchooseoneinstrumentforthepromotionofeachobjective.
Weneedoneinstrumentorsetofinstrumentstopromoteeachofenergysecurity;lowercosts;andreductionsinemissions.
ELECTRICALENGINEERINGANDENERGYSECURITY
ThetermsofreferenceoftheFinkelReviewwerebuiltaroundenergysecurity.TheReview’sFinalReportprovidescarefullyconsideredandhelpfulrecommendationsonenergysecurity.Togetherwithrecommendationsforreformonenergysystemgovernance—themselvesshapedtoaconsiderableextentbyrequirementsforenergysecurity--thisisthevaluableandenduringcontributionoftheFinkelReview.
Thecontestedissuesarethechoiceofemissionsreductiontrajectoryformodelling,andtherecommendationonaCleanEnergyTarget(CET).
4
TheFinkelReview’srecommendationsonenergywarrantsupportwhetheronefavoursemissionsreductionsinlinewithAustralia’sinterestsineffectiveclimatechangemitigation,ornot.Alreadytheexpansionofrenewableenergysupply,includingdistributedsolarPVinhouseholdsandbusinesseshasgoneandhasmomentumtogotoofarforthestatusquotoserveourinterestsinenergysecurity.
TherecommendationsonenergysecurityhavetheAustralianEnergyMarketOperatorensuringthatfastfrequencyresponsecapacityandinertiaaremaintainedatlevelsthatensuresystemsecurity;decidingin2018whetherandhowmuchreservegenerationcapacityisnecessarytomeetstabilityrequirementsandthemechanismthroughwhichthiswillbesecured;requiringnewlarge-scalesolarandwindgeneratorstoprovidegridstabilisationservicestooffsettheirowncontributionstoinstability;anddifferentiatingrequirementsonsolarandwindgeneratorsaccordingtothecircumstancesoftheregioninwhichtheyareoperating.
ThelastoftheserequirementsimposesmoreseveregridstabilisationdemandsonsolarandwindgeneratorsinStatesthathavehigherproportionsofenergycomingfromintermittentsources.
TheReviewalsorecommendsthatgeneratorsprovidethreeyears’noticeofclosure.
Ontheseandotherpointsrelatedtoenergysecurity,theReviewdrawsonengineeringmodellingundertakenbytheMelbourneEnergyInstituteatthisUniversity.Themodellingdistinguishesbetweenminimumrequirementsofinertia,andfastresponsefrequencycontrol.Theformerismostreliablyprovidedbysynchronousgenerators—historicallyprovidedbythermalgenerationandhydro-electricity(towhichwecanaddpumpedhydrostoragewithitssimilarcharacteristics).Newtechnologiesareemergingtocarrypartorperhapseventuallyallofthisload.TheMEIworksuggeststhatsynchronousenergysourcesprovideaboutaquarteroftheminimumload.Butinanycase,theanalysissuggeststhat,withjudiciousmanagement,itwillbepossibletoreachtheproportionsofrenewableenergyinthemodelledtrajectories(upto64percentbelow2005levels)withexistingtechnologiesandwithoutthreateningthestabilityofthesystem.TheMEIReportnotesthaton-goingresearchmayreducetheminimumrequirementofsynchronousgeneration.
TheeconomicmodellingofthestabilityconstraintsbytheJacobsconsultancy,suggestslittleadditionalcostofpowerwithinthemodelledtrajectories.Thisconclusionisdrawnontheconservativeassumptionthatthesourcesofinertiaareconfinedtothoseavailablenow.RecentdiscussionofAustralia’spumpedhydrostoragepotentialhasdrawnattentiontomeansofgreatlyexpandingsynchronousgenerationatrelativelylowcostifthisisnecessaryforgridstability.
Fastfrequencyservicescanbeprovidedbysynchronousgeneratorsorbyarangeofnewtechnologies,includingbatterieswithsuitablydesignedcontrolsystems.Witheffectivemanagementbythemarketoperator,theprovisioncanbesecuredatlowcost.
Forthemostpart,theReviewleavesdecisionsonthedetailtotheAustralianEnergyMarketOperator,sometimesworkingwiththeAustralianEnergyMarketCommission.CoordinationistobeprovidedthroughanewEnergySecurityBoard,onwhichtheyarerepresented,alongsidetheChiefExecutiveOfficeroftheAustralianEnergyRegulator.
CLIMATESCIENCEANDEMISSIONS
TheReviewReportdoesnotdiscussclimatescienceoritsimplicationsforAustralianemissionsreductions.Itmakesnorecommendationontheappropriaterateofreductionofemissionsintheelectricitysector.ItsaysthatthetrajectoriesaremattersforGovernments.ItpresentstheresultsofengineeringmodellingbytheMelbourneEnergyInstituteandeconomicmodellingbytheJacobs
5
consultancytotesttheimplicationsforenergysecurityandenergypricesofpursuingonespecifiedemissionsreductiontrajectory.
Nocaseismadeforthetrajectorythatismodelled.Inonesense,thisdoesnotmatter,becausetheReportdoesnotrecommendadoptionofthistrajectory.
Butitmaymatteragreatdeal,becauseothershaveslidintotreatingamodellingassumptionasarecommendation.
TheReviewrecommendsthatagreementbereachedacrosstheAustralianFederationonemissionsreductiontrajectoriesandameansofachievingthem.Itarguescorrectlythatthisisessentialforpolicycertaintyasabasisforinvestmentdecisions.Thatcertainty,inturn,iscrucialforloweringthesupplypriceofinvestmentinnewpowergeneration,andthereforetoholdingenergycoststothelowestlevelthatisconsistentwithmeetingsecurityandemissionsreductionobjectives.
Certaintyaboutpolicyonemissionsreductiontargetscanonlybebuiltaroundsharedunderstandingoftheemissionstrajectoriesthatservenationalinterests.
WhilethereisstrongcommunitysupportforAustraliadoingitsfairshareinaglobalefforttocombatclimatechange,therearesomeAustraliansinplacesofpoliticalinfluenceandauthoritywhowantnosuchthing.
Intheend,astablepolicywillhavetoemergepolitically,withoneviewprevailingovertheotherintheelectoralmarketplace.
TheanalogythatcomestomindisMedicare.TheWhitlamGovernmentintroducedMedibankinthefaceofrabidoppositionfromthemedicalprofessionandtheofficialOppositionparties.ItwasrepealedbytheFraserGovernment.Itwasre-establishedasMedicarebytheHawkeGovernmentin1983.TheofficialOppositionpromisedtorepealitagaininthenextfourelectioncampaigns.JohnHowardreversedhiscommitmenttorepealbeforethe1996electionandwon.TherehasbeenwidelybasedsupportforMedicaresincethen.
ForthereasonssetoutintheFinkelReview,therearelargeeconomicadvantagesinfindinganearlybasisforpolicystability.LaterinthislectureIwillsuggestawayofbridgingthepositionsofpeoplewhotakeseriouslyAustralia’sinterestineffectiveclimatechangemitigation,andthosewhofearthatplayingAustralia’sfullpartwillleadtoenergyinsecurityandhighenergycosts.
ThemodellingfortheReviewpresumesanemissionsreductiontrajectoryofminus28%on2005levelsby2030,64percentby2050andonehundredpercentby2070.
TheReviewnotesthatAustraliahasmadeacommitmenttotheUnitedNationstoreducetotalemissionsby26-28percentby2030.Itsmodellingisbasedonelectricitysectoremissionsbeingreducedby28percent.
Therearequestionstobeaskedabouttheoveralltargetandabouttheappropriateelectricitysectorcontributiontoit.
Theminus28percentispartbutnotthewholeofAustralia’sPariscommitment.
Australiahasalsocommittedtodoingitsfairshareinaglobalefforttoholdhuman-inducedtemperatureincreasesbelow2degreesCelsius,andascloseaspossibleto1.5%.
First,theoveralltarget.
6
Theanalysisformy2008ClimateChangeReviewconcludedthatAustralia’sfairshareofa2degreeseffortwouldbea90percent(95percentpercapita)reductionfrom2000levelsby2050.Thelateandslowstartsincethenrequiresanearlyandfastfinish.
Otherapproachestoallocatingemissionsreductionresponsibilitiesfora2degreestargethaveproducedsimilarormoredemandingconclusions.TheAustralianClimateChangeAuthority,withstatutoryresponsibilitiestoadvisetheParliamentonemissionstargets,suggestedzeroemissionsby2046inits2014Report.DuPontandothersatthisUniversityinarecentarticleinNatureClimateChangesuggestarangeof82to98%reductionsbelow2005levelsBY2050.
Noneoftheseassessmentsrefertothe1.5degreeobjective.
TheParisagreementembodiedadynamicapproachtoemissionsreductiontargets.Thepartiestotheagreementacceptedtheendgoalsoncontainmentoftemperatureincreases.Theyagreedthateachcountrywouldpledgemediumtermtargets.Itwasoftheessenceoftheagreementthatthepartieswouldmeetperiodicallytoreviewthepledges,andassesswhethertheywereadequatetotheultimateobjectives.ThefirstreviewundertheauspicesoftheUNFCCCistotakeplacein2018.Eachcountrywouldreviseitspledgeatthattime.
Australia’scommitmentthereforeisnottominus26-28percentby2030.Rather,itisto26-28percent,andsuchadditionaleffortasiscommittedinfutureinresponsetocontinuingpeerandinternalreview.TheAustralianPrimeMinisternotedthatAustraliawouldreviewitspledgein2017,inpreparationforreconsiderationofourcountryplayingitsfullpartinthe2018ConferenceoftheParties.
Ihaveseenthecorrosionofaninternationalcommitmentinthedaytodaydynamicsofthedomesticpoliticalprocessbefore.My2008Reviewrecommended2020emissionsreductiontargetsbeforeweknewwhethertherewasgoingtobeanycommitmentatallbyothercountriestofollowtheconclusionoftheKyototargetsin2012.IrecommendedthatAustralianemissionsbereducedunconditionallyby5percenton2000levelsby2020,andbyupto25percentdependingontheactionofothers.ThefullrecommendationwasacceptedbytheAustralianGovernmentin2009,andsupportedbytheOpposition.TheconditionsthatwouldtriggerthelargerreductionswerecommunicatedtotheUnitedNationsFrameworkConventiononClimateChange.
IrecallameetingaddressedbythethenOpposition’sShadowMinisterfortheEnvironmentinthissameCarrilloGantnerLectureTheatreattheUniversityofMelbourneduringthe2013electioncampaign.TheShadowMinisterconfirmedthattheOppositionsupportedtheGovernment’scommitmenttotheUnitedNations.IaskedwhethertheOpposition’scommitmentextendedovertheconditionalandunconditionaltargets.TheShadowMinisterconfirmedthatitcoveredtheconditionalaswellastheunconditional.
Intheevent,othercountries’actionsrequiredanadjustmentofthetargettosomewhereintherangeofminus15tominus20percent.ThenewGovernmentstucktotheminus5percent,andthenewOppositiondidnotcontesttheslippage.
TheParisagreementhasbeenchallengedbytheelectionofPresidentTrump.SyriaandNicaraguaarelikelysoontobejoinedbytheUnitedStatesasnon-members.
MostsubstantialcountrieshaverespondedtotheUnitedStatesannouncementonwithdrawalbystrengtheningtheirdeterminationtomaketheParisAgreementwork.TheavoidanceofdangerousclimatechangeismoredifficultwithouttheFederalGovernmentoftheUnitedStates,butnotabit
7
lessimportantforAustraliaandtheworld.Itisimportanttopreservetheintegrityoftheinternationalagreement,forthetimewhentheworld’sstrongeststateisagainabletoparticipate.
ThisisnotatimeforweakeningourinterpretationoftheParisAgreement.
Themodelledtrajectoryofminus28percentintheelectricitysectorisinadequateevenifweweretoacceptthatminus28percentisappropriatefortotalemissions.
TherehasbeenconsiderableresearchinAustraliaontherelativecostsofabatementinelectricityandothersectors.My2008Reviewshowedthatauniformcarbonpricewouldinducelargerproportionateemissionsreductionsintheelectricitysectorthanintheeconomyasawhole.ModellingbytheTreasuryandtheoldDepartmentofIndustryandEnvironmentsuggeststhattheoptimalrateofemissionsreductioninelectricityisaboutthreetimesthatintheeconomyasawhole(TreasuryandDIICCSRTE,201X).
Chart1:CommonwealthTreasuryandIndustryDepartmentmodellingoftherelationshipbetweentotalandelectricityemissionsreductions.
Thesestudiesoftherelationshipbetweenelectricityandtotalemissionsreductionspresumesimilarincentivestoabatementacrossallsectors.From2012to2014wehadincentivesacrossmostsectors.TheCarbonFarmingInitiativeinagriculturalandpastoralactivitieswasfundedbycarbonpricinguntil2014andbytheEmissionsReductionFundfrom2014untilthisfinancialyear.Emissionswereexpectedtofallsubstantiallymorerapidlyinelectricitythanothersectorswhenallsectorsreceivedsimilarincentives.Isitreasonabletoexpectsimilarratesofemissionsreductioninothersectorsintheabsenceofanyabatementincentivesatall?
ECONOMICSANDENERGYPRICES
Thepriceshouseholdsandbusinessespayforelectricityhavethreecomponents:thewholesalepricepaidtogenerators;thecostsofaccesstothepolesandwiresthatmovepowerfromthegeneratortotheuser;andthemarginforretailers.ThecreationoftheNationalElectricityMarketinthe1990sbroketheoldStateElectricityCommissionsintothethreeelements,andcorporatisedorprivatisedeach.Thefirstelement(wholesale)andthird(retail)weremeanttobecompetitive.Thethird(polesandwires),anaturalmonopoly,wastohaveregulatedinvestmentandprices.Wherestateownershipcontinuedinthecompetitivepartsofthesystem(wholesaleandretailsales),itwastobeguidedbytheCompetitionPrinciples,withoutGovernmentssubsidisingordirectingbusinessdecisions.
Thewholesalemarkethasperformedreasonablywellinrapidlychangingsupplyanddemandconditions.Theretailandnetworksegmentsoftheelectricitysectorhaveperformedpoorly.
TheFinkelReviewmakessomesensiblesuggestionsontheneedfornetworkplanningbyapublicbody,notablytheAustralianEnergyMarketOperator,inplaceofexclusiverelianceonprivateinitiativesoninvestmentbymonopolynetworkserviceproviders.Itnotesthatcorrectionofegregiouspastinvestmentsinthenetworksmayrequireeithercompulsoryorvoluntarywritedowns.ItleavesdecisionsonthesematterstotheproposedEnergySecurityBoard.Theregulators’roleincontrollingnetworkcostshasbeenstrengthenedbythedecisionoftheCommonwealthGovernmentlastmonthtotruncatenetworkcompanies’opportunitiestoappealdecisionsoftheAustralianEnergyRegulator.Ithasbeenstrengthenedaswellbyalargerecentincreaseinfunding.
8
TheFinkelReviewnotestheproblemofmonopolyintheretailsegmentofelectricitysupply.ItleavesactiontotheAustralianConsumerandCompetitionCommission,whichiscurrentlyworkingontheseissues.
TheFinkelReviewconfinesitsdetailedmodellinganddiscussionofandrecommendationsonelectricitycostsandpricestothewholesaleenergymarket.Thishasbeentheleastproblematicsegmentoftheelectricitysectorsincethereformsofthe1990s.
ThereisanegativetonetosomeoftheReview’scommentaryonthewholesalemarket.Pricevariabilitytendstobeviewednegatively.Yetpricevariabilityinresponsetochangesinelectricitysupplyanddemandprovidestheincentivesforusersandproducersandtradersofpowertomakeuseofnewtechnologiesandbusinessmodelstofacilitateadjustment.Thereisgenerallyapessimisticviewofthepotentialforhighpricestoattractinvestmentinexpandingsupplycapacity.ThereisgenerallyanopenviewoftheroleofdirectGovernmentprovisionofgenerationcapacitytomakeupforinadequateprivateinvestmentresponse.Ihaveneversoughttomakeacasefortheuseofmarketsinallseasons.However,muchexperienceinformsusthatthatmarketsallocateresourceseffectivelywherethereisgenuinecompetition,supportedbypublicinterventiontoensurethatexternalcostsandbenefitsofprivateactivitiesaretakenintoaccount.
Ihaveamorepositiveviewofthewholesalemarket.Ithasadjustedsmoothlytotheabsorptionoflargeamountsofintermittentrenewableenergy.Ithasprovidedsignalsforclosureofninerelativelyhighcostthermalelectricitygeneratorsoverrecentyears.Thecurrentlyhighwholesalepricesareprovidinghugeincentivesfornewinvestmentingenerationcapacityalloverthenationalelectricitymarket,andforincentivesforstorageanddemandmanagementtoreplaceexpensivegaspeakinginbalancingintermittentrenewables.
Thewholesalemarkethasproblems,mainlyderivingfromoligopolisticmanagementofpricesinforwardmarkets.ThesearemostsevereattheextremitiesoftheNationalElectricityMarket,inSAandQueensland.Problemsofoligopolyarebestcorrectedthroughcompetition.ThisisthefocusofthecurrentACCCreview.
TherehavebeenthreerecentproposalsfordirectGovernmentinvestmentingeneration:theSAproposaltobuilda250Mwgasgeneratortoserveasanemergencyreserve;theCommonwealth’sproposaltohaveSnowyHydroprovide2000Mwofpumpedhydrostoragecapacity;andthenoisefromtheAustralianMiningIndustryCouncilandtheCoalitionPartyroomsaboutdirectCommonwealthinvestmentinanewcoal-firedgenerator.
Seriousdiscussionofthesemattersamountstoatransformationalchangeinthewholesalepowermarket.Thediscussionisamaterialdeterrenttoprivateinvestmentingenerationandstorage.ThereisaseriousriskofdamagetotheonepartofthereformedelectricitysystemthathasbeenservingtheinterestsofAustralianusersofpower.
ThereisroomfordebateaboutwhethertheoldintegratedpublicmonopolieswouldhavedeliveredpoweratlowercosttoAustralianusers.Thereisnodoubt,however,thatamixtureofprivateandpublicinvestmentinwhichnon-commercialobjectivesdrivepublicinvestmentdecisionsgivesustheworstofallworlds.
TherewasacasefortheSAinterventionafterthenationalregulatoryfailurescontributedtotherecentdisruptions.EffectiveimplementationoftheFinkelreformsrelatingtosecuritywoulddiminishthatcase.
9
ItmaybethatexpansionofpumpedhydrocapacityintheSnowyMountainsisthemostcosteffectivewayofbalancingamajorexpansionofsupplyofintermittentrenewableenergy.Therearealternatives.TherewouldbelargebenefitsfromleavingdecisionsonSnowyinvestmenttoacompetitivemarket.Theinstitutionsprovidinggeneralsupporttocorrectmarketfailuresaffectingsupplyoflowemissionsenergy—ARENAandtheCleanEnergyFinanceCorporation—couldprovideassistanceeven-handedlybetweenSnowyandthealternatives.
Energysecuritymayrequireseparateincentivesforprovisionofreservecapacity.TheFinkelReviewsensiblyleavesthatforfutureassessmentbytheAustralianEnergyMarketOperator.Ifthiswerenecessaryforenergysecurity,investmentingasgenerationreservesinSouthAustralia,orpumpedhydrostorageintheSnowyMountains,ornewcoalgenerationinQueenslandcouldbelefttocompeteinanewmarket.
TheFinkelReviewcomparesthepriceeffectsofbusinessasusual,anEmissionsIntensitySchemeandaCleanEnergyTarget.Straightforwardcarbonpricing—acarbontaxoremissionstradingsystem—wasexcludeddespiteitsadvantages.Iamnotthepersontoquestiontheexclusion.TheRenewableEnergyTargetisalsoexcluded.
TherearetwomaindifferencesbetweentheCleanEnergyTargetandtheEmissionsIntensitySchemeasdefinedbyFinkel.TheCleanEnergyTargetisappliedtoretailersofpower,andtheEmissionsIntensitySchemetogenerators.TheReviewnotesthatapplicationtoretailerscanusetheadministrativemechanismscurrentlyinplacefortheRenewableEnergyTarget.
TheseconddifferenceisthattheEmissionsIntensitySchemeprovidesincentivessystematicallyforlessovermoreemissions-intensiveschemes.Itfavoursblackoverbrowncoal;HighEfficiencyLowEmissions(HELE)coalgenerationoverconventionalblackcoal;gasoverHighHELEcoal;coalorgasgenerationwithcarboncaptureandstorageovernakedgas;andrenewableenergyovercoalorgaswithcarboncaptureandstorage.TheCleanEnergyTargetprovidesincentivesforlessovermoreemissions-intensivegenerationonlyuptoalimitofemissionsintensity—proposedas600kgperMwhorpower.Abovethatlimit,ittreatsallformsofgenerationthesame.
Inthisrespect,theCleanEnergyTargetcanbeseenasahalfwayhousebetweentheRenewableEnergyTargetandtheEmissionsIntensityScheme.TheCleanEnergyTarget,liketheRenewableEnergyTarget,drawsnodistinctionamonggeneratingtechnologiesthataremoreemissions-intensivethanthespecified“cleanenergy”threshold.ThedifferencebetweentheCleanEnergyTargetandtheEmissionsIntensitySchemewouldbesmallinpractice.
Imyselfwouldseealiftinthe“cleanenergy”thresholdasanimprovementfortheCleanEnergyTarget.Raisingthethreshold(increasingthekgperMwh)wouldmaketheinstrumentmoreenvironmentallyandeconomicallyefficient.Itwouldfavourcleaneroverdirtiercoal.ItwouldencouragenewHELEoveroldlignitegeneration,whetherornotthishadpracticalsignificance.
TheFinkelReviewusesmodellingbytheJacobsconsultancytoshowthat,giventheemissionsreductiontarget,theCleanEnergyTargetgenerateslowerwholesalepricesthantheEmissionsIntensityScheme.
Thereisnoattemptateconomicanalysisrelatedtothesemodellingresults.Wearelefttoinspectalternativeoutputsfromturningthehandleonablackbox.
WeknowabitabouttheblackboxfromwhatissetoutintheJacobsconsultancyreport,andfromtheuseoftheJacobmodel,andofsimilarblackboxes,inothercontexts.
10
BusinessasusualgenerateshigherelectricitypricesintheJacobsmodelfortworeasons.First,thesupplypriceofinvestmentinthermalpowergenerationishigherunderbusinessasusualbecause,intheabsenceofsettledpolicytoencouragelowemissionsenergy,thereisgreateruncertaintyaboutpoliciesaffectingreturnsoninvestment.
Morepowerfully,theabsenceofpolicyfavouringloweremissionsleadstolessrenewableenergyunderbusinessasusual.TheJacobmodel,forgoodreason,pointstolowerpriceswhenmorerenewableenergyisgenerated.
TheJacobsmodellingpointstolowerpriceswiththeCleanEnergyTargetthantheEmissionsIntensitySchemebecauseittreatshigheremissions(Victorianlignite)nolessfavourablythanloweremissionscoal(NSWandQueenslandblackcoal).TheCleanEnergyTargetthereforeleadstohigheremissionsintensityincoalgeneration.Toachievethespecifiedreductionofemissions,higheremissionsfromcoalarebalancedbyhigheroutputofrenewableenergy.Morerenewableenergyleadstolowerprices.
TheFinkelReportdoesnotpresenttheresultsofmodellingfasterratesofdeclineinemissions.Ifithaddoneso,theJacobsmodel,andthemostwidelyusedalternatives,wouldhavepointedtoevenlowerwholesaleelectricityprices.
IntheJacobsmodelling,realpricesunderbusinessasusualremainnearcurrentlevels,risingabitinrealterms.TheyfallbyalargeamountundertheEmissionsIntensityScheme,andmoreundertheCleanEnergyTarget.
UndertheJacobsmodellingoftheCleanEnergyTarget,theratioofrenewableenergygeneration(includingrooftopsolar)tototalenergysuppliedthroughthegrid(acuriousratiotoemphasise)is42percentby2030.Themajorityoftheincreaseisfromlarge-scalewindandsolardrivenbytheoldRenewableEnergyTargetintheperiodupto2022,andfromrooftopsolarexpansionthatdoesnotrelyonGovernmentincentives(aratiotogriddeliveryof9percentby2030).TheintroductionoftheCleanEnergyTargetisfollowedbyasharpdecelerationoftherateofexpansionoflarge-scalerenewableoutput.
Theparticularoutcomesdependonthedetailofcostassumptions.Itwouldbeunwisetobasebigchoicesonpolicyonaparticularmodellingresult
Itisusefultostepawayfromtheblackboxandtoexaminesomeoftheeconomicinfluencesonwholesalepricedetermination.
GeneratorsbidintotheAustralianwholesalemarketevery5minutes.InauniquelyAustralianwaythepricesareactuallysettledbyaveragingoverhalfhourperiods—thushandicappingtechnologiesthatarecapableofrespondingquicklytoandthereforeremovingimbalancesbetweensupplyanddemand.Australia,afterall,istheonlycountrywhosemajorhorseraceisahandicap,withfasterhorsesbeingrequiredtocarryheavierweights.ThehandicappingoftheswiftmaynotmattermuchfortheMelbourneCup,butitholdsbackproductivebalancingoftheincreaseinvariablerenewableenergyintheAustralianenergymarket.Finkelnotedtheissueof5minuteversus30minutesettlement,andsaidthattheregulatorsshouldworkoutwhetherthearrangementsshouldbechanged.
Butthatisadetail.
Generatorsbidintothemarketattheirmarginalcost.Thatisnearzeroforrenewableenergy—actuallynegativewhenthevalueofRenewableEnergyCertificatesistakenintoaccount.
11
Largewindandsolarfarmsbidvolumesaccordingtoestimatesofoutput.Renewableenergyisproducedwheneverthewindisblowingandthesunshining.Thecapitalcostsoftheplantsarerecoupedwhentheaveragepriceexceedsthelongrunaveragecostofproduction.Thereisinvestmentinnewcapacitywhenexpectationsoffutureaveragepricesarehighenoughtorecoupcapitalwithanadequaterateofreturn.
Coalgeneratorsbidintothemarketatthecostofcoalplusotheroperatingcosts.ThisisverylowforVictorianbrowncoal,andsomewhathigherforblackcoal.Coalgeneratorsarekeptgoingiftheexpectedaveragewholesalepriceexceedstheiroperatingcosts.Somegeneratorsmaybidintothemarketatbelowoperatingcoststoensurethattheycanplacetheiroutput.Theyrelyonbalancingfromhigherpricesatothertimes.
Gasbidsintothemarketatahigherpricethancoal.Somegasgeneratorsuseheatthatiswastedinprimarygeneration.Suchplantshavehighcapitalcostsandloweroperatingcosts.Thesetendtoberunsteadilyoverfairlylongperiodsiftheyarerunatall.Othergasgeneratorsaremoreflexible.Theyhavelowercapitalcostsandusemoreenergyperunitofelectricityoutput.Theyareturnedonandoffmorequicklytotakeadvantageoftemporarilyhighprices.Thesearepeakingplants,wellsuitedtobalancingtheintermittencyofwindandsolar.Thecostofgaslargelydeterminestheoperatingcostsofbothkindsofgasgenerators,andespeciallythepeakingplants.Gaspriceshaveincreasedthree-,four-orfivefoldoverthepastfewyears.
Whileeachgeneratorbidsitsmarginalcost,thepricereceivedisthehighestthatbalancessupplyanddemand.
Coalenergyisproducedwithrelativelylittlevariationinoutput,solongasexpectationsoffutureaveragepricesexceedoperatingcosts.Newcapacityisonlybuiltwhenexpectationsoffutureaveragepricesexceedoperatingandcapitalcosts—conditionsthathavenotbeenmetforoveradecade.
LetuslookathowthesefactorsdeterminepriceincurrentconditionsinSouthAustraliasincetheclosureoftheNorthernPowerstationatPortAugustainMay2016,andinVictoriabeforeandaftertheclosureoftheHazelwoodgeneratoronApril1thisyear.
SouthAustralianowreliesonhighlyvariablegenerationfromwindandsolar,acombinationofbaseloadandpeakinggasgeneration,andbalancingflowsofpowerovertheinterconnectorswithVictoria.WindandsolarnowrepresentonaverageoverhalfofthepowergeneratedinSouthAustralia.
Whenthewindblowsstronglyandthesunshines,orwhenthewindblowsstronglyatnightwhendemandislow,nearlyallofthepowerusedinSouthAustraliacomesfromwindandsolar.Powerpricesarethenverylow.For12percentoftheyearaftertheclosureofNorthern,thepriceofpowerwaslessthan$10perMwh,oftenbelowzero.Theaveragepriceoverthistimewasminus$29perMwh(volumeweighted).Youheardcorrectly.Minus$29perMwh.
NowthattheNorthernpowerstationhasclosed,expansionofrenewableenergyinSAextendsthenumberofhourswhenrenewablessetthepriceatverylowlevels.Itreducestheaveragepriceofpowerwithoutriskthatitwillcauseapricespikebyencouragingthedepartureofacoalgenerator.
WhenSAdemandexceedsoutputofbaseloadgasandrenewables,pricehastobehighenoughtoattractpowerovertheinterconnectorfromVictoria.ThissetsthepriceattheVictorianlevel(onaverageabout$110sincetheclosureofHazelwood)plusamarginfortransmission.
12
Whenoutputofrenewablesisparticularlyweakanddemandstrong,thepeakinggasgeneratorshavetobeattractedintooperation.Gasgenerationcostssetpricesatthesetimes.InSAintheyearaftertheclosureofHazelwood,theseconditionsruledfor35%ofthetime,whenaveragepowerpriceswere$171perMwh.
TheaverageSouthAustralianpriceoverthewholeyearwas$127perMwh(volume-weighted).
LargeamountsofpowerareproducedcontinuouslyatlowcostfromligniteinVictoria’sLatrobevalley.OccasionallytheLatrobeValleyplusrenewableenergyoutputexceedsdemandandpushespricestoverylowlevels.Wholesalepriceswerebelow$10perMwhfor3%ofthetimeinthesixmonthspriortotheHazelwoodclosure,.SuchlowpriceshavenotappearedatallsincetheclosureofHazelwood.
FormostofthetimeinVictoria,thestate’srequirementsaremoreorlessmetwithLatrobeValleypower,withsomecontributionfromrenewablesandimportsovertheinterconnectorsfromthreestates.Gaspeakingisrequiredattimesofstrongerdemand.GasseemstohavesetthewholesalepriceofelectricityinVictoriafor13percentofthetimeinthesixmonthspriortotheclosureofHazelwood(averageprice$86perMwh)and30percentofthetimesince($105perMwh).
Thisisacomplexsystemofpricedetermination.SincetheclosureofHazelwood,therehavefrequentlybeenlargeflowseastwardsacrosstheborderattimesofhighrenewablesgenerationinSAandrelativelystrongdemandinVictoria.OverthepastfewsunnyandwindydaysinSA,theflowshavemostlybeeneastwards,reversingonlyinthemorningandeveningpeaksofdemand.TheflowofrenewableenergyeastwardsoverthebordersincetheclosureofHazelwoodhasreducedtheincidenceofextremelylowpricesinSAandtakentheedgeofftheincreaseinpricesinVictoria.
Charts2to6illustratehowchangesingas,renewablesandcoalgeneration,andingasprices,caninfluenceaverageprices.
IttakeshugegrowthinrenewablegenerationcapacitytoreachthepositionofSouthAustralia,inwhichlow-costrenewablessetthepriceforasignificantpartofthetime.Oncethatpositionhasbeenreached—andsubjecttothedynamicsoftradewithneighbouringstates—amoderateincreaseinrenewablegenerationcapacityleadstoadisproportionatelylargeincreaseinthenumberofhourswhenpricesareextremelylowandlowersaveragewholesaleprices.
Foraslongastherearestillbaseloadcoalgeneratorsoperating,loweraveragepricesfromexpansionofrenewablesreducestheirprofitabilitybelowwhatitotherwisewouldbe.Whatitotherwisewouldbe,ofcourse,isnowextraordinarilyhigh,withhighgaspricessettingelectricitypricesforathirdofthetime.
Ifthefallinpricesfromexpansionofrenewablegoesfarenoughinajurisdictionthatstillhascoalgeneration,theclosureofoneplantliftsthewholestructureofpricesforawhile.Thedownwardpressureonpricesfromexpandingrenewablesthenresumes.
Chart2illustratesschematicallythepathofpricesovertime.
GasexportsfromQueenslandhavebeenthemostimportantsourceofupwardpressureonwholesalepricesintheNationalElectricityMarketoverthepast18months.WithgasdeterminingthewholesalepriceinSAfor35percentofthetime,andgasgenerationmoreexpensiveatthebeginning,athreefoldincreaseinthegaspricemorethandoublesthewholesalepowerprice.
13
BoththegaspriceincreasesandtheclosureofHazelwoodhavefedintoextraordinaryrisesinVictorianpowerpricesoverthepastyear.GashassetthewholesalepriceinVictoriaabout30percentofthetimesincetheclosureofHazelwood.
Giventhedownwardtendencyorrenewableenergycostsandthelikelihoodthatthiswillplacecontinuingpressureforclosureofageingcoalplants,istheCleanEnergyTarget,orsomealternativemeansofpromotinglowemissionsenergynecessaryatall?Isitlikelytohaveanyeffectatall?Isthedebatemuchadoaboutnothing?
Someuncertaintyaboutthecostsofrenewablesisintroducedbytherequirementsforlargescalesolarandwindtopayforstabilityservices.Idoubtthatthatwilldomuchtoslowtheonwardmarchofrenewablepowergeneration.Butitmayforawhile.
ItispossiblethatcontinuedcostreductionswouldcausetheemissionsreductiontargetmodelledfortheReviewtobemetwithoutassistancefromtheCET.Ifthisweretoeventuate,theCleanEnergyCertificateswouldhavenovalue,andtheCleanEnergyTargetnorole.Expansionoflowcostrenewableenergyinthesecircumstanceswouldbeassociatedwithlowwholesaleprices.
Thepossibilityhasimplicationsforpolicychoice.
RECONCILINGDIVERGENTPERSPECTIVESONEMISSIONSTRAJECTORIES
SomeAustraliansarereluctanttosupportemissionsreductiongoalsthatwouldallowustoplayourfullpartinaglobalefforttomeettheParisobjectivesoutofgenuineconcernforenergycostsandinsecurity.Othershaveideologicalobjectionstomodernatmosphericphysics,orideologicalorvestedinterestsinoldwaysofsupplyingenergy.
IseeaprospectforbridgingthedifferencesbetweenthosewhowishAustraliatoplayitsfullpartinaglobalefforttomeettheParisobjectives,andthosewhohavenoobjectiontodoingsoifitcanbeachievedwithoutdamagingenergysecurityorraisingelectricitypricestonewlevels.
Thereisnowayofbuildingabridgeacrosstotheideologicalandvestedinterests.ButpeopleofsuchmindrepresentasmallproportionoftheAustraliancommunity,anditmustbepossibletoestablisheffectivepolicystabilitywithoutthem.
Isuggestthatweseektobuildsupportaroundtwoalternativetrajectoriesforemissionsreductioninelectricity,andletthecostofelectricityasitemergesovertimedeterminewhichofthemthatwefollow.
ThefirstcouldbeaLowestCommonDenominatortrajectory,embodyingalowlevelofambition.
ThesecondcouldbecalledaParisTrajectory,embodyingareasonablecontributiontotheglobalefforttoholdtemperatureincreasesbelow2degreesandascloseaspossibleto1.5degrees.
InotethatindiscussingtheFinkelReport,wearelookingatanemissionsreductiontrajectoryfortheelectricitysectoralone,andnotfortheeconomyasawhole.Theelectricitytrajectorywillneedtofallmorerapidlythanemissionsintheeconomyasawhole,forreasonsexplainedearlierinthelecture.
WewouldcommenceontheLowestCommonDenominatorpath.ShouldrealwholesalepricesfallaswemovedalongtheLowestCommonDenominatortrajectory,wewouldautomaticallyshifttoaParistrajectory.
14
Iwouldhopethatthe“LowestCommonDenominator”trajectoryforelectricityemissionswouldbestrongerthanthatmodelledbyJacobsfortheFinkelReview.ThatshouldbeamatterforwidediscussionasweworkthroughtheclimatechangepolicyreviewthatthePrimeMinisterhassetintraininpreparationforthe2018ConferenceoftheParties.
ThesecondtrajectorywouldbemorecloselycommensuratewithwhatAustraliaasadevelopedcountrywouldneedtocontribute,ifwearetogivetheParistemperatureobjectivesagoodchanceofsuccess.AstartingpointwouldbethecarefulworkoftheClimateChangeAuthorityinits2014report.This,too,wouldneedtobethesubjectofextensiveanalysis,consultationanddebate.
Chart7presentstwopossibletrajectories,onebeingthatmodelledbyJacobs,andonesuggestedbytheClimateChangeAuthorityasbeingappropriatefortheeconomyasawhole.Theyarethereforpurposesofillustrationonly.
Whatlevelofwholesaleelectricitypricereductions,measuredyearbyyearandaveragedoverthemajorAustralianmarkets,wouldtriggerashiftfromonetrajectorytotheother?
Isuggestthatwetaketheaveragepricefor2017asabase,andshifttothe“Paris”trajectoryifandwhentheaccumulatedfallinrealpricesfromthebaseyearexceedsonepercentperannum.Thenewarrangementswouldcomeintoeffectin2021,sowewouldoperateonthe“LowestCommonDenominator”trajectoryinthatyearunlesstheaccumulatedfallinpricesfrom2017until2020exceedsthreepercentinrealterms.
Itwouldbethecumulativereductioninpricesfromthebaseyearthattriggerschange.Therewouldbearrangementsforsmoothingtransitionfromonetrajectorytotheotheriftheseweresolargeastobedisruptiveinsomelateryear.
Wewouldstayonthesteepertrajectoryto2050ifthefallinrealpricesuntilthenhadaccumulatedtoonethird.MostAustralianswhoworryaboutincreasingpriceswouldtakereassurancefromthatoutcome.
Australianswhobelievethatweshouldplayourfullpartintheglobaleffortonclimatechangewouldbeuneasyabouttheriskofourcountryholdingbacktheglobaleffortifelectricitypricesdonotfall.Isharethatconcern.Myanswertomyselfisthatweareholdingbacktheinternationaleffortnow,andtheproposalthatIamoutliningthiseveninggivesusachanceofcatchingup.
Letmesharemyownviewontherenewableenergycontributiontothepriceoutlook.This,forwhatitisworth,hasgrownfromadecadeofdeepinvolvementintheeconomicsofclimatechangemitigation,andrecentlyintensiveprivatesectorworkonrenewableenergy.Inmyview,thenewenergytechnologieswillbeapathtodecisivereversaloftherelentlessandimmenseincreaseinelectricitypricesoverthepastdozenyears.Movingontoasteeperemissionsreductionpath,withenergysecurityprovidedbyimplementationoftheFinkelReviewthroughrevitalisedregulatoryagencies,andsupportedbysomevariationonthethemeoftheCleanEnergyTarget,willdrivedownwholesaleelectricityprices,notonlytolowerlevelsthantheyareatpresent,buttopricesthatarenotablylowbyglobalstandards.
NootherdevelopedcountryhasanythingliketherenewableenergyresourceendowmentperpersonthatisenjoyedbyAustralia.Ifwegetourpolicyright,asthewholeworldmovestowardslowemissionsenergy,wewillemergeasthedevelopedcountrywiththelowestelectricitycosts.
Wehaveanopportunitytobetheenergysuperpowerofthelowcarbonworldeconomy.
RESOLVINGTHETRILEMMA
15
Backtothetheoryofeconomicpolicy.
Wehavethreeobjectives:energysecurity;lowprices;andemissionsreductionsinlinewithourinterestsandresponsibilitiesinmitigationofclimatechange.
Weneedthreesetsofinstruments,oneforeachobjective.
Forsecurity,letsaccepttheFinkelapproach,supportedbytheexcellentworkoftheMelbourneEnergyInstitute.
Onloweringprices,letsembracethenewtechnologies,provideamorecertainpolicyenvironmentfortheirapplication,andacceptsomevariationonthethemeoftheCleanEnergyTargettodrivefasterexpansionoftherenewableenergythatwillforcepricesdown.Letskeeparbitraryinterventionsofgovernmentoutofgeneration,toavoidunnecessaryincreasesinthesupplypriceofprivateinvestment.Andletshaveourregulatoryauthoritiesensurethatthereisgenuinecompetitioninallpartsofthewholesalepowermarket.
Onemissionsreduction,letsfaceuptothefactsfromclimatescienceandinternationalcommitments,andputinplaceemissionsreductiontrajectoriesandpoliciesthatgiveusachanceofcontributingpositivelytoglobalactiononclimatechange.
Finkelhasgivenustheframeworkandmajorcomponentsforresolutionofthetrilemma.Wecanfillinthemissingpartsthroughseriousdiscussionoftheissues.
ChartsprovidedbytheAustralianGermanClimateandEnergyCollege,PhDcandidate,YannRobiouduPont