I’ve been flat out for the last couple of weeks, and haven’t had time to post. But I’ve finally found enough time to read the Finkel Review into the Future Security of the National Electricity Market (NEM). There are four inter-related points that come out of the report
1. The NEM has failed in its own terms, that is, with respect to the objective of providing reliable and affordable electricity. The Review recommends a variety of tweaks to the market rules, but the core measure is a shift to central planning by a new Energy Security Board, which effectively overrides the multiple existing market bodies. Not surprisingly, given the political environment the Review ignored my submission calling for renationalization of the Grid, but the logic is the same.
2. We need a carbon price, in one form or another, if we are to reduce emissions in line with our commitments. Given that all economy-wide options have been ruled out, we may as well start with an electricity specific policy. Within electricity, the existing Renewable Energy Target is a crude kind of price mechanism, with only two prices, one for renewables and the other for non-renewables. But, if we tweak that a bit, we can replace the largely irrelevant notion of “renewability” with emissions-intensity, and we have something like a carbon price. I pointed this out a couple of years ago. The Clean Energy Target Finkel Review doesn’t quite get there, but it goes most of the way.
3. The only way to get lower wholesale electricity prices is to expand renewables and let the owners of coal-fired power station take a corresponding hit to their profits.
4. Policy uncertainty has been at least as big a problem as bad policy. This was most obviously true of the Abbott government’s attacks on the RET, which stalled investment in renewables, while doing nothing for coal. Abbott is correctly blamed for many of our current problems. The implication is that a bipartisan compromise is better than holding out for the right policy, only to see it reversed after the next change of government. Whether that judgement stands up remains to be seen. If Turnbull does indeed face down Abbott, Abetz and the rest, and can reach an agreement with Labor, the arguments of the Review will be vindicated. And, with the denialists sidelined, it will become obvious that we need and can easily achieve more ambitious targets.