Finkel Review into the Future Securityof the National Electricity Market
1
Electricity prices
2* Based on Australian Energy Market Commission estimates
0 5 10 15 20 25 30 35 40 45 50
Green Schemes
Retail
Wholesale (generation)
Networks
Percentage
Australian Electricity Bill Cost Components (2016/17)*
8
14
31
47
• National average retail prices have doubled in the past ten years, driven by a range of factors
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Where are we - prices
0
20
40
60
80
100
120
140
160
0
20
40
60
80
100
120
140
160
Perc
enta
ge in
crea
se
Nominal increase in average retail electricity prices since 2004
Network pricing
Carbon price repealed
Carbon price introduced
Generation
0
20
40
60
80
100
120
140
0
20
40
60
80
100
120
140
June 2010 June 2011 June 2012 June 2013 June 2014 June 2015 June 2016 March 2017
Vo
lum
e-W
eigh
ted
wh
ole
sale
ele
ctri
city
sp
ot
pri
ce
$A
U/M
Wh
(n
om
inal
)
SA price spikes
July 2016
$35/MWh
Carbon price introduced 1 July 2012
4
Wholesale prices at record levels
Tightening supplyand rising gas price
$58/MWh $56/MWh
$130/ MWh
Carbon price repealed 1 July 2014
How did we get here?
• Electricity supply has been tightening as existing, fully depreciated coal fired power stations close
• Policy uncertainty holding back new investment
• This has resulted in higher-cost, gas-fired generation setting the price more often
5
When will coal power stations close?
6
brown coal black coal
Source: Jacobs Modelling for Finkel Review 2017
-
5
10
15
20
25
2020 2025 2030 2035 2040 2045 2050C
oal
Cap
acit
y (G
W)
NEM coal capacity and closures
Power Stations close at 50 years from last unit
Liddell (NSW)Yallourn (Vic)Gladstone (Qld)
Loy Yang A (Vic)
Eraring (NSW)
Loy Yang B (Vic)Stanwell (Qld)
Vales Point (NSW)
Bayswater (NSW)Tarong (Qld)
Callide B (Qld) Mt Piper (NSW)
1,400
240
190
480 1,000
189
144 160
520
1,600
0.5
0.7
0.9
1.1
1.3
1.5
1.7
1.9
2010 2011 2012 2013 2014 2015 2016 2017 2018
Emis
sio
ns
Inte
nsi
ty (
tCO
2-e
/MW
h)
Historic power station closures
Energy Brix
Redbank
Swanbank B
Collinsville
Hazelwood
Munmorah
Wallerawang
Playford B
NorthernAnglesea
When coal generators reach 50 years
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GeneratorClosure Date by last
generating unitOwner State Capacity (MW)
Liddell 2022 AGL NSW 1,936
Vales Point 2028 Delta Electricity NSW 1,241
Gladstone 2032 Rio Tinto Queensland 1,579
Yallourn 2032 EnergyAustralia Victoria 1,362
Eraring 2034 Origin NSW 2,707
Tarong 2036 Stanwell Queensland 1,316
Loy Yang A 2036 AGL Victoria 2,088
Bayswater 2038 AGL NSW 2,593
Callide B 2039 CS Energy Queensland 658
Loy Yang B 2044 Engie Victoria 966
Mt Piper 2046 EnergyAustralia NSW 1,260
Stanwell 2046 Stanwell Queensland 1,372
Millmerran Does not close before 2050 Intergen NSW 788
Tarong North Does not close before 2050 Stanwell Queensland 416
Kogan Creek Does not close before 2050 CS Energy Queensland 699
Callide C Does not close before 2050 CS Energy Queensland 761
Source: Capacity figures from Jacobs Modelling for Finkel Review 2017
Gas is setting the electricity price more often
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• In May 2017, across the NEM, gas set the electricity price 24 per cent of the time,compared to 9 per cent in May 2014
compared to 9 per cent in May 2014
0
20
40
60
80
100
120
100 200 300 400 500 600 700 800 900 1000
$/M
Wh
MW of capacity offered as supply every 5 minutes
Electricity generator offers into the wholesale electricity spot market
Gas
Black coal
Brown coal
Renewables
Clearing price
Gas prices are pushing up electricity prices• Every $1/gigajoule increase in gas prices leads to an increase of
around $10/MWh in the cost of gas fired electricity generation
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0
2
4
6
8
10
12
$ p
er g
igaj
ou
le
Short Term Trading Markets and Victorian Declared Wholesale Gas Market Prices
Adelaide STTM Brisbane STTM Sydney STTM Victorian Declared Wholesale Gas Market
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Where are wholesale electricity prices going?
$0
$20
$40
$60
$80
$100
$120
$140
2010 2015 2020 2025 2030
Load
-wei
ghte
d w
ho
lesa
le p
rice
($
/MW
h)
NEM average wholesale price
Historical Jacobs modelling - Finkel BAU scenario
System security and reliability: How did we get here?
• Renewables were pushed into the system without:• a focus on where they were
located• a plan to replace inertia and
frequency response lost as coal closed
• a plan to deal with intermittency
• Investment uncertainty outside of renewables
• Lack of planning and sufficient notice of major closures
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Source: 2009-2016: Office Of the Chief Economist, Australian Energy Statistics, 2006-2008 and 2017: AEMO data through the NEMReview tool 2017Note: this includes large-scale and rooftop solar.
0%
10%
20%
30%
40%
50%
60% Percentage of annual generation from wind and solar by state 2006-2017
Solar
Wind
NSW VIC QLD SA Tas WA
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Where are we - emissions
100
110
120
130
140
150
160
170
180
190
200
100
110
120
130
140
150
160
170
180
190
200
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Emis
sio
ns
(Mt
CO
2-e
)
Historic NEM Emissions (Mt CO2-e)
Source: Department of Environment and Energy – National Greenhouse Gas Inventory June 2016
Breakdown of emissions
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56%
37%
6%
Black Coal
Brown Coal
Gas
Source: NGERs 2016
Percentage of NEM 2016 emissions by fuel type
NEM30%
Electricity (excluding
NEM)5%
On-site industrial energy
combustion
18%
Transport18%
Fugitive Emissions
8%
Direct manufacturing
emissions6%
Agriculture13%
Waste2%
Australia's emissions by sector 2015-16
Source: NGGI June 2016,National emissions
excluding LULUCF, unadjusted
• Finkel modelling shows emissions decline
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Where are emissions going?
Source: Jacobs Modelling for the Finkel Review 2017
100
105
110
115
120
125
130
135
140
145
150
155
160
2020 2025 2030
An
nu
al E
mis
sio
ns
(Mt)
NEM BAU Emissions 2020-2030
127 Mt: 28 % below 2005 levels
140 Mt: 21 % below 2005 Levels
Finkel Review
• Commissioned on 7 October 2016, through the COAG Energy Council, after the state-wide blackout in South Australia
• 392 submissions
• 50 recommendations covering • Increased security
• Future reliability
• More affordable power
• Greater gas supply
• Stronger governance with new Energy Security Board
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“Australia hasn’t a moment to lose now that we have a comprehensive, independent blueprint to restore the security, reliability and affordability of
our electricity system”Business Council of Australia
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Stakeholder views
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Stakeholder views
“This is not a plan to make our power sector cleaner or our climate safer.
It’s a short term political fix to deal with the fact that the people who are apparently responsible for running the country have an ideological
attachment to dirty fuels.” Australian Conservation Foundation and GetUp!
Finkel package – Increased security & reliability
• Generator Security Obligation • All new generators will be required to contribute fast frequency response and
system strength
• Generator Reliability Obligation• All new intermittent generator will be required to put in place storage and
backup, at a level to be determined by AEMO and AEMC.
• Three Years Notice• All major generators will be required to give three years notice of closure.
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• Wind generates around 40% of the time and solar generates 20-30% of the time
• Finkel recommends mandatory storage and backup for new intermittent renewables
• This levels the playing field – renewables now required to pay for intermittency
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* Illustrative: Storage costs are based on 4 hour storage at 25% capacity.
Finkel package – Generator reliability obligation
$91
$107
$92
$108
$-
$20
$40
$60
$80
$100
$120
$140
$160
Solar PV Solar PV withstorage*
Wind Wind with storage*
Range
Average
Finkel package - Three year notice period
• The last five closures were Hazelwood, Northern, Anglesea, Redbank and Energy Brix. They provided an average of five months notice before closing
• Finkel recommends all large generators (coal, gas, wind, solar, hydro) be required to provide three years notice ahead of closure, which could be written into the National Electricity Rules as part of their licence to operate.
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Clean Energy Target - First proposed by John Howard
• Howard Government proposed a Clean Energy Target in the 2007 election campaign:
• required 30,000 GWh each year from low emissions sources by 2020
• low emission sources were technologies emitting less than 200kg CO2e/MWh i.e. renewables and fossil fuels with carbon capture and storage
• intended to replace existing and proposed state and territory schemes with a single national scheme
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Finkel package - Clean Energy Target
• Why Finkel concludes an investment mechanism needed?
• Investment freeze outside of renewables as energy market is operating with a risk premium for policy uncertainty
• Market needs certainty to invest in fossil fuel generation (existing and new)
• Investment uncertainty is affecting system reliability and security and causing higher prices
• Current mechanism (RET) is not technology neutral
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Finkel package - Clean Energy Target
• Generators that produce power below a baseline of CO2-e/MWhwould create a certificate
• Finkel leaves setting the baseline to government
• The size of the certificate would be proportionate to the amount their emissions are below the baseline
• Retailers would need to buy certificates from generators and the price would be determined by the market
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Difference between CET and an EIS• A CET only has incentives, no penalties on existing coal. No prohibitions or penalties on new coal being built
• Unlike CET, an EIS penalises new and existing coal
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Clean Energy Target lowers prices
25
20
23
26
29
32
35
2020 2022 2024 2026 2028 2030
Residential Retail Price (c/kWh)
BAU Clean Energy Target
Clean Energy Target10% below BAU in 2030
5
7
9
11
13
15
2020 2022 2024 2026 2028 2030
Industrial Retail Price (c/kWh)
BAU Clean Energy Target
Clean Energy Target16% below BAU in 2030
Source: Jacobs Modelling for the Finkel Review 2017
-
5
10
15
20
25
2020 2025 2030 2035 2040 2045 2050
Co
al C
apac
ity
(GW
)
NEM coal capacity and potential closures
Reliability and Clean Energy Mechanism Power station closes at 50 years from last unit
Liddell (NSW)
Yallourn (Vic)
Loy Yang A (Vic)
Eraring (NSW)
Loy Yang B (Vic)Stanwell (Qld)
Gladstone (Qld)
Callide B (Qld)
Vales Point (NSW)
Gladstone (Qld)
Bayswater (NSW)Tarong (Qld)
Callide B (Qld)
Yallourn (Vic)
Mt Piper (NSW)
Vales Point (NSW)
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Clean Energy Target helps keep baseload in the system
Source: Jacobs Modelling for Finkel Review 2017
Clean Energy Target
Clean Energy Target
27Source: Jacobs Modelling for the Finkel Review 2017
69%coal
57% 53%
9%
5%
17%24%
8% 9%
9% 9%
0%
20%
40%
60%
80%
100%
BAU in 2030 Clean Energy Target in 2030
NEM Generation mix
Coal Gas Large scale wind and solar Hydro and Biomass Roof top PV
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Australian Electricity Bill Cost Components
Green Schemes Retail Wholesale (generation) Networks
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Limited Merits Review reforms to limit the ability of network owners to appeal AER revenue decisions
ACCC inquiry into retail price drivers and wholesale issues
Market reforms to increase gas supply, enhance market transparency and make it easier to access gas pipelines, and introduction of export controls
Lowering electricity prices
Labor’s alternative
•No future for coal and fast tracking closure
•45 per cent emission reduction target
•50 per cent RET
• Emissions Intensity Scheme (EIS)
•No energy security plan
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