A new report urges the Federal Government to implement the Finkel Review’s Clean Energy Target to stabilise energy supply and stop rising power costs.
The Grattan Institute report recommends a three-step policy to encourage investment:
- Implement all June 2017 Finkel Review recommendations including the Clean Energy Target (CET).
- Work with existing organisations to assess the market’s reliability framework.
- Introduce a ‘capacity mechanism’ if projected shortfalls cannot be met.
The ‘Next Generation: the long-term future of the National Electricity Market’ report says work should start on a ‘capacity mechanism’ to reduce the threat of shortages.
Through a capacity mechanism, generators get paid for electricity they produce to meet current demand. In addition, payment is made for committing to provide power for years into the future.
The report says this capacity obligation on retailers is the most cost-effective and efficient approach.
Finkel Review solution to rising power costs
Spiralling power bills are forcing growing numbers of consumers to explore their own clean, more affordable energy solutions.
Because of this, households and businesses are increasingly installing rooftop solar power and energy storage batteries to generate their own electricity
Grattan Institute Energy Program Director Tony Wood says Australia needs “perspective, not panic” to solve its energy crisis.
According to Mr Wood, consumers will also continue to bear the brunt of high energy costs if effective action isn’t taken.
Unfortunately, a capacity mechanism would bring higher energy prices for consumers along with peace of mind, he said. Therefore, it should be introduced only if all other market reforms are exhausted.
Working together to solve energy problems
According to the report, the Australian Energy Market Operator’s annual assessment of supply and demand should be extended.
In addition, this would ensure a more comprehensive assessment of the adequacy of power supply.
Through a last-resort capacity mechanism, power generators receive payment for current electricity production as well as their commitment to meet future demand.
As the report also suggests, market operator or retailers could contract for enough electricity to meet demand well into the future.
Because of this, sufficient generation capacity and commercial energy storage solutions would exist to meet future needs.
