The Finkel Review creates great debate about energy security in Australia. Whilst security of supply is paramount, what will happen to prices?
The Finkel Review recognises consumers are at the heart of the transition to cleaner energy. But the question remains, will his recommendations deliver lower prices?
With power prices in South Australia already the highest in the country and prices set to rise in East Coast states from 1 July as low-cost coal is replaced with more expensive renewable generation, the issue is stark. Prices are rising more quickly than inflation and incomes.
Managing differing consumer interests is a delicate balancing act both in terms of short term and long term impacts. Whilst there is a segment of consumers who indicate they are willing to pay a bit more for a transition to sustainable renewable uptake, this is not the case for low-income households where any slight increase means they may be tipped below the poverty line.
Price forms one part of the Finkel Review energy 'trilemma'. How to achieve an optimum balance between security/reliability of supply, energy affordability and emissions reduction outcomes.
Whilst much focus will be on how best to transition to an integrated emissions reduction and energy policy it is widely accepted that the Clean Energy Target (CET) is the least costly way to increase the level of renewables in the energy mix to 30 percent by 2030. Reaching this target represents the best chance of achieving our emissions reduction goals and restraining the upward pressure on prices.
Finkel highlights that consumers are at the centre of the energy transition process. If they are properly empowered and financially incentivised they can make a key contribution to lower energy prices through effective demand management; to reduce future network and generation costs and put power back in the grid.
For this to happen, consumers will have to increasingly look at new technologies (e.g. battery storage, home energy management systems, smart energy efficient appliances) to source and use their electricity. Finkel notes there is already significant adoption of on-site distribution generation supported by energy management for some commercial and industrial customers and pilot load aggregation schemes for small customers.
A key element in empowering consumers, argues Finkel, is the need for enhanced access to data to enable greater consumer choice and control. More information is critical, to bridge the gap between consumers who are highly engaged with their energy choices to consumers who are less engaged. Consumers need improved transparency and clarity of electricity retail prices including digital meters that can measure a consumer’s electricity usage every 5 or 30 minutes. Ease of access to their usage data is critical for consumers to make informed choices on future purchases of energy efficient appliances, battery storage, energy management applications, and market offers for participating in distributed energy markets.
However as we go down the path of utilising data and information more actively in energy management, it is critical that consumer protection keeps pace with technological change and the needs of financially vulnerable consumers are specifically addressed.
There are a number of aspects of the report that could translate to higher costs for consumers. One issue is that placing additional obligations on renewable energy generators may inhibit uptake of the lowest cost options, possibly leading to higher prices.
Another is the requirement for coal-fired power generators to give 3 years’ notice before they shut down. Although this will enable a smoother transition there is also a risk that such an approach could involve compensation payments to ageing or redundant generators that have high maintenance costs. This would be paid by taxpayers or consumers.
Implementation of Finkel’s recommendations could lead to reduced prices for consumers if improved investment certainty leads to downward pressure on wholesale prices. But there is also the possibility prices will increase due to the additional costs of implementing them. Whatever the final scenario, it is critical for our energy future that the intent of the Finkel recommendations are followed with consumers’ interests front of mind.
This article originally appeared in the KPMG NewsRoom.