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Sorting out the sound and fury of energy

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September 13, 2017

The government has been contemplating how to make AGL keep open the Liddell power station.

Power bills are skyrocketing, there are dire predictions of blackouts and politicians are calling each other silly names.

Welcome to the energy policy debate - full of sound and fury and leaving one wondering if it signifies anything.

The Turnbull government is reshaping the clean energy target recommended by Chief Scientist Alan Finkel into something palatable to the conservatives on its backbench.

It received the Finkel report in June and quickly agreed to 49 of its 50 recommendations.

Prime Minister Malcolm Turnbull reluctantly - during a media interview - set himself a December deadline for sorting out the final recommendation of a clean energy target or similar policy.

Industry and experts have repeatedly warned the policy paralysis cannot continue if there is to be the investment in new generation or storage necessary to replace ageing coal-fired generators.

The problem is that investing in any kind of power generation is a decades-long prospect and no one wants to put their money on the line if the government might change the rules and make it unviable.

For the past month or so the government has said it was waiting on a report from the Australian Energy Market Operator about electricity generation needs in the future before developing a policy.

It got that report just over a week ago and has used its warning the grid will need an extra 1000 megawatts of dispatchable power (which can be sent when it's needed) before the Liddell coal-fired power station closes in 2022 to pressure owner AGL into keeping it open longer.

But policy expert Oliver Yates - who led the government's green finance bank until May - says it's exactly that kind of intervention that is causing chaos and reluctance to invest.

Coal power, while dispatchable, isn't suited to the changing market in the long term because its capacity can't be quickly ramped up or down to respond to demand levels, unlike gas plants or storage options such as batteries or pumped hydro.

Expect to hear more about "demand response measures" soon too.

This is when energy companies or AEMO pay energy users - usually large industry - to volunteer to cut their power consumption during extreme spikes in demand, meaning others don't face forced blackouts.

WHAT IS THE CLEAN ENERGY TARGET?

* Sets an emissions intensity threshold - Finkel modelled this at 600kg of carbon dioxide or equivalent pollution per megawatt hour (600kg CO2/MWh) of energy produced

* New generators that produce electricity below this threshold would receive certificates based on how far under it their emissions are.

* Existing generators could earn certificates if they produce more electricity than they do now - increase capacity - and it falls under the emissions threshold.

* Emissions-free generators - such as wind or solar - would get a whole certificate while dirtier forms - such as gas or coal - would get a fraction of one, meaning they would have to generate more power to receive the same number of certificates.

* Electricity retailers would have to buy and surrender to government each year a certain number of certificates, to show there is enough clean energy in the system.

* If the CET level was set at 700kg CO2/MWh it would incorporate the newest technology, high-efficiency low-emissions coal stations - of which there are none in Australia at the moment.

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