Australia: Securing our energy future: Practical considerations of the Finkel Report

The release of Dr Alan Finkel's Independent Review into the Future Security of the National Electricity Market (Report) marks a climax in the on-going discussion surrounding Australia's energy future.

The Report is a blueprint for the government, offering a clear pathway for energy policy. The task was (and still is) a complex one.

In the context of a country which is trying to balance;

  • climate change and the global shift to renewables;
  • reliability and security of energy sources; and
  • the cost of energy to consumers,

the Report looks to provide a clear and focussed way forward.

The recommendations are currently being considered by Commonwealth and State governments and will require a level of cooperation from all parties if there is to be any real benefit. Let's take a brief look at some of its key recommendations before posing some practical questions (and one or two suggestions) about its implementation.


Given Australia needs stable policy to allow for business investment, the Report recommends that by 2020 the Australian Government develop a 'whole-of-economy emissions reduction strategy for 2050'.

In respect of the electricity sector, the Report recommends the Australian, State and Territory governments set an emissions reduction target from 2020 onwards. No specific target is set but it should reflect Australia's commitment to a 26 to 28 percent reduction in emissions from 2005 levels by 2030, as per the Paris Agreement.

The Report notes it may be 'appropriate for governments to ask the electricity sector to do more than a direct application of the national target'. However, it recognises a more ambitious target may 'have consequences for security, cost and reliability'. Therefore, an emissions reduction target for the electricity sector is, on its own, unlikely to allow Australia to meet its Paris commitments and provide secure, affordable electricity.

In this context, there are three key points coming out of the Report - a recommendation for a Clean Energy Target, the imposition of a Generator Reliability Obligation and the importance of gas to the National Electricity Market.


A Clean Energy Target (CET) is the recommended approach to achieving reliable and low emissions energy generation. The CET is preferred over an emissions intensity scheme and a business as usual approach.

The CET would be based on the current Renewable Energy Target (RET) scheme, which is proposed to continue in its current form until its scheduled end date for new renewable generators in 2020. The RET would not be extended.

It's clear that the CET is not an emissions trading scheme, a carbon tax or even an emissions intensity scheme. What isn't clear is exactly how it will work.

How might the CET work?

Firstly, it is important to note that the CET will not actively punish high emissions generators. The CET scheme will award certificates to electricity generators whose emissions are below a threshold level to be set by the Federal Government. Certificates will be issued in proportion to how far a generator's emissions intensity is below the threshold level. The more certificates issued, the lower the emissions intensity. This will mean generators which meet the threshold level but have a higher emissions intensity would benefit less from the scheme. This compares to the RET where 1 RET certificate is created for each megawatt-hour of electricity generated from renewable sources.

Retailers will be required to purchase certificates to show that a pre-determined share of their electricity came from low emissions generation. The CET would continue indefinitely but limit the period over which a generator could receive certificates – the Report modelled 15 years. The Report concludes that both the residential and industrial price of electricity would be lower under a CET scheme than under a business as usual approach or an emissions intensity scheme. [1]

All fuel types, including coal with carbon capture and storage, would be eligible to participate in the scheme provided they meet the emissions threshold. The Report's modelling (which calculated electricity pricing under the different options) was based on a threshold emissions level of 0.6 tonnes or 600kg of carbon emissions per megawatt-hour of electricity generated. [2] According to the Report, open cycle gas generation operates with emissions of 620kg per megawatt-hour and ultra-supercritical black coal (High Energy Low Emissions coal) operates at 700kg per megawatt-hour. [3]

On a practical level, under the CET, new generators which do not meet the threshold emissions level would not be developed in the future. As regards existing high emissions generators, the Report's modelling identifies they will be disadvantaged - being displaced in the merit order in which generators are dispatched in the National Electricity Market. This is because low emissions plants will have lower dispatch costs or because the revenue that low emissions plants generate from CET certificates will allow them to reduce dispatch prices below that of high emissions generators.


The Report recommends that the Australian Energy Market Commission (AEMC) and the Australian Energy Market Operator (AEMO) develop and implement a Generator Reliability Obligation (Obligation) by mid-2018. The Obligation would apply to new renewable energy generators connecting to the National Electricity Market. It is a security and reliability measure designed to ensure there is no shortfall in dispatchable capacity when market demand is high. In practical terms a new renewable energy generator would have to guarantee they can supply (at any time) a certain percentage of their nameplate capacity in order to meet dispatchable capacity for a required time period.

The Report notes that the first step in the process of imposing any Obligation is for the AEMC and AEMO to determine the minimum dispatchable capacity required as part of a regional reliability assessment. In regions where dispatchable capacity is near the minimum acceptable level needed to meet demand, new projects would be obliged to bring forward new dispatchable capacity to that region. In effect, generators would be required to bring online both new renewable generation capacity and new dispatchable generation capacity, potentially via a large scale battery.

Is a Generator Reliability Obligation practical?

There are some practical issues which the Obligation raises that are not addressed in the Report. Questions such as what percentage of back-up supply would renewable generators need to provide? What timeframes would be required with respect to calling on that back up? How long would they need to sustain any reliance on the back-up? The Report seems to indicate the parameters of the Obligation would be flexible in that multiple new renewable projects could be supported by one guaranteed source of dispatchable supply, such as a gas-fired power station. As the new dispatchable capacity would be reserved for back-up purposes, presumably it would be unable to participate in the market in the normal course. Given the current state of the gas market, the practicalities and capital efficiency of having a gas-fired power station providing back-up support only may be questionable.

The Obligation also raises a fairness issue, with new renewable generators arguably being required to provide back-up dispatchable supply for existing renewable generators, at no cost to those incumbents.


The Report highlights the importance of gas as a low emissions substitute for coal and a viable energy source to complement the renewables sector. It notes that secure and reliable gas supply is crucial for secure and reliable electricity generation. AEMO has stated that in the absence of additional sources of gas supply there is likely to be a shortfall of gas for electricity generation between 2019 and 2024 as well as general electricity shortfalls. [4]

Impact on gas suppliers and gas consumers

Currently, there is no requirement to report to AEMO whether a generation unit has sufficient fuel to run. As a result, the Report recommends that AEMO should require generators to provide information on their fuel resource adequacy and fuel supply contracts to enable AEMO to better assess fuel availability.

The Report acknowledges that supply contracts are a commercial matter for generators but calls for greater transparency of fuel resource levels (including gas and coal). How this would work on a practical level and how it may affect suppliers and consumers is unclear. The Report calls for increased reporting but does not detail what obligations would be placed on generators. Would generators have to disclose the details of their gas supply contracts? Would gas suppliers also be required to give additional details about gas production? There are a number of factors AEMO will need to consider when requiring industry to report on, and forecast, fuel sources. Long term gas supply is essential for reliable electricity generation. However, the Report states that given the current gas supply market new technologies such as battery storage may be more cost-effective in securing reliable electricity.

Government restrictions on gas sources

The Report notes that governments should avoid 'blanket restrictions and bans on gas projects' and recommends that governments adopt evidence based regulatory regimes in respect of gas projects which should include an outline as to how governments will ensure landholders are fairly compensated. This is targeted at the moratoria on gas exploration that have recently been imposed in various parts of Australia. The Report calls for decisions to be based on evidence and for governments to approach projects on an individual basis adopting a regulatory approach which addresses and manages the risks associated with individual projects.

The recommendation that governments outline landholder compensation plans reflects the policy shift that State Governments are already undertaking. Both South Australia and Queensland have recently announced changes to the way landholder compensation is to be approached. Whether that policy shift is effective in getting community support for new exploration remains to be seen. The Scientific Inquiry Into Hydraulic Fracturing in the Northern Territory will provide additional clarification on the way forward for the gas industry.

The Report recognises the need for continued exploration and supports a scientific approach to gas development but falls short of calling on State Governments to lift the moratoria on gas exploration.


The Report is pragmatic and apolitical. It highlights the current issues in the National Electricity Market and calls for a clear strategy moving forward. It tells us what needs to happen but, as its title suggests, it is only a 'Blueprint for the Future'. It leaves much of the detail unexplained and calls for new and existing regulatory bodies to take action and develop strategies. It raises many practical considerations relevant to all market participants - suppliers, generators, retailers and consumers will all be affected but exactly how and to what extent remains to be seen.

The true value of the Report will lie in the Federal Government's ability to develop a strategic energy plan which the States support, which delivers reliable and affordable energy and which allows Australia to honour its global climate change obligations.


[1] Department of Environment and Energy, Independent Review into the Future Security of the National Electricity Market: Blueprint for the Future, Pg 90, Figures 3.5 and 3.6.

[2] Jacobs, Report to the Independent Review into the Future Security of the National Electricity Market, Pgs 61-67.

[3] Department of Environment and Energy, Independent Review into the Future Security of the National Electricity Market: Blueprint for the Future, Appendix B (note the figures are sourced from a 2010 discussion paper).

[4] Department of Environment and Energy, Independent Review into the Future Security of the National Electricity Market: Blueprint for the Future, Pg 113.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Chambers Asia Pacific Awards 2016 Winner – Australia
Client Service Award
Employer of Choice for Gender Equality (WGEA)

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.