Client Update: Finkel: the solution for our energy future?
13 June 2017
In brief: As the saying goes, 'never let a good crisis' go to waste. The Finkel Review, commissioned after blackouts in South Australia and delivered by Australia's Chief Scientist last week, may prove to be the right report at the right time to garner support for energy and emissions policy positions that could provide investment certainty, regulatory direction and political peace for generations. Our energy experts consider the report's broader implications for Australian business: what questions should business leaders be asking of their teams in a post-Finkel world?
- Three problems, four outcomes, five trends
- Key trends and the questions to be asking
- Where to from here
The expansive summary of the Report provides a very good overview. Rather than produce another summary, we have analysed the report and considered its broader implications for Australian businesses. That is, what questions should business leaders be asking of their teams in a post-Finkel world? Set out below are our picks for the most important issues that will, if the report's recommendations are adopted, change the energy landscape for all Australians who use, produce, distribute or invest in energy.
The strength of this report is its breadth and independence. The report presents a range of ideas, many of them well-trodden paths, and makes recommendations with the goal of improving the National Electricity Market through increased security, future reliability, rewarding consumers and lower emissions. However, underlying the recommendations that support these desired outcomes, the report reveals three problems that Finkel, explicitly or implicitly, sets out to solve:
- The current energy market mechanisms and frameworks are unable to coordinate and encourage investment in ways that reliably and optimally produce the desired NEM outcomes.
- The political uncertainty around emissions reduction mechanisms has led to investment uncertainty which has in turn caused price, reliability and system security problems.
- The regulatory bodies tasked with controlling the energy market lack the direction, resources and accountability to regulate the NEM appropriately in the face of a changing technological and emissions environment.
Finkel proposes that if his recommendations are adopted, these three problems would be solved and the desired outcomes achieved. From these recommendations, we see five key trends emerging which lead to a series of key questions business leaders should be asking their executive teams.
|Key trends and recommendations||Questions for business leaders|
|1. Increasing intervention by regulators and governments|
|2. Greater technical control over generation to provide system security|
|3. Optimised data from multiple sources – managed securely|
|4. Political stability leading to a smooth transition|
|5. Energy market institutions require clear direction and more resources|
Of course, the Finkel Review is not law or even policy yet and it is likely to be weeks, months or years before these recommendations emerge from the political and regulatory review process. In the meantime, the energy market will continue to change, with a number of important rule changes and reports due from the Australian Energy Market Commission in the next month or so and climate policy being rapidly shaped at home and abroad.
We encourage you to take time to consider the Finkel Review and what it may mean for your business. Regardless of which recommendations are eventually adopted, we see strong partnerships between energy market participants, investors, technology providers, advisers and financiers as being a sure bet in navigating an uncertain energy future. We invite you to get in touch and share your thoughts – of course we would be delighted to share ours.
Look out for further analysis from us over the coming weeks on the implications of Finkel's recommendations.
- Anna CollyerPartner,
Ph: +61 3 9613 8650
- Andrew MansourPartner, Sector Leader, Power & Utilities,
Ph: +61 2 9230 4552
- Kate AxupPartner,
Ph: +61 3 9613 8449
- John GreigPartner,
Ph: +61 7 3334 3358
- Paul KennyPartner, Sector Leader, Government,
Ph: +61 3 9613 8860
- Andrew PascoePartner,
Ph: +61 8 9488 3741
- Jodi ReinmuthPartner,
Ph: +61 8 9488 3702
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