the overall energy ecosystem in australia and how it is transforming

THE OVERALL ENERGY ECOSYSTEM IN AUSTRALIA AND HOW ITS TRANSFORMING

DISRUPTION AND THE ENERGY INDUSTRY

IAN MCLEOD

SYDNEY

30/08/2016

INTERESTING TIMES

• Sheep get tired cheap energy grows GDP expensive energy constrains

GDP

• High gas prices, international parity and moratoriums on developments

• Ownership – NSW network leases, Queensland mergers & W.A?

• Competition – government vs private, retail vs networks vs others, traditional

vs non traditional energy solutions, economics vs social vs climate

• A federal election with a low profile on carbon

• Questions on industry model and changes to regulation

• Energy users starting to find a voice on energy policy

FROM CHAOS

Why?

• Lack of Vision & Planning

• Poor policy

• Lack of information, transparency,

collaboration & alignment

leading to duplicated investment

• Increased security standards

• Reduced energy volume

• Increased cost of capital

• Incentives & cross subsidies

• Metering mandateSource: AER- State Of The Energy Market 2015

………TO TODAY,

……..TO WHAT ENERGY FUTURE?

?

A CHAOTIC OR ORDERLY TRANSITION?

Reference: Audience survey: ABB Enterprise Software Users Conference – 26th July 2016

CURRENT TARGETS & POLICY DRIVERS: FEDERAL

Policy & Strategy

Carbon Reduction

• 5% off 2000 levels by 2020

• 25-28% off 2005 levels by 2030

Renewable Energy

• 33,000 GWH by 2020

National Energy Productivity Pan

• 40% increase by 2030

National Strategy On Energy Efficiency

Northern Australia Plan

Power Of Choice

Resources

Australian Renewable Energy Agency (ARENA)

• $2.5B funding to 2022

Emissions Reduction Fund

• $1.7B committed of $2.5B funding

• Third auction average price $10.23 per tonne

Northern Australia Infrastructure Facility

• $5B in concessional funding

Clean Energy Finance Corporation

• Clean Energy Innovation Fund 50/50 renewables/efficiency

CURRENT TARGETS & POLICY DRIVERS: STATES

State Carbon Renewable Efficiency Other

New South Wales 20% by 2020 • Energy Efficiency Scheme

• 5% pa to 2020

Victoria 40% by 2025 • Victorian Energy Efficiency Target to

2029. 5.4m VEEC’s 2016

• $20m new energy jobs fund

Queensland 50% by 2030 • 1M solar rooftops or 3000MW of solar

• Govt support for 60MW large scale

South Australia 0 by 2050 50% by 2025 • Dwellings 15% & Govt 30% by 2020

• Retailer Energy Efficiency Scheme

• National Energy Efficient Building

Project

• $10B target for Low Carbon Generation

by 2025

Western Australia • 500,000 LGC’s tendered by Synergy to

meet 20% renewable target. Source

Aust

Northern Territory

Tasmania • $10m energy efficiency loan

scheme

• Predominantly renewable (hydro) now

ACT 100% by 2020 • Energy Efficiency Improvement

Scheme

• 2016-20 8.6% reduction pa

• 36MW of energy storage to 5000 homes

by 2020

IS THERE APPETITE FOR GREAT ALIGNMENT?


PRIORITIES VS BALANCE


DEMAND & SUPPLY: CONSUMPTION

• 5 years of decline

• Steadied in 2014-15

• Influenced by:

• Reduced aluminium smelting

• Reduced steel making

• Reduced car manufacturing

• Substitution (solar & hot water)

• Price

• Efficiency

• Education & Behaviour

DEMAND & SUPPLY: INEFFICIENT

• Inefficient

• Loads

• Price Signals

• Load curves &

getting worse

• Lack of flexibility

• Lack of control

• Lack of appropriate

metering

Peak Increasing

DEMAND & SUPPLY: PEAK

• Maximum demand declining except for Queensland, which is due to LNG projects

• South Australia has peakiest demand and the highest exposure to intermittent

supply leading to greater supply chain inefficiencies

Source: AER- State Of The Energy Market 2015

DEMAND & SUPPLY: CAPACITY

• Over supply of generation

• 2011-15 generation removed

exceeded new installed

• Without further investment

AEMO forecast risk of supply

shortfalls breaching reliability

standards by 2019-20 (S.A)

• Abolition of carbon pricing

saw some coal return & gas

mothballed


DEMAND & SUPPLY: FUEL

• In 2015 14.6% of supply came from

renewables

• We are just under half way to

achieving 33,000 GWh Renewable

Energy Target

Source: CEC- Clean Energy Australia Report 2015

DEMAND & SUPPLY: FUEL

• Hydro decreased due

to removal of Carbon

Pricing & drought

• Consequence was

increase generation

from fossil fuels


• Significant wind and

solar rooftops in South

Australia

• High residential roof top

penetration in

Queensland

• Lack of Hydro resources

• No nuclear

DEMAND & SUPPLY: FUEL - RENEWABLES

Source: CEC- Clean Energy Australia Report 2015

Penetration: % Dwellings with PV

• Queensland highest penetration

in the world

• Initial growth fuelled by subsidies

Source: Australian PV Institute (APVI) Solar Map, funded by the Australian Renewable Energy Agency, accessed from pv-map.apvi.org.au on 22 July 2016.

Installed PV Generation Capacity

• 5.4 GW of capacity

• Larger scale now accelerating

• RET certificate price increasing

>100kW

>10kW<100kW

<10kW

DEMAND & SUPPLY: FUEL – RENEWABLES - SOLAR

http://pv-map.apvi.org.au/

• Queensland’s 44 cent

Premium Feed-In Tariff

liability is estimated @ $4.4B

• Queensland Competition

Authority estimated it

added $89 to the average

residential bill for 2015/16

Source: Queensland Productivity Commission Draft Report: Solar Feed-in Pricing in Queensland March 2016

UNINTENDED CONSEQUENCE

• PV hasn’t led to an ability to

reduce network capacity &

investment

• It has resulted in increase

network investment

Source: Queensland Productivity Commission Draft Report: Solar Feed-in Pricing in Queensland March 2016


• Higher security and reliability

standards introduced in

Queensland following Brisbane

storms in 2004 (Somerville

Report) led to increase

investment in capacity &

redundancy

• Reduced demand: Energy

Conservation & Demand

Management Program

commenced 2008

• Utilisation down Source: Queensland Productivity Commission Draft Report: Solar Feed-in Pricing in Queensland March 2016


A CLEANER FUTURE

Australia is expected to:

• surpass its 2020 abatement target by

78Mt CO2e

• achieve 64 to 65% decrease in emissions

per $ of GDP; &

• 50 to 52% per capita between 2005 &

2030

Source: Australian Government, Department of the Environment: Fact Sheet

A CLEANER FUTURE: INDUSTRY PERFORMANCE

• Emissions intensity fell by 4.7% during the two years carbon pricing was in

place

• With lower NEM consumption the total fall was 10.3%

• Contributed to supply constraints and security issues in Tasmania following

loss of Bass Link, drought and low storage dam levels

• Following removal of the carbon price emissions grew by 4.3% to 30 June

2015

• The impact of new LNG projects in Queensland may raise current emissions

WHOLESALE MARKETS

• Volatile and high wholesale prices in

South Australia and Queensland

• S.A. caused by extreme temperatures,

high proportions of intermittent

generation, closure of thermal plant, high

gas prices, transmission restraint and lack

of redundancy

• Queensland influenced by new LNG

loadsSource: Financial Review 16-17 July 2016 Pg 6

NETWORKS

• Increased private ownership/control

• Reduced financing cost

• Revenue caps – disconnecting volume

from revenue

• Probabilistic security standards

• Lower augmentation & higher age

replacement

• Lower network charges per customer

RETAIL

• Retail prices fell in NSW & Qld & SA

• Retail price increased in Vic & Tas

• Hardship increasing but complaints down

• Focus acquisition to retention = less churn

Source: AER: State Of The Energy Market 2015

• Increased vertical integration & upstream

interests in gas

• Competition consolidating: AGL, Energy

Australia & Origin increasing market share

FORECAST FUTURE COST

27

• Relatively flat network prices

• Influenced by storage & ability

to manage demand

• Generation costs increase

• GHG settlement mechanism

from 2020

Source: ENA – Network Transformation Roadmap

STORAGE

• Morgan Stanley forecast 1 million batteries or

6GWhs by 2020 and significant cost reductions

• End of Premium FIT in NSW will drive up demand

but Qld’s Premium FIT will suppress demand

• Network Services are highly valued but

there are cheaper resources

• I see more demand following supply value

ELECTRIFICATION OF TRANSPORT

• Potential for emissions

reduction

• No zero tail pipe drive

• Slow progress in Australia

• Range anxiety

• Should be plug and play

• Smarter ways to transact

needed

TARIFF REFORM

• Smarter Tariffs are about

balanced supply & demand

solutions

• Seasonal Time of Use

Demand (SToUD) delivers the

greatest long term benefits

• Greater drive needed from

governments and market

participants

• Retail only led deployment of

smart meters is constraining

transformation

Source: ENA – Network Transformation Roadmap

ENERGY PRODUCTIVITY

31

• Finally we have a focus on productivity @

40% reduction by 2030

• Opportunities in many sectors

Source: National Energy Productivity Plan, December 2015

A CLEANER, SECURE & AFFORDABLE FUTURE


A CLEANER & PRODUCTIVE ENERGY FUTURE

To achieve this we need:

• balanced & agreed objectives – cleaner, secure and affordable – NEO?

• a destination – future state vision

• a pathway to get there - road map

• an efficient and liquid market

• with efficient prices signals – smart tariffs;

• that encourages the deployment of the least cost resources; and

• to leverage the significant latent value in existing resources

• to recognise that with no nuclear, insufficient hydro resources and gas constraints

that high short term renewable targets will impact affordability – time is our friend

• to be careful subsidies, incentives and rebates don’t distort & become a barrier

• to move away from supply following demand to markets and control


• Some believe the solution to high prices, over

supply and underutilised resources is to invest

in even more resources i.e. batteries and

more transmission

• We need to use the lowest cost resources first

and therefore a market approach is required

to ensure an affordable energy future

• Connectivity, control, data, contracts and

tariffs will be key attributes of the market

enabling competing resources to be

deployed

Supply Storage

Demand

Market


Networks will serve a higher order “Purpose”

• They are what connects us to our vast energy resources

• They provide us choice

• They provide security

• They provide capacity

• They enable us to effectively integrate renewables for a cleaner energy

future

• And most importantly they enable an effective, efficient and very liquid

market open to all.


• The network becomes the Platform on which customer and producer

applications and services are deployed within a market framework

• The liquid market provides price tension and drives innovation

• The liquid market provides competition between old approaches (build a

substation or generator) versus new market and technology based

solutions (tariff smart meter battery) therefore driving labour and

energy productivity

• The market owns electricity supply, not any particular stakeholder

• The customer is in control within an efficient and effective market

construct


Looking around the world for some evidence to support the direction:

• RWE and EoN in Germany separating generation assets, talking customer

centricity and connectivity as key. Investing in new technology firms

• In the US some investor owned utilities are winding back long positions in

carbon based generation

• New York Public Service Commission initiate their Reforming the Energy Vision

(REV) program in April 2014 which is focused on a platform model (this was

after Ergon)

• New York PSC allows ConEd to recover revenue for $1.3B Advanced Metering

Infrastructure from 2015-2022. Reforming regulated revenue models.

ENERGY SUPPLY & GDP DIVERSIFICATION


the overall energy ecosystem in australia and how it is transforming

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