frank tudor - horizon power - wa power and gas forum

Your Next Generation local energy partner

Tuesday 15 March

WA POWER AND GAS FORUM

contents

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Introduction and context: fast facts

introduction and context dealing with the basics stepping into the future doing and learning takeaways

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Your Local Energy Partner

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Last year I talked about the change we have been through

Characteristics of the US

benchmark co-operatives

Very simple local operations:

• Consumers‘ control cost focus

• Minimal and static regulation

• Capture scale benefits

• Lean planning processes

• Lean support functions

• Automated customer processes

• Less dynamic capital planning

• Streamlined approval processes

• Efficient project execution

• Greater local accountability

Access to efficient central services

• ~250 businesses, 75 years, 50m

customers

• Customer Care systems

• Government and regulatory relations

• Training and Knowledge sharing

• Management of coop employee

benefits

• Common branding

• Common procurement (poles)

Unique features of

Horizon Power

• Larger regulatory

obligation

• State ownership

structure

• High growth

(NWIS)

• Complex funding

arrangements

• Less market &

business

maturity

• Non

Interconnected

• Fewer scale

opportunities

In 2013 we set ourselves the target of:

1. halving operational costs by 2014/15*; and

2. reducing operating subsidy by $100M p.a. by 2017/18.


>50%

Our operating model has enabled change


20132006 2010

• Delivery and no surprises• Performance Management

• Build capability/capacity

• Governance and assurance

• Decrease subsidy by $100M pa by

2017/2018• Each role redesigned

• 40 separate initiatives

And we are seeing the benefits now

Key successes include:

• Revenue Leakage

Project

• Rationalisation of

Properties & Fleet and

Streamlining of

Procurement

• Remote Towns PPA

negotiation

Work underway includes:

• Regional optimisation and

efficiency work in

conjunction with the AMI

and CSR projects.

• Price Reform pilot

• AMI, CSR and Regulatory

Review projects

Experts in Crisis ResponseCyclone Olwyn devastated Carnarvon networkEsperance Fires burnt down 400 poles

Pilbara Underground Power Project And project deliveryMurchison Radio Observatory – Pilot for SKAAdvanced Metering Infrastructure ProjectHedland Precinct Power Project

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23%

Increasing investment in renewables

2015 2025 2050

Standalone

Distributed Energy Resources

Centralised

AUSTRALIA’SGROSS DOMESTIC

PRODUCT$912bn 2015

$1,291bn2025

↑26%

Decreasing demand for centralised generation

Rising electricity

pricesFalling cost

of new technology

KEYTRENDS

HOW WE RECEIVE ELECTRICITY WILL CHANGE

POPULATION

3 MILLIONIN WA BY 2025

HP SENT OUT POWER

>1,000 GWhPER ANNUM BY 2025

43%RISE IN WA RESOURCE EXPORTS BY 2025

2015 2025

453,655 SOLAR CONNECTIONS IN WA BY 2025

NATIONALLARGE -SCALE

RENEWABLEENERGY GENERATION

14% 201523.5% 2020

↑68%

↑142%

↓26%CARBON

EMISSIONS BY 2030

2015 2025

<1%

>11%

11% OF TRANSPORT NATIONALLY IS EV BY 2025

Change is the only constant


The operating environment of a traditional utility is under

pressure

Continued demand for investment

• Horizon Power in asset investment and

replacement phase

• Potential need for new distribution assets

Flattening energy consumption and revenue

• Changing customer behaviors

• Technology advancements in energy efficiency

• Growing adoption of alternative PV energy

• Changes to value chain supports business

model innovation

• Entrants from adjacent markets, and beyond

New sources of competition

• New retailer participants

• Growing expectations for reliability

• Service outages (e.g. storms) poignant

moments of dissatisfaction

Higher customer service expectations

• New technologies now mainstream (e.g.,

distributed generation, storage)

New energy technologies emerging

Internal challenges to cost recoveryExternal challenges to business model

Regulated utility

business model

No one has the recipe right for dealing with disruption


Stepping into the future

• Microgrids are our business and we have been trialling DER since 2006;

• Vertical integration means we are able to work closely with customers to incorporate distributed energy resources.

• Trusted advisor to help our customers make the right choices about their energy needs.

Historical demand and generation indicators, FY2010-14 (% change – cumulative)

NSW

NT

QLD

SA

TAS

VIC

WA

Source: Bloomberg New Energy Finance. Note: NSW inc. ACT.

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Stepping into the future: embracing renewables

The transition to renewable

energy is not a simple one

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Stepping into the future: hosting capacity and generation management

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Stepping into the future: tariff reform

Long-Run Cost-to-Supply Impact

17/18 Flat Rate TOU CPP CMD/Telco

c/kW

h

65

60

55

50

45

40

$0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20

NIS Diesel

NIS Non Diesel

NIS South

Energy

Mod Cap

Fixed

6 c/kWh

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Stepping into the future: RE systems

Systems with high RE: (% of peak load / % of energy):

• Kununurra (100% / 99%)

• Coral Bay (100% / 46%)

• Denham (92% / 45%)

• Hopetoun (65% / 38%)

• Marble Bar (76% / 34%)

• Nullagine (75% / 34%)

• Esperance (37% / 27%)

• Sandstone (15% / 8%)

• Carnarvon (13% / 7%)

• Mount Magnet (11% / 5%)

• Exmouth (8% / 4%)

• Broome (7% / 3%)

• HP NWIS (0.4% / 0.2%)

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Stepping into the future: system blueprints

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2016 2025 2050

Graphs: Breakdown of Horizon Power systems per most economic business future including a 25% reduction in LCOE for DER systems.


What is a System Blueprint?

Determine Supply Model

Blueprints will determine the most

economically efficient way to

deliver electricity given the impact

of disruptive technologies through

a Levelised Cost of Energy

analysis.

Impact Strategies and Investment

Will inform business strategies and underpin

targeted investment in technologies and

systems that enables the business to adapt

and evolve.

Stepping into the future: business futures

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Business Futures will influence investment

decisions


A Remote Community Cost Curve

Conclusions

1.The economics of past supply

models are no longer

competitive with current and

future technology choices

2.Distributed renewable energy

and battery will be the

predominant energy source

in the future supported by a

network

3.Current variable costs are

uncompetitive against market

based O&M practices, engine

efficiencies and RE

integration.

Recommendations

1. SPS cost trends should be benchmarked against

incremental generation / network investments

2. The transition to a new supply model should be tested

at end of the contract

3. Long term supply commitments should de-risk centralised

cost structures

Contract Life

Renewable Energy Penetration Level36% 92%

stepping into the future: distributed energy resources

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• Increased private financing reduces future capital burden on Government

• Increased competition across the supply chain

• Lower utility operating costs

• Lower fossil fuel dependency, cost volatility and future carbon cost

• Broader participation reduced ‘stranded asset’ risk

• Reduced carbon emissions

• Reduced other pollutants & contaminants

• Smaller environmental footprint

• Increased resilience to climate change consequences (physical disruption)

• Better able to adapt to future climate change policies

• Customer and market demand for renewable energy and storage

• Customers desire greater control & independence

• Importance of community / social responsibility

• Consumer choice

• Support for the ‘Democratisation’ of the supply system

ECONOMIC BENEFITS ENVIRONMENTAL BENEFITSCUSTOMER BENEFITS

The value of the DER Business Future can be presented in three distinct categories.


stepping into the future: distributed energy resources

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• Reduced capital employed in generation

• Peak generation services

• Modular / mobile assets

• Democratisation of the energy supply system / highly distributed

• High penetration renewable / storage

• Reduced fossil fuels

• Reduced technical barriers to entry

• Optimised technical configuration

• Lower operational costs

• Reduced network investments

• Integrated data services

• Voltage and frequency control

• Fully integrated automated control logic

• Distributed ancillary service assets

• Greater system resilience

• Reduced capital employed in network

• Increased low voltage networks

• Network designed for multi-directional energy flow

• Lower operating costs / line losses

• Data system underwritten by existing Advanced Meter Infrastructure

• Platform for market led innovation in energy management

• Automated market economic signals


stepping into the future: trialling technology with a purpose

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Doing and learning: renewable energy

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The roast

Doing and learning-meeting customer needs in the face of adversity

• Reliability in the areas vulnerable

to extreme weather

• An alternative to power line rebuild

• Generates and stores electricity

without being connected to the

network

New Stand Alone Power System in Esperance – built after devastating bush fires

The role of the utility in managing transition from traditional to transformational

Failure to adhere to these key principles can ultimately undermine the success of a transition

Western Australia

NWIS

37 Horizon Power island systems

~100 stand-alone water schemes

91 RAESP communities (water + power) and >150 other small

communities

South Australia

RAES

13 systems (10 Government owned + 3 independent)

16 remote Aboriginal communities

SA Water Country

Northern Territory

DKIS

~13 island PWC power networks

~18 PWC water networks

72 remote IES communities (water + power)

Queensland

Mt Isa System

33 Ergon island power networks

Large number of standalone municipal water schemes

Fringe-of-Grid

Reliability and cost pressures on the fringe-of-grid also represent a significant issue for Government utility operators. The solutions for

this problem are largely consistent with the technical and commercial scope of an islanded utility.

Australia has a large number of off-grid utility assets

Australia is unique as a first world country with many off grid systems

Minister for Energy (Hansard) “If there is a

place in the world where we can make the

cost and nature of these isolated grids

profitable and worthwhile it is in Horizon

Power’s area. I have entrusted it to build

up the technology.”

• Significant disruption changing the traditional model

• But no one yet has the perfect recipe

• System blue prints are enabling us to find the right mix

• So we are trialing options with a purpose

• Whilst continuing with business as usual

• We are adapting technology as triggers allow

• We have always been and will continue to be a “microgrid company”

• Australia has the scale to be an offgrid microgrid world leader

• And above all, your trusted Advisor in a sea of change

The Narrative

The technology tsunami

Managing the transition

Partnering for the future

Takeaways

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Your Next Generation Local Energy Partner

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frank tudor - horizon power - wa power and gas forum

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