ian mcleod - queensland futures institute - the overall energy ecosystem in australia and how it is...
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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 à cheap energy grows GDP à 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
NorthernTerritory
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?
Reference: Audience survey: ABB Enterprise Software Users Conference – 26th July 2016
PRIORITIES VS BALANCE
Reference: Audience survey: ABB Enterprise Software Users Conference – 26th July 2016
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
Source: AER- State Of The Energy Market 2015
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
Source: AER- State Of The Energy Market 2015
• 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
• 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
UNINTENDED CONSEQUENCE
• 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
UNINTENDED CONSEQUENCE
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 loads
Source: 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
Reference: Audience survey: ABB Enterprise Software Users Conference – 26th July 2016
A CLEANER & PRODUCTIVE ENERGY FUTURETo 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
A CLEANER & PRODUCTIVE ENERGY FUTURE
• 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
A CLEANER & PRODUCTIVE ENERGY FUTURE
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.
A CLEANER & PRODUCTIVE ENERGY FUTURE
• 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 à smart meter àbattery) 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
A CLEANER & PRODUCTIVE ENERGY FUTURE
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
Reference: Audience survey: ABB Enterprise Software Users Conference – 26th July 2016