Australia is in an energy crisis – 2018 needs to be a year of genuine action

Ted Surette, National Industry Leader, Energy & Natural Resources
Ted Surette, National Industry Leader, Energy & Natural Resources

Australia is in an energy crisis. In 2018, we desperately need concrete steps toward certainty on energy policy so the investment required by the sector can flow.

The current state of pain is clearly understood. For years now it has been a hot topic from the boardroom to the weekend barbecue. We have seen mountains of reports, submissions, analysis, policy announcements, and tweets.

Australia’s loss of energy competitiveness is beyond dispute.

Respondents to the survey have called out energy cost, reliability, and policy uncertainty as key issues going into the New Year.

The coming year must not follow in the footsteps of its recent predecessors. It needs to be a year of genuine action.

We need to bring on new dispatchable sources of energy generation and strengthen the reliability of the National Energy Market (NEM). We must make energy more affordable for business and consumers. And we need to start establishing an orderly transition to more renewables in our generation mix.

We need to achieve all this while also meeting Australia’s global emissions reduction targets.

The National Energy Guarantee (NEG) should be implemented swiftly, but the reality is it is likely to be slow

November’s COAG meeting made limited progress. While the states agreed in principle to move forward, it will take months to work through the detail, engage with stakeholders, and prepare the necessary actions to implement change.

The Energy Security Board (ESB), and industry more broadly, will need to demonstrate strong leadership to drive consultation between all market participants. At the same time, care will be needed to avoid a detrimental impact on competition in the energy sector.

The risks of delays, and getting trapped in complexities driven by varying viewpoints, will be high. The potential impact of state elections should also not be underestimated. Businesses, industry groups, and market participants have their work cut out. But we need a plan. It won’t be perfect, but progress is needed for future prosperity.

High energy prices will continue to put significant pressure on business competitiveness

Most energy modelling analyses do not forecast a major easing in energy prices until 2020.

Unfortunately, the bottom line pressure on companies will continue in the short to medium term. The year ahead will require organisations to assess their energy procurement strategies, and seek power agreements that enable them to lock in prices with sufficient contract flexibility to take advantage of any potential easing from the backend of 2019. New renewable generation is expected to progressively come online over the next two years. Many large energy users are exploring opportunities for ‘behind the meter’ renewable energy generation at their sites.

In the event of power outages, the cost to businesses could be large. This was the case during the South Australian storm and load shedding events last year. If businesses do not have adequate contingency plans they could go under, with small and medium sized businesses the most vulnerable.

If uncertainty persists with progressing actions on energy reform, some businesses could look to change their investment decisions in Australia. This year, many business leaders have signalled this risk.

One survey respondent’s frank assessment summed the situation up well: “Security and cost of energy are creating serious disruptive effects to our businesses and required significant investment in contingency planning. This is something we would anticipate in an emerging market – not in Australia”.

As a nation we can, and must, do better.

Energy demand management is gaining momentum. Some businesses have taken up incentives to respond to load shedding requests and are reducing their consumption. Demand management actions would help keep the grid stable and the lights on. While this is not for everyone, it does represent an option for businesses looking to achieve energy savings depending on individual company circumstances.

Gas supply and affordability will continue to be challenging

The east coast gas market situation remains challenging. The bottom line is that more supply needs to come from states outside Queensland if we are to both meet our domestic needs and export commitments. Clearly this is a complex issues as we are now part of a global gas market.

The industry came together this year in response to federal government pressures and this has been constructive. Positive collaboration can drive outcomes that benefit all stakeholders. Nonetheless, uncertainty abounds around state moratoriums and delays in getting gas projects up. Next year, the ACCC’s work will continue to put gas in the spotlight. Transparency and constructive industry response remains paramount.

Consumers will respond to market signals

Air conditioners may get less use this summer. Across the country, consumers are getting more engaged to check they are receiving the highest retail discounts, with some help from federal government pressure on retailers. Many are now taking action to better manage their energy efficiency.

Residential batteries are still expensive and the take-up has been relatively low in Australia. Until prices come down, they remain out of reach for many consumers. During 2018, the ACCC will release its final report on the retail sector and this will continue to place focus on customers.

Investment in renewables will continue at both the business and consumer level

The cost of solar and wind projects will continue to come down next year. The International Energy Agency (IEA) clearly confirmed the trend of cost reductions in its latest 2017 Energy Outlook report. Moreover, both Queensland’s and Victoria’s renewable auctions in 2018 will see extensive interest. These are significant projects that will help bring new renewable generation into the grid.

Pending outcomes of the NEG, new renewable energy investments may be impacted for a short time. Nonetheless, Australia is seen as one of the most attractive energy investment markets. With the continuing lowering of costs of renewable technology, combined with our wind and sun resources, we will see continued investment.

On the consumer front, more households will put solar rooftop on their houses, with installation continuing to rise as the cost of solar photovoltaic falls. A growing number of people want to take greater control of their energy use and rising energy prices will trigger more investment.

Leaders will embrace technology innovation

Trials involving new and innovative technologies are occurring across Australia. Utilities are experimenting, doing proof-of-concepts, learning, and implementing.

Distributed energy solutions, microgrids, peer-to-peer transactions, demand side management, Internet of Things, automated analytics, and communication infrastructure are just some of the technologies that will feature heavily in the energy ecosystems of tomorrow. Many of these new technologies are referred to as ‘grid edge innovations.’

The coming year will see many trials that will scale into larger implementation across a wide range of technologies.

Business will embrace these new technologies for a range of reasons: improving customer service, dealing with greater complexity on the electricity grid created by more distributed energy resources, reducing operational costs, responding to increasing extreme weather events, and opening-up new energy models.

There is no surprise here. Digital and Innovation ranked as the number one issue in the survey. For some, embracing and harnessing technology innovation will be a question of business survival.

Pleasingly, across Australian utilities there are many examples of collaboration and knowledge-sharing on technology innovation. In the area of energy transmission and distribution there have been proven examples of collaboration with Energy Networks Association and CSIRO to map out future scenarios and explore both the challenges and opportunities offered by grid edge technologies.

One area of interest and focus next year will be grid modernisation. Many transmission and distribution businesses are currently looking at investments to upgrade their grid distribution management systems. This includes supervisory control and data acquisition (SCADA), advanced distributed network management systems (ADMS), and outage management systems.

Utilities that fail to invest in new visualisation, automation, and data analytics could face challenges in servicing customers, dealing with outages, and reducing their operational cost to manage the grid.

Ultimately, successful leaders will be those who experiment, those who fail and learn fast, those who engage their workforce, those who foster an innovative culture, and those who leverage leading technologies and insights from other sectors and markets.

One thought on “Australia is in an energy crisis – 2018 needs to be a year of genuine action

  1. Great summary Ted. You’ve highlighted the huge impact on operational costs for business due to pricing structures but also, due to inconsistency and uncertainty in supply, the need for appropriate back-up systems. As a consumer I am watching the price of residential batteries but at the moment it is over my willingness to pay threshold. .

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