energy: the disrupted industry
TRANSCRIPT
Energy: the disrupted industryPeter IsraelExecutive Consultant, Advisian
Disruption is nothing new
Easter 1900Spot the car
Easter 1913Spot the buggy
Key drivers of current energy market disruption
Increasing electrification
Decreasing cost of Solar PV
Renewable energy solutions - especially solar - are increasingly becoming economically attractive.
However, they are ‘variable’ and require reliability in their supply.
Unprecedented investment from three giant industries is accelerating battery efficiencies, scale and economy:
CommunicationAutomotive
Energy
…energy storage has the potential to upend the industry structures, both physical and economic, that have defined power markets for the last century or more. McKinsey 2016
“”
A few facts -traditional generation will struggle to cope
Prices will equalise across the globe
Australian electricity prices have risen and will stay higher for the foreseeable future
Through the LNG “bridge” energy is now an international commodity…
Duck Curve - energy demand net of predicted variable renewable generation, showing what “traditional” generation supply is required
Duck Curve - energy demand net of predicted variable renewable generation, showing what “traditional” generation supply is required
Solar energy production
reduces traditional generation during
the day…
Duck Curve - Solar energy production reduces traditional generation during the day…
…however produces an increased ‘rate-of- change-of-demand’ and a longer “neck” exacerbating the
traditional generation ‘ramp’ requirements
We are seeing an increased length and steepness of the evening ramp…
Complementary solutions exist to ensure supply during these periods such as gas-fired generation, battery storage and pumped hydro.
…however traditional coal fired technology is less
responsive to these rapid changes in demand
A few facts -Traditional investors are not comfortable to invest
PV - Resi PC - C&I PV - Utility Geothermal Wind Diesel OCGT Coal CCGT0
50
100
150
200
250
Fixed O&M
Capital cost
Fuel
Variable O&M
Data sourced Lazard 2016, averaged prices
US$/
MW
h
The need for investment has never been greater, however there has never been less clarity on whether to invest in traditional generation
Investors in large-scale generation require a long time (15+ years) to recover their investment
While the return on the fixed costs is recovered over the life of the asset, variable costs must be recovered every time the asset is running
Renewable energy
=variable cost
Zero
The ability to create a return on new gas or coal investments and an acceptable cash flow is undermined by emerging competitive renewable generation and storage.
Without a suitable regulatory framework traditional investors will be sidelined.
Some predictions about the near term
Some predictions about the near term
In the market
• Continued volatility:– Wholesale market will take
advantage of uncertainty to hold prices higher
– Demands for domestic gas will escalate
In parliament
• Increased calls for intervention, despite the risk to sovereign investment reputation
• Regulators will struggle to stay up with consumers demands and new technology deployment
Some predictions about the near term
Behind the meter
• Solar battery combinations will promote the emergence of the ‘prosumer’ (producer-consumer)
• For commercial users, solar battery usage will proliferate, further eroding traditional generation, and exacerbating the ‘dusk’ curve
Business success
Innovation in financial models
=
Some predictions about the medium term
Some predictions about the medium term
Energy Market
• Rules will be established to better incentivise:– Firm capacity generation – The technologies that provide grid
stability• Tariffs will encourage self
consumption, load shifting and storage
• Gas generation and battery technologies will be central to the solution
• Solar will continue to enjoy remarkable growth
• Coal demand will be in decline from 2025
Consumer
• As more low or zero variable cost energy is deployed, new paradigms will emerge:– The proliferation of the ‘prosumer’ trading
their surplus energy• Integrated home, car, supply, demand,
control etc.
Some predictions about the medium term
Current utilities
• Distributors – Will become enablers of
‘prosumers’ (physical energy flow, data management and net settlement agencies)
• Retailers– The slow demise of the energy
‘gentailer’ (generator – retailer) unless they facilitate the new consumer
Some predictions about the medium term
Cheaper energy and more integrated energy use.
Retailers will charge a fixed price for energy no matter how much you use (a.k.a internet use).
There is no energy crisis, however there is a need for steady policy implemented with a view to the long-term, and taking the input from industry experts rather than political bias.
The disruption is here and it’s only going to increase.
At this time of energy sector disruption industry leaders need to lead…
This is not the time to sit back and hope for a sensible outcome.
Industry leaders need to align and be heard:
• Educate yourself…• Be visionary…• Educate your staff…• Collaboration with your customers
and suppliers…• Put differences aside and look for
alignment…• Help provide solutions with the
long-term in mind