A panel of major utilities, technology giants and the national regulator addressed the challenges of energy transition at the Australian Clean Energy Summit 2017.


What will the energy future look like in 20 years’ time? It’s a tough question, considering the rate at which things are changing. One certainty is that renewable energy sources will have gained a lot of ground in replacing generation from coal and gas, but for much more detail than that it’s worth asking the experts.

At the Australian Clean Energy Summit in Sydney in July Clean Energy Council CEO Kane Thornton put the question to a panel which included major technology providers Goldwind and GE, local generators and retailers Origin and AGL and the Australian Energy Regulator.

Goldwind chairman Wu Gang predicted over the next 20 years renewable energy will grow rapidly, probably up to 30-40% of grid capacity. “It will be the cheapest form of energy,” he said. “On the consumer side, systems will become more intelligent and adapt to use as much renewable energy as possible.”

AGL CEO Andy Vesey said although a progressive decarbonisation is taking place large coal plants will still be a part of the system within 10 to 20 years. “Even if you look at the retirement of our own units, the last plant doesn’t retire until 2048,” said Vesey, pointing out that gas will play an important role in terms of firming up renewable sources.

“We will have to see change in the energy markets,” Vesey said. “The energy market we have today is not suitable for that future and so policy reform is very important. The question of decarbonisation has to go along with the question of security and reliability. That drives us to the question of affordability because the most expensive energy you can have is the energy you don’t have.”

From left: CEC chief executive Kane Thornton, Goldwind chairman Wu Gang, AGL chief executive Andy Vesey, AER chief executive Michelle Groves, Origin CEO Frank Calabria and GE Renewable Energy CEO Jerome Pecrasse. Photo: Narelle Spangher

The fourth wave

The role of consumers is increasing and the value chain is expanding, Vesey said. The “fourth wave of the industrial revolution” will include the internet of things, cheap information and the democratisation of analytics, peer-to-peer trading and the use of cryptocurrencies. “That’s just the beginning,” he said. “We are going to see some very significant fundamental change, however it will be sometimes gradual and sometimes very radical. The drivers of decarbonisation and the role of customers and end users are what the significant changes of the next 10 years are going to be.”

Will the regulators be able to keep up with an industry where the technology and applications are changing so quickly? Australian Energy Regulator CEO Michelle Groves said no matter what happens the focus must be the provision of long-term secure, affordable and reliable energy for consumers. “There is a greater consumer involvement driving the services they want, and that’s got to be delivered through competitive markets,” Groves said. “Competition will give us the best outcome for consumers in the long run and will ensure those that are best able to manage the risks carry the risks.”

The transition will happen quickly and slowly, she pointed out. “That is the history of energy markets over the past 150 years. The cycle of transition is somewhere between 50 to 70 years, between where you start off with your breakthrough technologies to where you end up with a market where everyone is participating.”

What is regulated will be different from today, she said. “In fact, we hope that it is.” Will the Northern Territory and Western Australia be integrated into the NEM? Where will Australia sit regionally? What sorts of integration are we likely to see either through technology, collaboration, physical interconnections or through common design of systems? It’s all ahead of us…

Never too late

It’s a tough time for utilities. How do you plan ahead when your assets have such long lives and the energy sector is changing so quickly? Origin CEO Frank Calabria said at times of uncertainty businesses tend to make the least-risk investment decisions and to make them later. “You’ve seen industry respond,” he said, where a falling cost of renewables and certainty that the RET will remain unmolested have seen about 3,000MW committed.

“We would all have liked that to be committed earlier but it wasn’t based on those signals,” he said. “That’s where we are looking for that leadership of direction and certainty so those investments can be made timely. But what businesses do is make those investments on a risk-adjusted basis.

“Right now and under any market scenario we see the future vision of the industry being cleaner, and the cost will continue to come down. When we think about a falling cost curve you’ve got to take into consideration the timing of that investment so that you continue to provide competitive cost for our consumers and customers over time.”

Rising costs will be met with cleaner transmission, Calabria said, but it will be a multi-year transition. More immediate will be the rise of a smarter energy system, where the digitisation of the sector will deliver customers an invigorating sense of empowerment over energy use and costs. “And that’s taking place right now,” he said. “I think we’re going to see a proliferation of centralised and decentralised solutions that increasingly solves the problems of intermittency of renewables … The future won’t stop.”

Around the world

When called on for a global perspective GE Renewable Energy president and CEO Jerome Pecresse said renewable energy has hit the mainstream. “A few years ago people were asking is it going to stay, will people invest, will it be competitive with thermal? The debate now is largely over,” he said. “Renewable energy is a big part of power generation and a major part of new power addition everywhere in the world.”

Pecresse expects penetration of renewables in 10 years’ time to exceed expectations today, with parts of Australia running 100% renewables a few days a year. Electricity will also be cheaper, he said. “We have worked with great effort collectively at bringing down the cost of wind energy and solar energy. We should expect electricity prices to come down.” The hardest outcome to forecast is how the slow rise in customers willing to go off-grid will affect the business models of utilities, he said.

Renewables are the least-cost form of generation but the forecast is for costs to fall further. For wind, Goldwind’s Wu said taller hubs and longer blades will bring greater efficiency and artificial intelligence technology combined with turbine control will make smart wind turbines as well as smarter wind farms. “That is the future direction,” he said.

GE’s Pecresse predicted the next wave of cost breakthroughs in wind will come from hardware, software and better solutions around optimising integration with grid operators. “It is never going to stop, because there is going to be continued competitive pressure from the cost of solar energy,” he said. Vesey at AGL agreed competition is a force for good in the clean energy sector, not only among providers of technology but among retailers. “Competitive markets will drive this future in a big way,” he said.

Bigger and bigger

Volume is another driver of efficiency, where every project subtly leads to greater efficiencies and lower prices for technology. Vesey acknowledged the Australian Renewable Energy Agency’s influence in bringing about price reductions by supporting projects through grant funding. The same phenomenon can’t be observed with fossil fuels, he said. “If you look at the prices on large-scale coal plants, they haven’t really moved in real terms. Why? Because every one is a custom design. The more you make them the cheaper they don’t get.”

As energy software systems proliferate at all levels in the energy chain they will also become cheaper, Vesey said, as the marginal cost of manufacture approaches zero. The financial markets that will emerge as the energy storage market matures are also hard to plan for but full of possibility. “It literally will change the way we do business,” he said. “[An evolution in sophistication of technology and changes to regulatory frameworks are] leading us to a very interesting future where you can see prices coming down, efficiencies going up and productivity increasing significantly.”

Manufacturing scale and low cost of capital have pushed the industry along nicely, said Origin’s Calabria, but the next boost will come from performance and technological enhancement from combining hardware and software. Wu sees a wider role for storage at plant level to smooth out demand.

The rule book

Regulators will face challenges, said the AER’s Groves, around “getting the balance between the regulatory framework that might be a bit more prescriptive [and] suggesting particular solutions in the short term versus doing the work to develop markets that will enable the right technology to come forward in the most cost-effective way.” Consumers will become one of the biggest resources around energy security and reliability, she predicted, and they will need to be rewarded in order for “the full value of their energy choices” to flow.

Vesey said AGL’s 1,000-battery virtual power plant trial in development in Adelaide is showing consumers’ possible future role in the grid. “What we find in certain circumstances is the only thing they use the distribution grid for is export,” he said. The possibility of consumers providing frequency services – including inertia – is very real, he said. “We think about the demand side resource, and how do you make that more a part of the system? That gets back to software, the rules and the regulations.”

Consumers will need to see value in that relationship to take part in it, and the services they provide will need to be valued by the various participants in the grid. “From a market’s perspective you want to hit that optimum point, which means the right investments of different types at the right price,” Vesey said. “This gets back to what markets can deliver very efficiently.”