Capgemini’s annual overview of global energy markets included a significant section on Australia this year. EcoGeneration speaks to authors Anastasia Klingberg and Jan Lindhaus about how we are tracking.

How is the transition to renewables going? It’s a tough one to answer. You can’t pick up the phone and ask the person at the drafting board who is responsible for designing The Grid of Tomorrow because no such job exists. Instead we have politicians, business owners, investors, researchers and homeowners all doing their bit to influence change.

How will it all end up? No-one knows. But in its World Energy Markets Observatory report global consultant Capgemini provides an annual overview of what’s been happening and how things might play out. The 22nd edition, released in November, included about 80 pages on a region where renewables are swiftly replacing polluting forms of generation: Australia.

The picture is different in various parts of the National Electricity Market but in areas where it is widely deployed solar is becoming a problem teenager in the system, exercising extraordinary strength in the middle of the day to push demand to the ground. The idea of thousands of new 7kW PV systems being added month after month to residential rooftops only to export into the grid is a frustration networks are being forced to deal with. Capgemini vice-president, head of energy and utilities Australia Jan Lindhaus can’t understand the logic in it.

“Utility-scale solar is so much more efficient and cost-effective than rooftop solar,” he says. “The amount of redundant infrastructure you build on every single house is ridiculous.”

The whole country would benefit from lower energy prices if utility-scale solar – which generates at a fifth the cost of residential PV – had been the preferred delivery method over rooftop solar, he tells EcoGeneration.

The rooftop PV conundrum

The position the grid finds itself in with rooftop solar is a result of a lack of policy to steer the evolution of residential PV, he says. “People are doing it less for the hard benefit case but more for emotional reasons; to do something good, to be independent. But there is a lot of wasted energy because that surplus energy during the day is simply not being used.”

State incentives that feed demand for rooftop solar are “short-sighted”, he says. Yes, they support employment and make it easier for voters to take part in the transition to clean energy but what’s the point when solar is exported willy-nilly to become someone else’s problem?

Capgemini industry practice lead energy and utilities Australia Anastasia Klingberg, who authored the section on Australia with Lindhaus, says she doesn’t have a problem with rooftop solar so long as batteries are added. She tells EcoGeneration she added a battery to her own home PV system to test the technology for professional reasons, because the economics didn’t stack up. “It’s not quite ready yet … but I wanted to have an opinion [about batteries].”

The grid will undoubtedly benefit from distributed energy resources if they are linked and operated in concert as microgrids or virtual power plants. “Is it efficient at the moment? No,” Klingberg says. “Could it be, in the future, with new technology? Possibly.”

The current grid, a hodgepodge of small privately-owned assets, large variable renewable plants and wheezing old-timers is “almost like a pilot”, she says, where solutions will be trialled and modified to engineers’ delight.

Investor peril

Forecasts for falling wholesale energy costs are good news for businesses and households around the country but bad news for owners of clean energy projects. Investors expected to fund the enormous buildout of wind, solar and storage will be sitting ever more firmly on the fence, Lindhaus says, especially without a clear signal of support from the federal government.

“The biggest impediment is still the lack of sufficient modern infrastructure that can transport the distributed energy resources across the NEM,” he says. It’s a critical issue in western Victoria, he says, which has led to curtailment of up to 50% over the past year. “The return on investment on new solar and wind farms was simply not where investors had hoped they would be.”

Prices are falling, as was hoped for and expected, Klingberg says, and developers must be realistic in their forecasts about lower levelized cost of energy (LCOE) and accept that they may not be able to sell all their output into the grid. “There will always be glitches,” she says.

The key to shoehorning large-scale renewables into the system is careful and considered placement of storage, both at the supply and demand end, and efficient use of existing or new transmission. Yes, storage is very important, but it’s not the only answer for dispatchable energy. “This is where the Australian market regulation is an impediment for investors,” Lindhaus says.

Grid operators are installing batteries to provide stability, especially as a result of solar’s prominence in parts of the NEM around midday. They are not, however, allowed to use the assets for trading, although “they want to,” Lindhaus says. Only if the rules are changed will networks really be able to work with retailers to profit from unleashing storage into the system, he says. “The companies that really know how to do it are the distributors, but they are not allowed to capitalise on it.”

Federal foresight required

The current regulatory framework is guilty of creating redundancies and higher-than-necessary costs in the NEM, Lindhaus says. Compounding this problem is Canberra’s resistance to show determined support for renewables in the short-to-medium term. Investors are simply left hanging.

“If you look at the power generators we work with, no-one is investing in large-scale new power generation anymore,” he says. “They don’t know what the future might bring and it is a wait-and-see game.” Meanwhile, coal stations inch further along a timetable to oblivion.

The states may be showing initiative to invite investment by announcing their own ambitious targets for renewables, but the whole issue around stabilising the NEM is being able to optimally transport electricity between states as they endure varying weather patterns, Klingberg says.

“When Queensland has no wind or sun, South Australia may,” she says. “The transmission lines will then achieve that stability, but that’s a federal government initiative that needs to be carried out with bipartisan support.”

Incompatibilities between the states can destabilise the grid, Lindhaus adds, and the truth of the matter is that each state only has so much opportunity for large-scale investment.

Trading old for new

Coal is due for replacement as a primary source of generation, and the world will be better off for its exit, but will Australia’s finances shudder as export revenues from fossil fuels are slowly turned off? Klingberg sees a steady decline in coal demand but says developing nations will be far slower to wean themselves off it than our major trading partners. “It’s an industry that eventually will not be as large as it is now and we will look to swap out into other types of energy markets, such as hydrogen,” she says.

Australia is in a good position to shift into clean energy exports, she says, particularly hydrogen. We have the sunshine, wind, water, land and “one of the fastest renewable transitions in the world”. Major economies such as Japan and Germany are watching pilot projects in Australia to understand how hydrogen will fuel their economies. For those industrialised nations the idea of creating their own hydrogen is “impossible”, says Lindhaus – “the size of the country and amount of available natural energy is not sufficient”.

Australia’s lucky run is set to continue. Hopefully.

Report highlights

• At the end of 2019, 11.1GW of new generation was under construction or financially committed, representing $20.4 billion in investment and more than 14,500 jobs.
• In 2019, renewable energy was responsible for 21% of Australia’s total electricity generation, an increase of 2 percentage points on 2018.
• The amount of new clean energy capacity additions in 2019 were evenly split between the large-scale and small-scale sectors, each setting new records and contributing half of the 4.4GW.
• As a result of covid-19 demand for electricity dropped during the second quarter of 2020, reducing wholesale electricity prices by 46-68% compared to 2019.
• The pandemic has also increased the risk that multiple power retailers could default during the crisis because of an increase in costs and non-payment by customers, the authors write.
• Large retailers such as AGL have witnessed up to $38 million dollars of increased costs – $20 million from increased net bad debt and $18 million from increased on-site operating costs.