As head of the Australian Renewable Energy Agency, Darren Miller is pushing the technologies that will support and deliver tomorrow’s clean energy grid.
Darren Miller doesn’t come across as a $3.9 billion man, unlike a few of the others who lurk around the forecourt of the Sydney tower that’s home to more than a few investment banks. He’s more your open-collar kind of guy, without the fitted suit and Hermes cufflinks, but at 48 he’s pulling the strings on a budget a few levels higher than the stern-faced financiers over by the lifts.
As captain at ARENA, Miller already manages $2 billion in grant funding, with an additional $1.9 billion to deploy thanks to edge-of-the-seat inclusion in the 2020 federal budget. It’s a lot of money, all of it destined towards a worthy cause. Not every dollar will sprout results, he says, but that’s the risk you take when you are tasked with kickstarting an energy revolution.
Over a couple of coffees in a corner by the kitchen of a dimly lit café, restaurant or bar, depending on the time of day you visit, Miller tells EcoGeneration about his curious journey from running due diligence for Kerry Packer to heading a technology venture to testing the local market for Danny Kennedy’s Sungevity solar business and now calling the shots over commitment of government funds to the early-stage bright ideas that will get us out of this mess of coal we call an electricity system.
“I first realised around 2010 that solar PV would come down the cost curve so rapidly that it would ultimately be the solution to displace fossil fuels,” he says to get the ball rolling. “And I thought that technical, economic and policy would come together to support renewables as the future. That was the turning point for me to decide to get into the space.”
EcoGeneration’s first question is one that’s been nagging us for a while…
How much do you have to know about emerging clean energy technology to confidently invest?
We have a very strong team at ARENA. It’s highly functional. We have a lot of technical expertise in-house, we have an external advisory panel of technical experts who we rely on quite heavily. You have to have a reasonable level of affinity for the technology and an ability to grasp concepts; I was always a keen science student at school and in my early university days, even though my background is commerce, accounting and economics. For me it’s a perfect blend.
Technologies don’t exist in a vacuum; they exist and will succeed if they are economic and deliver the end results. You’re always balancing, can this technology that does this to these molecules in this way deliver you a result that is going to be cost-effective in the long-term. You have to be able to judge the business case, the commercials, the legals, the regulatory environment that surrounds that. It’s not just about can a technology work; it’s about can it work in the future context of the economy that we’re building. You’ve got to blend those two things at all times.
Most of these technologies are competing against each other…
And that’s the great thing. One of the most basic and most powerful concepts in finance is portfolio theory. It says if you want to build an asset base and have a stable return profile you need stocks, you need businesses that compete against each other. When one’s up another’s down, and vice versa. It’s the same with technology. With the thing we are trying to solve here, you can’t know what’s going to work in 20 or 30 years’ time. You need to be able to back a variety of different technologies which, if one works and the other one fails, at least you’ve balanced your portfolio and you can achieve the objective without knowing exactly what the winner is today.
A key thing for ARENA is it’s about picking enough technologies at an early stage where they are not yet proven, but you have a wide variety of solutions to the challenges that you are trying to solve. But at the same time not continuing to back things that are clearly not going to make it. That’s where the art of it is; it’s about knowing when is enough enough in a certain technology and where have we not explored far enough yet, where there is still a high degree of risk the thing will work commercially.
Running with the portfolio analogy, are there any riskless investments in clean energy?
There are some things that are now sure winners in terms of technology risk. Solar and wind are going to be clear winners long term. If I could paint you what I think the energy system will look like in 20 years’ time I would say 40% wind, 40% solar and 20% something else that balances the system. So how do we go from 15-18% wind and solar today to effectively 80%? It’s a pathway of scale and infrastructure and businesses investing; it is no longer technology risk.
The speculative stuff are the things that really have to prove themselves against the incumbents. Things like hydrogen, where you are competing against gas, which is cheap to dig up. Then you’ve got sustainability risk on the other side and the financial risk. Things like hydrogen, things like solar thermal, cost-effective storage, heavy industry – these are the speculative things where it’s really unknown yet how we succeed in that longer-term.
Do you see wind and solar as completely mature technologies?
They have been considered mature because they can get to market without subsidy. If you build a new solar plant today you can generate the electrons at, say, $45-50MWh, and they are the cheapest electrons from a new-build plant of any type. On one reading you can say they are mature technologies. There is another perspective, though – that for future decarbonisation and future renewable penetration we need those technologies to not be $40-50/MWh but to be $20-25/MWh. Only with such cheap solar and wind energy can you have a hydrogen industry that will succeed.
These are technologies that underpin other things; not just generating raw electrons anymore, but producing molecules, balancing the system. For those purposes, solar and wind are not yet mature enough to support a hydrogen industry or to support an aluminium smelter or to generate green steel. For those things to happen you need further innovation and cost reductions in solar and wind.
Cost forecasts are a daily staple in clean energy. How much attention should we give them?
The history of energy forecasting has always been that you can ignore it. Nobody figured out how quickly solar in particular would come down the cost curve. People whose job it is to figure these things out have become a lot more circumspect and have recalibrated the way they talk about the future; things like EV penetration, lithium-ion costs and I’m now even being circumspect about hydrogen – I think the scale of it happening could be much wider, it could be a lot quicker, it could come down the cost curve rapidly. When you look at the subsidies that nations like Germany are putting into green hydrogen there are huge forces at work globally that I think the local perspective has missed.
Are you saying there is too much hope in Australia about hydrogen?
I think there is a lack of understanding about how much momentum and money is being spent overseas in technologies that we can inherit. The issue with solar was, you couldn’t quite imagine you could get panels down from $2-3 a watt to 20 cents a watt. It’s the story of Chinese manufacturing, and loss-making Chinese manufacturing; they have done it for other reasons and we have benefited from really cheap modules. Without that appreciation of global forces at work it’s very hard to make accurate predictions about what will happen in Australia.
Likewise if you say, what could hydrogen be in Australia? If you just look myopically at the opportunities here you miss the global impetus that has been put out there by the likes of Germany’s €9 billion hydrogen plan and the €150 billion that the EU wants to spend and all the things that the US and China want to do. We’ll inherit the benefit of that and be able to scale our hydrogen industry cheaper and faster because of it.
Can our export markets develop their own hydrogen?
This is where the risk comes in. You have an opportunity that’s been put out there by the likes of Japan and South Korea who have expressed a future demand for clean hydrogen, and simplistically Australia is a great place to do that; we have sun, wind, land, an advanced economy, the cost of capital – there are good reasons why we should be a leader in that space. On the other hand, compression, storage and transport of hydrogen are deeply problematic. There is a lot of technical risk and economic risk and having that happen cost-effectively to meet that demand. And we are competing against their own ability to supply their own demand.
The issue is the amount of energy required by these geographically small nations is such that they can’t produce it all on their own, so they’re going to be looking overseas for an abundance of wind and sun and land where they can produce the molecules they need – and that’s where the opportunity arises. But we’ve got some significant cost and technical challenges to overcome for that to be a reality – and there’s a lot of risk there. That’s something we need to be working on quite diligently in Australia.
What’s the solution? Start small or propose enormous projects?
I think you need a mix of that grand ambition as well as practical steps at the research and start-up phase to really fill in the gaps on the issues. Can we install that much solar and wind? Yes. At the right cost? No, not today. But you need scale to beget cost reductions, so there is logic there. Can you install the electrolyzers cost effectively? No, they need to come down by about two-thirds. Can that be done? Almost certainly it can be done. We’re already seeing electrolyser costs in China where they need to be to make hydrogen at the right price. But what do we do with it, how do we compress it cost-effectively, where are the ships, how do you store it, how do you account for the losses involved in all of that?
There is a lot of work to do on that side and we haven’t quite figured out what form we turn our renewable energy into for shipping and use overseas. Things like liquefied hydrogen are on the agenda but so is ammonia and so is value-adding to our iron exports. Maybe we should be using our energy to upgrade our iron ores into iron briquettes, things that can go into green steel furnaces overseas. There is a whole variety of opportunities for exports but all of it requires vast amounts of low-cost renewable energy to be produced.
Have there been any areas where it feels like private investors could have offered more support?
Technologies go through phases where in the early stages of the R&D phase there is very little private capital for early stage research, just because of the risks involved. There is a lot of private capital available at the later stages once the technology is proven and I think the opportunity for Australian investors is to get in a little bit earlier than proven technology into technology that just hasn’t scaled yet. One of the key technologies on our agenda that I would love to have more private capital support is solar thermal. Solar thermal again uses our vast land and sun resources but instead of using the photovoltaic effect to create electricity it directs heat to crack molecules and to provide heat into high-temperature processes.
There is great innovation in Australia. We’ve got a company we’ve been supporting called Vast Solar which has been innovating quite exceptionally but hasn’t attracted enough private capital yet for early stage plants to prove their technology. It’s that middle stage between research and later stage commercial deployment where there is a lack of capital and a lack of risk-taking by Australian corporates. We’d love for more people to join us on that journey rather than us doing such a large amount of heavy lifting. If they work and if they scale and achieve cost reductions, they could be really quite globally applicable to any country that has good sunshine and industrial energy needs. Solar thermal could be a great technology.
Aurora was an example of solar thermal perhaps on too grand a scale. What’s your advice to developers?
The technologies that will succeed in the renewable future are smaller, more modular things. The days are these giant first-of-a-kind enormous plants are very risky, and that’s some of the challenge that has been experienced by the likes of pumped hydro. The facilities are so big and the capital is so vast that you would much rather have a project a tenth of the size that you could do 10 times before you got to the one of that size. When you get those opportunities to build smaller more modular plants that then scale up to big plants, that’s when you have success because you can learn and achieve cost reductions through repetition.
Are Australia’s superannuation funds supporting clean energy?
I think the super funds could do a lot more to support clean energy, not only from an environmental social governance perspective but also from a risk perspective. I think we can see quite clearly that the world is moving towards carbon abatement. You want to be investing for what you see are the themes 10 years out. Personally, I’m terrified of having my money in a super fund that is long in oil and gas and coal because I think those commodities are on the decline globally. From a purely financial and wealth-generating perspective I think super funds should be much more in the clean space, the sustainability space, than in oil and gas. They could show real leadership by doing that. There are a few who have moved in that direction. I think the super funds could be doing more in the venture capital space and that could overlap with some of the work ARENA has done in the past.
Is there a ratio of what you expect to be dud investments and successes?
Look, none of our investments are duds – even the ones that fail. A dud investment for us is one where the project never gets to fruition. It means we picked a technology, we picked a project and they never actually got to build their plant. That’s what I consider a failure, where you don’t get to build the thing you wanted to. A failure is not something where you built it and the technology ultimately didn’t succeed. Because, really, if you’re not succeeding then someone like ARENA is not trying hard enough to back risky technologies. We can’t have a broad portfolio if we haven’t tried hard to pick things that are technically risky.
Take something like wave energy and tidal energy where we backed five or six projects in the space – and there are some notable failures in the space, such as Carnegie. That’s not a failure; it’s a success in trying to move a technology forward, but there are some key technical reasons why that technology has real challenges, and it’s important that we invest in that to discover whether those challenges can be overcome.
Australia has a good pedigree in many areas of clean energy research, particularly solar. Are there areas where R&D is lacking?
I can’t answer that. I don’t know well enough relative to overseas where we are lacking. What I really worry about is the impact covid has had on researchers. The universities are really struggling. We’re seeing a lot of projects asking for more time and to adapt their projects to be more generic. It could mean that if we don’t come out of covid reasonably quickly that we lose momentum in that early-stage research that’s really important in some of these technologies.
Storage will become increasingly important to manage higher levels of variable renewables. You must be watching storage carefully. Are we heading for a bottleneck?
If we want to get to 100% wind and solar we absolutely need really cheap, vast resources of different types of energy storage. Unless we have storage solved we’re always going to need a balancing fuel in the system, whether that’s gas or hydrogen, potentially. We’re going to need a flexible fuel to provide that peaking need. We’re looking at the storage space through the lens of both that shorter-term storage, the role that lithium-ion batteries are providing to balance the system, but also keenly interested in whether those lithium-ion batteries can come down the cost curve over time to provide that more medium-duration storage of 6 to 8 hours and potentially more.
But we are very reluctant to back only one horse for something so important, so at ARENA we are looking at other forms of long-duration storage. That would be solar thermal, which can provide 12-14 hours of energy dispatch at night, and things like compressed air and hydrogen. At ARENA we are very focused on various technology options and we want to move them all forward rather than just attack one type of technology, because the risk of getting it wrong is that we have no options in 10 years’ time.
Do you ever have a chance to hear the true heartfelt beliefs that politicians have about clean energy?
I speak to a few politicians. I don’t get deeply involved in talking to all of them. Certainly I spend a lot of time with Minister Taylor, who is very much a rationalist around energy technologies and the transition. Having been a consultant he sees that technologies can scale. I think everybody holds different views about the urgency and government’s role in responding to it versus the private market. We can all have different views about how urgent it is.
Darren Miller spoke with Jeremy Chunn.