Capgemini‘s annual study, the World Energy Markets Observatory (WEMO), reveals that Australia is building an ambitious – but difficult – net zero emissions future and has sought over successive governments to make a major contribution to the climate change to reach around 434 million tonnes by 2030.
Anastasia Klingberg, Practice Lead for the Energy & Utilities sector at Capgemini Australia, said, “The development of renewable energy has long been dictated by individual state objectives, rather than where the investment was most needed to service infrastructure and consumers. The market is clearly missing directives and governance.”
The key findings set out in WEMO 2017 for energy transition in Australia are:
1. Australia’s net zero emissions ambition is too bold. It resonates with the public interest but lacks central guidance and governance.
Australia’s climate target would require emissions to reach around 434 million tonnes in 2030, a huge – and lately unrealistic – reduction of 160 million tonnes. Overall the Energy Transition is considered critical for the country, however post the September black-outs in 2016 and the surge in pricing, the debate is ongoing to find the right balance to steer it in a much more controlled fashion.
Regardless, the public is showing a great interest for storage, battery and distributed energy. Energy retailers are trialing micro grids (in collaboration with developers) and exploring community self-sufficiency and peer trading models.
The National Electricity Market is shifting from coal and gas generation toward more diverse and distributed forms of power such as wind, solar and renewed investment in pumped Hydro storage.
Government policies to support Energy Transition need to repair the damage to investment confidence since the review of the Renewable Energy Target by the Abbott Government in 2014 and 2015, while ensuring the robustness of the energy supply in a far more distributed and evolving generation and grid architecture.
The investment profile needs to consider a modern, low-emission traditional base load generation as well as large-scale solar-thermal and concentrated solar and power scale storage, such as pumped hydro and battery arrays.
2. Rising wholesale energy prices are affecting retail prices prompting policy initiatives and inquiries into market contestability
The past 12–18 months have been the most challenging that the Australian energy sector has experienced since the National Electricity Market (NEM) was established in 1998. The primary focus has been on wholesale markets, both for electricity and gas.
In electricity, investor uncertainty around the viability of new generation investment, combined with recent coal plant closures, has contributed to a generation mix that is increasingly reliant on intermittent wind and solar energy that rely on higher priced generation alternatives in times of drought, no wind or cloudy days.
In gas, domestic supply has tightened as Queensland’s liquefied natural gas (LNG) projects draw on reserves from southern Australia. At the same time, regulatory restrictions on exploration and subdued international oil prices have delayed the development of new reserves. The result, when coupled with rising production costs, has been significantly higher gas contract and spot prices.
Efficient policies need to reflect an understanding of the underlying root causes and get smarter in the allocation of cost between operators and consumers to achieve a fairer price. Supporting consumers can be a lever to manage system security and capacity problems by reducing their demand at peak times. Modern digital control and grid and analytics solutions are now available to scale efficient pilot solutions.
3. Fast paced technology changes and the associated regulatory frameworks are fundamentally altering Australia’s energy market. Energy policy is meant to provide a dynamic market response.
Key regulatory developments are underway to incentivize energy efficiency technologies. Australia is emerging as the focal point of international battery storage market. The early adoption of new technologies and energy solutions while still facing only a small degree of overall disruption has given Australia an international advantage to attract innovative investors and allow exploration of new energy business models.
The deployment of an advanced metering infrastructure has gained pace across Australian states. Experimentation with blockchain technology and its application in energy distribution and grid management is on the horizon.
It is now time to enhance policies and frameworks to support this market transition and remove historical shackles that impede progress and innovation. Supporting the battery storage revolution and empowering the customers through competition in metering reforms and market contestability are a starting point, but seem to be more point solutions rather than following a coherent and outcome-focused agenda.
“We now need to maximise advances in digital technology to manage a far more complex network of heterogeneous power generation sources, flexible grid components, dynamic prosumer behaviour and investor expectations. We need to challenge the currency and flexibility of our regulatory framework – and learn from the experiences of other countries,” said Jan Lindhaus, VP and Head of Energy & Utilities at Capgemini in Australia.
Australia needs to revisit its sustainability and emission targets. Given the increasing number of blackouts over recent years as well as the extraordinary price increases: customers are starting to get more concerned about affordability and reliability of energy supply, rather than long term sustainability and emission reduction.
The Observatory concludes that Australia has an urgent need to re-establish a clear energy strategy and execution governance to help drive innovation and improve their value for customers and shareholders. This requires political and industry leaders that provide coherent direction and directives to the States, the energy players, commercial & industrial consumers, investors and the public.