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WA and Clean Energy Investor briefings Sally Torgoman Managing Director #AustraliaMatters Energy sector – volatile with regulatory uncertainty. Understanding volatility How large customers are billed Decarbonisation - trend towards Big issues in the energy sector green, clean energy The retirement of coal power plants and Four key components of a large customer Increased focus for economies to Complex policy environment both at a tightening supply of gas are two key electricity bill decarbonise and use green energy to federal level. No local energy policy in factors driving price increases. • Network charges make cities ecologically sustainable. WA. • Wholesale electricity charges As existing fossil fuel plants become older Wind and solar energy generation brings • Environmental charges Customers are sensitive to high power and more expensive to maintain, the intermittency challenges in matching • Retail charges. prices due to recent escalations. generation with demand. These move to more renewable energy sources such as utility scale wind and solar PV is renewable generation sources are Network and wholesale costs form the Strong competition from renewable and increasing. affected by the time of day and wind large bulk of a customers total energy bill. alternative generations is changing the patterns. The 2015 Paris climate agreement energy mix. The CEC found that the average bill for established ambitious goals to combat Market price volatility is expected to WA customers will continue to increase in global warming. Australia has committed Energy market rules require reform to increase in the future while gas continues 2020.1 to a 50% emissions reduction target under deal with this changing energy mix and to be the “balancing commodity”, and, as this agreement. the growth of distributed energy the penetration of renewable energy resources. sources increases. Population in WA will grow to Net zero carbon emissions Slower growth in rooftop Mining sector is ~30m by 2030 WA’s largest energy user – by 2050 solar in WA increasing the demand for growing in FY17 by compared to rest of electricity Australia 5% Infrastructure Lead Advisory PwC 3 Trends in the energy market Our energy markets are in transition with multiple variables at play. The diagram below provides indicative market drivers and implications. Transition drivers Implications Markets Coal fleet New market • Growing market for managing distributed energy resources (DER) and multi-directional power flows; it is highly likely Variable retirements entrants that our current energy only market will need to change to another model during the late 2020’s generation • Increasing penetration of renewables – BNEF estimates 45% of generation by 2030, 74% by 2035 and 92% by 2050 • Increasing need to manage grid volatility and stability, through flexible generation, loads and storage (especially fast- response) Ageing Climate & infrastructure • Increasing trading complexity and opportunities weather Cyber- • Emerging market for ‘smarter’ grids, with greater technology enablement change security • Growing role played by increasingly sophisticated aggregators Changing gas • Growing importance and market grid-scale storage as a strategic asset demand Storage • Growing market for micro-grids and embedded networks Declining mix technology cost of • Emergence of new and expanded markets such as FCAS (Frequency Control & Ancillary Services) & price renewables DER • Increasing technical complexity of the grid. Customers Customer • Customers are demanding more control over energy usage, generation mix, offtake and pricing Declining frustration demand • Growing number of “prosumers” participating in the market with behind-the-meter generation and storage Increasing • Increasing range of new services available (eg energy as a service, tech-enabled energy management, digital platforms, customer Digitisation sophistication VPPs) • Increasing affordability of rooftop solar and behind-the-meter storage Changing Energy consumer affordability • Reducing need for customers to rely solely on the grid expectations & behaviours • Growing number of electric vehicles • Increasing ability to respond to more complex pricing signals from the market. 4 Infrastructure Lead Advisory PwC After 28 years without a prolonged downturn, Australia is complacent If Australia matters when do we act? • 2020 is set to test Australia. • Economic growth is slow (2.3%) - persistently lower than at any point in the last two decades. • Market confidence is low. • Productivity is stalling (-$1.3bn in underpayments). We need business leaders who Business leaders should therefore be asking five key • Upskill their staff questions: • Invest in innovation • Can we drive improved productivity through better use of robotics, • Understand market volatility digitisation, and artificial intelligence (AI), supported by improved • Navigate complex payment systems employee training? • Can we let go of any practices (and even products) that are no longer sustainable in the current climate? • Can we look to faster-growing economies for growth opportunities, and how well equipped we are to invest in new markets? • Is innovation at the core of our business planning? • How should we respond as interest rates continue to be close to zero, or even negative? Together we can turn the tide and ensure Australia thrives. We call this the #Together-Effect. 5 Be part of this solution, because Australia matters. Infrastructure Lead Advisory PwC Energy is providing business leaders with opportunities. #Energy Matters There is an increased focus for economies to decarbonise, use green construction and energy methods and make cities ecologically sustainable. Transition to the future energy system Energy flows historically moved th one-way from large centralised 20 Century generation sources through transmission and distribution Commercial lines to the demand centres of Hydro cities and towns. Energy flows Industrial are changing to become two-way with new and varied value Residential Transmission Distribution transfers. Fossil fuels network network New renewable sources of 21st Century energy generation have been added and increasing numbers of customers are generating their own electricity through rooftop Hydro solar panels, which can then be Batteries Commercial Batteries stored using battery systems. Demand response and smart meters are providing more information regarding Electric Large Industrial consumers’ energy usage. Transmission Distribution vehicles scale wind Consumers are changing the network network way they use electricity and participating in demand response programmes during Large peak periods to help balance the Residential Small scale solar scale solar grid. Fossil fuels Two way information flow 6 Infrastructure Lead Advisory PwC Renewables in WA Investors are excited about the renewable story in AU 2015 2019 ARENA funding round invested With 14.8 GW of capacity under $92m in projects, kicking off the construction or financially committed at the 2020 + start of the year, it looks like Australia will utility scale solar market The future looks bright for achieve 50% renewables by 2030 renewables 2017 Cost reductions in renewable • Although there is no direct technology and government policy federal government policy on 14,000 continues to boost investment energy, there is still support for reliability and storage post the 12,000 Projected Investment NEG ($24.5bn total) 10,000 • Retirement of coal-fired power plants leaves capacity for 8,000 renewable energy to fill • Forecast reduction in the cost 6,000 of storage supporting Total Investment (USD m)(USD Investment Total 4,000 renewable energy penetration • Increased focus and activity in 2,000 the “corporate PPA” market 0 • Universities entering into PPAs 2015 2016 2017 2018 2019 2020 2020 + (UNSW) or purchasing solar Small-scale Investment Large-scale Investment farms (Uni. of Qld.) Annual Renewable Energy Investment in Australia Source: Bloomberg New Energy Finance; Clean Energy Australia Report 2019 WA and Renewable Energy PPAs November 2019 PwC 8 National electricity market policies 2001 May 2015 Jun 2017 Oct 2017 2020 ‘Finkel’ report Large-scale LRET revised Government Australia’s Chief proposes energy LRET Target renewable energy Scientist) titled policy – the National expiration target (LRET) ‘Blueprint for the established future’ issued on 9th Energy Guarantee (NEG) Retail reliability reliability Retail effective obligation 2019 NEG Policy June 2017 2018 The initial Australian Federal On 8 May 2015, it was Independent report issued to Whilst not pursuing the Clean Energy Target (CET) Government’s Large-scale announced that bipartisan address both energy reliability, (the single recommendation of the Finkel review not Renewable Energy Target agreement had been reached and Australia’s commitment to adopted), the Government proposed a new policy – (LRET) scheme created a to reduce the original target of the Paris Agreement. the National Energy Guarantee (NEG) which sought financial incentive for the 41,000 GWh to a revised The report made 50 to focus on the immediate concern of reliability, whilst development of large-scale target of 33,000 GWh by 2020. recommendations aimed to giving due consideration to Australia’s commitments renewable power stations guide Australia through the under the Paris Agreement. Similarly the NEG was such as wind, solar and many industrial technological not adopted but the reliability element thereof has hydroelectric. and economic changes faced