Breaking the Cycle of Electricity Uncertainty in Australia

May 16, 2018 Jenna Bieller

Breaking the Cycle of Electricity Uncertainty in Australia: What Companies Can Do Today

Australia has been plagued with surging and volatile electricity prices and, according to a survey of Australian company directors, electricity prices and energy policy are the top two challenges facing Australian businesses today. This dramatic increase in electricity pricing—as much as tripling in some areas in just two years—has been dubbed an energy crisis. And for companies operating in Australia, electricity expenditure is becoming increasingly difficult to forecast and budget for.

Though the situation is not ideal, an Australian economist has commented, “Crisis begets reform in Australia”. The good news is that reform may be coming soon; upcoming policy proposals and new business opportunities will give companies a chance to take back control of their energy strategy in Australia.

The Background: Energy Politics in Australia

While many factors are influencing the current electricity situation in Australia, much of the crisis can be attributed to political turmoil. The country has seen a revolving door of leadership for the past 10 years. Between 2007 to 2017, Australia had five different Prime Ministers. With each new leader has come changes in energy policy and support schemes. For example, Australia was an early leader in climate politics and GHG-abatement strategies, and in 2003 New South Wales initiated one of the first carbon pricing schemes. This, unfortunately, fell victim to political changes.

Sources: National Archives of Australia, data compiled by Bloomberg

Capricious politics have created a trickle-down effect of uncertainty. Political back and forth has led to a delay in investment decisions to replace generation plants that should be retired, resulting in a tight supply/demand balance and a reliance on outdated facilities. Aging baseload power generation assets and inefficient transmission networks then result in skyrocketing power prices for end-users, and at the same time, events like the South Australian Blackout of 2016 have caused some to call grid reliability into question. Energy-intensive industries (such as mining and manufacturing) are caught in this perfect storm, and are finding it difficult or even impossible to continue operations due to investment uncertainty and the high price of electricity.

To address these issues, the Energy Security Board of Australia has proposed a new scheme called the National Energy Guarantee (NEG) which aims to deliver affordable and reliable electricity while meeting international emissions commitments. The proposal would require retailers and large end-users of electricity to contract for their load directly with generators to meet dispatchability and emissions standards. Though there is still much work to do, as stakeholders have voiced concerns with the NEG, it indicates progress toward a cohesive energy and climate policy at the federal level.

In the meantime, there are ways for companies to manage electricity price and reliability risk.

Universities, governments, and multi-national businesses alike are finding a common solution to the electricity dilemma in Australia: renewable energy. Proactively seeking renewable and cleantech solutions is a great option for companies facing steep electricity costs.

There are presently three viable renewable technology opportunities in Australia:

  • Offsite Renewable Energy Power Purchase Agreements (PPAs) are now available to organizations with electricity load in Australia. PPAs are a long-term contract for renewable supply that help to stabilize electricity spend by locking in a fixed price for power. They can also provide financial savings, as the price for renewable energy is at parity—or below—the market price for traditional brown power supply.  PPAs in Australia offer this financial savings to organizations as an immediate reprieve from volatile electricity prices. With an offsite PPA in Australia, the sooner you sign, the more you save. In 2017, corporations contracted PPAs for more than 400 MW in Australia, most notably by telecommunications provider Telstra. Renewable energy PPAs in Australia can be either delivered directly (retail-sleeved) or by financial contract for difference (virtual); the structure a company chooses is dependent on the company’s unique goals. Both PPA types can also be bundled, so that the contracting organization receives the Large-scale Generation Certificates (LGCs), which are currently subject to low supply conditions delivering high market prices.

With an offsite PPA, the sooner you sign, the more you save.

  • Onsite Distributed Generation and behind-the-meter PPAs are also being explored by organizations in Australia. The abundance of solar resources in the country and the cost-effectiveness of decentralized generation through avoided retail and network charges make this an option worth considering.
  • Energy Storage is proving its value in Australia. Tesla has been working on substantial energy storage projects in the country, and has already installed the world’s largest battery in South Australia, at 100 MW capacity, which essentially functions as a virtual power plant. Leading German battery manufacturer Sonnen has announced that it will establish a battery manufacturing and distribution plant in Adelaide, planned to produce 50,000 units over the next five years. And Vestas and Windlab are developing a groundbreaking hybrid solar-plus-wind-plus-storage project in Queensland. The downward pressure created by this market activity and innovation is sure to further reduce the cost of batteries, increase the uptake of new storage projects, and could prove effective in reducing electricity price volatility.

While there is no immediate solution to the electricity situation in Australia, and renewable energy is not a panacea, it gives organizations an immediate opportunity to lock in cheap, stable electricity prices. The economic benefits of a PPA in Australia are immediate, meaning that every day that passes is opportunity lost.

Schneider Electric’s  NEO Network™ is growing community of companies advancing renewable energy adoption around the world. Member companies enjoy access to global market intelligence and electricity price insights, peer networking and collaboration, and leading project and supplier solutions. This information has proven key for companies looking to stay ahead of market changes, while accelerating their renewable energy and emissions reduction goals. Access to the community is now available in Australia.

For a deeper dive into the Australian renewable energy market opportunity, we invite you to download our Australian Market Summary. To receive a NEO Network demonstration, please contact us.

 

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