Published on October 23rd, 2013 | by Giles Parkinson9
Origin Says Solar And Storage Coming Quicker Than Thought
Origin Energy, Australia’s largest electricity utility, says the energy industry has underestimated the onset of disruptive technologies such as solar PV and battery storage.
In comments made to a conference hosted by GE, the largest supplier of energy equipment in the world, Origin Energy’s head of energy markets, Frank Calabria, said the uptake of distributed generation such as solar and storage had taken – and would likely continue to take – the industry by surprise.
“Technology will disrupt,” Calabria told a “GE at Work” session on Powering Australia. “I think we have underestimated the rate of onset –not just of solar PV, but PV with the combination of storage as a greater disruption potential. That is not too far away.”
The comments by Calabria shouldn’t be a surprise, given that Australia now has a total of nearly 3GW of rooftop solar PV, and one of the highest levels of rooftop solar penetration in the world. That, in turn, has led to falling demand from the grid, reduced wholesale electricity prices, and the mothballing of nearly a similar amount of coal-fired generation as a consequence.
There is now a growing recognition of the disruptive influences of solar within the Australian electricity industry – something they did not want to admit even just 12 months ago.
Energy ministers in NSW, Queensland and Western Australia admit to being taken by surprise by the take—up of solar, even after the ending of most subsidies. Queensland generators and network operators such as Stanwell Corp, Energex and Ergon Energy have also noted the profound impact of solar, although they vary about whether this is a blight, a blessing, or an opportunity to the future.
Later, Calabria told RenewEconomy: “No-one anticipated the level of solar to have penetrated the market as much as it has today …. So industries like ours have to face the prospect of underestimating what they can do in the future.
“If we don’t watch that – combined with what is happening in storage – we could underestimate its development going forward. It would continue to promote a trend of more generation in people’s homes.”
That, Calabria says, will clearly impact business models, although it is not clear how. Interestingly, Alex Wonhas, the head of the Energy Flagship division at CSIRO, suggested that distributed generation could account for up to 30 per cent of supply in Australia’s electricity grid.
That just happens to roughly equate to the share of residential and commercial demand. It also accords with the predictions of Citigroup analysts in the “Energy Darwinism” report earlier this month. And it fits in with the new direction of Europe’s biggest utilities. Read this story we publish today on how RWE, the second biggest utility in Germany, is abandoning the centralised model of generation in favour of distributed energy and targeted markets.
“We can see future,” Wonhas said. “(Customers) will get a PV panel, get some batteries, it will be a really economically viable proposition to generate their own power. That has flow-on consequences for businesses, and how they serve customers.”
Calabria agreed: “We have to adapt the business model over time,” he said. Although just how that unfolds is impossible to predict. “No one has the ability to predict perfectly into the future. It is not absolutely clear how (a large utility) can participate along the way.
Part of the problem lies with network costs, which account for 50 per cent of the retail cost of electricity. Matt McKenzie, the regional head of energy management for GE, said the huge investment in networks was making off-grid technologies financially viable, and that in turn was putting pressure on the system. This echoes a conclusion from Ergon Energy earlier this month, which suggested off-grid solutions would be cheaper than on-grid solutions for its customers by the end of the decade.
Calabria noted that the networks, with high fixed costs and a capital-intensive structure, was particularly sensitive to small percentages in reduction in demand.
McKenzie said that networks will still be required, but the operators need to consider battery storage and use this to deal with peak demand, and manage the peaks in demand. This would avoid further gold plating of the networks in the future, and reduce the incentive for people to go off grid.
Calabria noted another surprise to the industry was the consumer response to rising electricity prices – or elasticity. The new Coalition government has based much of its policy thinking – and its criticism of the carbon price – around the idea that electricity is inelastic, people will keep on consuming whatever the price.
Calabria suggested this was not true – and it is fairly obvious to anyone who has looked at the continued take-up of rooftop solar without subsidies, and the evidence provided by the likes of Ergon, Energex and the WA market operator.
“We have tested the elasticity … (to the point where) where we understood that demand/price relationship. That has a lot of people in industry really trying to peel away what is the price response, and what is also the technology response via PV, and what is broader behavioural response.”
One obvious impact, though, is on wholesale prices. Calabria noted that the price of wholesale electricity was now at record lows – around $30-$40/MWh (excluding the carbon price), and was at a point where investors were not getting a return on capital.
This is a point endorsed by Stanwell Corp, which reported earlier this month that wholesale prices and demand had fallen so far that it no longer made a profit from its 4,000MW-plus of coal and gas-fired generation.
This, in turn, will affect the two key policy tests of the new government.
The Coalition has said that it will deliver electricity price cuts of 10 per cent by repealing the carbon price. Calabria and others on the panel said the challenge was making this price reduction clear to consumers, as it was likely to be overshadowed by other factors – such as rising network costs (Energex has flagged a 10 per cent interest in those costs next year).
The other key issue is the renewable energy target. Origin Energy, EnergyAustralia and most state-owned generators and network providers want the RET changed to reflect declining demand.
As RenewEconomy has reported, the renewables industry is seeking to find a compromise position to try to avoid a lengthy review of the RET – promised by the new government – which would translate into another lengthy hiatus in investment. It is understood that the Clean Energy Council is hosting a strategy meeting with key stakeholders today (Tuesday).
Calabria said he did not have a firm position on the RET. He noted that the RET and the carbon price were designed to work together, to the point where the carbon price would provide the main revenue support for renewables post 2030.
But the removal of the carbon price meant less certainty for that revenue stream. “The RET was well conceived with that carbon policy. If carbon comes out, it (the RET) needs to be reconsidered as to what is appropriate.”
And Origin Energy is still pushing the line that the RET will account for up to 28-29 per cent of total demand if left at the fixed 41,000GWh target – a target framed (with Origin Energy’s approval) when demand forecasts were much higher than they are now.
The other part of the equation is how to cause coal-fired generation to permanently exit the market. Around 2100MW remains mothballed, but as Calabria noted is available to come back on.
“There probably needs to have an incentive to withdraw. It remains to be seen if in Direct Action there will be an incentive, (but) you would expect that is one of the things that you would see.”