Oakely Greenwood’s directors – Lance Hoch, Jim Snow and Greg Thorpe – say it’s time the electricity supply industry mobilises to provide market offerings that make sense to customers who are looking to their own rooftops for stable and competitive power.
What do you see as the greatest challenges facing the electricity supply industry?
Jim: The first has to be the degree to which customers are bypassing the traditional electricity supply chain. This issue hits across the supply chain impacting generators first, and arguably hardest, but it is also having a very profound impact on networks. The key questions facing the industry coming out of this are: why are customers choosing to invest in the alternative of selfgeneration (and soon battery storage) over the existing, fully sunk, and highly reliable electricity supply chain? And what, if anything, can be done about it?
Greg: The second is policy instability, the viability of generation investment and the ripple-through effects on retail price. Climate change policies, such as carbon pricing and the Large Scale Renewable Energy Target (LRET), are regularly and validly criticised – not only because of the instability they cause, but also because of their impact on investors in all technologies. We have seen entire power stations fuelled by coal and gas forced out of the market or mothballed, at the same time as investors in renewable technologies have been left in limbo.
Why have customers taken up self-generation so aggressively?
Lance: Clearly there are a number of factors, in fact it has almost been a perfect storm. The first and biggest factor was the five to 10 years of double digit price increases that end-use customers were treated to just as the GFC hit. The second was the increased availability and affordability of technologies such as PV systems, thanks to scale economies and aggressive financial incentives from governments. The third is the development of new business models that reduced the initial out-of-pocket cost of rooftop PV systems for the consumer to almost zero.
Tell us more about these new business models you’re talking about.
Lance: Essentially, these are the arrangements under which a third party provides PV (and soon battery storage) to customers under power purchase arrangements. The third party installs a PV system for no more than the cost of the physical installation, and then provides
electricity to the customer from the PV system at a fixed price for a fixed period. Any export energy is the property of the third party. The first entities to put these sorts of arrangements in place were true new entrants. But the major electricity retailers have now taken up this business model in a big way – four of the five largest retailers in the National Electricity Market (NEM) have already made arrangements with battery manufacturers to provide PV and battery systems for power purchase arrangements with end-use customers. The retailer brings to the mix the advantage of also being able to offer a contract to supply the electricity needed to supplement the output of the PV system for the term of the PPA, and can useits existing position in the contract market to optimise the overall supply package.
Is there anything the industry can do about the level of bypass in the future?
Jim: That depends on how the industry sees and mobilises itself to provide market offerings that make sense to customers who are voting with their rooftops for longer term, competitive, fixed pricing. The PPA arrangements are a logical and probably necessary response from the retailers to market conditions. They have identified a way to reinvent their business model to capitalise on their advantages within changed market conditions. Generators and network businesses cannot readily use this approach but may be able to find other ways. New ways of operating will undoubtedly emerge.
Lance: One initiative to explore these questions is being undertaken by Energy Networks Association and the CSIRO, which are collaborating to produce an Electricity Network Transformation Roadmap. This effort will build on the Future Grid Forum CSIRO ran a few years ago and will seek to identify the new services and technologies that future residential, commercial and industrial customers will value – and presumably that networks can deliver. Another possible role the distribution network operators could play would be to manage the integration of embedded generation, demand-side capabilities, energy efficiency and demand response. New York State is moving in this direction, but that market has some real differences to the NEM so we need a local solution.
What about regulatory development
Greg: We’d like to see forward-looking policy, governance and regulatory arrangements that are not forever chasing the tail of technology developments. This would require policy and regulatory development to be adventurous and pro-actively clear any barriers to emerging
technologies ahead of time. Some may argue this is picking winners, but picking winners is when the government throws money at a particular solution. The approach we’re looking forward to is one in which a regulatory framework is developed to cater for as wide a range of potential solutions as possible. It would almost certainly result in less regulatory intervention than we experience at present.