Energy Source and Distribution talks with the Energy Networks Association’s chief executive officer John Bradley about disruptive technologies, getting gas on a level playing field and creating a period of certainty for the country’s energy network businesses.
John Bradley has joined the Energy Networks Association (ENA) at a time when the energy market is being overhauled; when talk of solar photovoltaic, home energy management systems, consumer engagement and income for utilities are at an all-time high. Within this period of transition, however, John is determined to avoid unnecessary regulatory policy churn.
“I’m a big fan of clarity; clarity in the organisation’s purpose and clarity in the roles we give to staff,” he says.
“It’s essential we are clear in our assessments and strategy regarding where our network businesses are going and by when.”
Not surprisingly, he is equally clear about the purpose of the peak national body representing gas and electricity networks, and he’s going to keep conversation going until the energy reform agenda reflects the best interests of both consumers and network businesses.
John joined the ENA as chief executive officer in mid May, following the departure of Malcolm Roberts. Previously, he held senior executive roles in the public sector in Queensland and Western Australia, including director general of the Queensland Department of Environment and Resource Management and CEO of the Queensland Water Commission. Most recently, he’s worked with Greening Australia as non-executive director, a position he currently retains.
With a background in business, rather than engineering, John’s quick to admit he’s not the first point of call for expert advice on harmonic currents and voltage distortion. He does, however, acknowledge his diverse background spanning electricity, gas and water – as well as his partnerships with national and international stakeholders in natural resource management, conservation and sustainability – has put him in a unique position to work with energy network businesses around the country.
For the ENA, it’s important John continues to steer the national debate on a number of key issues, including improving consumer engagement, removing obstacles to greater demand-side participation, developing measures to address peak demand and considering the nature and setting of reliability standards.
Integrating disruptive technologies
In September, Queensland electricity network operator Energex said its established business model was directly under threat from the increased uptake of rooftop solar and a growing interest among its 1.3 million customers to produce and manage their own energy needs. And Energex isn’t the only network business feeling the pressure.
Indeed, debate surrounding the impact of so-called ‘disruptive technologies’ – PV, home energy management systems and storage, to name a few – has skyrocketed in recent months, mostly because they do not integrate seamlessly into the current ‘top down’ electricity system.
“For networks, one of the big issues with solar is the significant penetration that has occurred in a very short period of time. Solar penetration has gone from virtually zero five years ago to more than 2100MW last year. There has been a 50 per cent increase in the capacity in the last reported year alone,” John says.
“What’s more, when we look at the kind of forecasts AEMO (Australian Energy Market Operator) are producing, mid-case scenarios indicate these figures could double to 5400MW by 2020, despite the changes to the government feed-in tariff programs.”
According to John, this solar revolution will impact Australia’s energy businesses in a number of ways, the most significant being forecasting uncertainty.
“When we look at the AEMO solar penetration scenarios over the next five years, between the lowest and highest scenario there is 2700MW of difference in solar capacity. That variation poses a lot of uncertainty for energy businesses as they try to think about the scale of network implications,” he says.
In addition to the uncertainty of solar PV and other technologies, network businesses have also gone through a period of substantial regulatory review.
“We are concerned that sometimes people forget regulatory uncertainty can actually increase the cost of supply to customers, because risk pushes up the cost of capital for a sector that is already capital intensive.
So every time we go back and question the fundamental basis of network regulation, it creates a less certain environment for securing billions of dollars worth of capital that supports network investment.”
It’s a serious issue for network businesses that work to accommodate a range of energy scenarios that may or may not come to realisation in the coming years. Of course, the uptake of disruptive technologies on a ‘bottom up’, day-to-day basis, also poses challenges to existing pricing models.
“The key driver of our network costs is the network capacity that’s required to meet customer demand at key times of the year. However, at least for our mass market customers, we continue to rely heavily on a volume-based charge. This raises issues of fairness, to ensure the real costs of network services supporting solar PV or significant air-conditioning loads is not paid for by other network users,” John says.
Indeed, in South-East Queensland, more than 90,000 solar connected customers aren’t paying a network contribution at all – creating significant challenges for the pricing framework.
“Another real issue in the solar revolution is the take up of embedded generation in the network; it’s creating real challenges around being able to manage the connection process in a way that’s responsive to customers and facilitates their needs,” John says.
“As a sector, networks are re-gearing our business processes to try to make the connection process as transparent as possible and to engage well with embedded generation proponents. But we also need to protect the safety, reliability and power quality of the network, which supplies other customers.
“There is a real balance for network businesses in making sure we can protect the interests of all users in network performance while facilitating the take-up of embedded generation and achieving wider market benefits.”
While conversation regarding rooftop solar is currently dominating the industry, John is quick to point out other disruptive technologies will increasingly impact the network sector. There has been a recent influx of innovation, particularly in other jurisdictions, where third party providers are successfully packaging energy generation and storage in a way that allows the customer to have minimal reliance on the grid.
“Theoretically, we’re seeing a situation where consumers don’t have to rely on the grid at all. We’re seeing trends today around battery storage products being brought to market and battery storage is being introduced in a number of network businesses also.
“The changes in the technology mix mean that customers have increasingly diverse expectations about the role of the grid in their supply and no longer accept a standardised outcome. Network businesses are challenged to facilitate new services to customers but also ensure those customers who still require supply or backup supply from the grid can access it – and, all in a way that is economically and financially viable for the system as a whole,” John says.
Rather than signalling the start of the so-called “death spiral” for utilities, John is optimistic the energy sector will adapt.
“Storage, and the potential at some point in the future to see large scale electric vehicles in the system, will pose a risk if we don’t manage the regulatory frameworks and cost recovery frameworks around technology entering the market on a mass scale. But, it’s important we also see it as an unprecedented opportunity to innovate and meet customer expectations efficiently,” he says.
“While demand has declined in recent years, technology could also see increases to load growth and asset utilisation. For instance, an electric vehicle charging at the home could add 2MWh to 4MWh per year to household energy consumption, reduce the peakiness of the domestic load profile and provide benefits through storage capacity.”
Getting gas on a level playing field
It’s no secret the domestic gas sector is facing significant challenges. For starters, the wholesale gas price is expected to increase significantly on the east coast of Australia – potentially double – in the next three to four years. However, John says there are other equally important issues regarding Australia’s gas networks on the ENA’s agenda.
“The sector is facing disadvantages due to the subsidies given to solar hot water systems and changes to government regulations where governments have decided not to proceed with the phase-out of electric hot water systems,” he says.
“Gas is a very efficient way of heating hot water. At the moment, we have a regulatory framework that disadvantages gas hot water systems and that is one of the most significant forms of gas consumption in our domestic networks.”
The ENA even released its policy proposal Reducing emissions from residential hot water heating earlier this year, which stated gas hot water heaters are more efficient than electric resistance hot water heaters, are as energy efficient as heat pump hot water heaters and have lower upfront costs to households than solar. What’s more, the document also proposed a direct measure to assist all households that switch from electric resistance hot water heaters to gas and solar.
“Putting gas on a level playing field and helping it to withstand some of the economic challenges that are coming from the wholesale gas price would be another key priority for the industry in the coming years, I’m certain,” John says.
Engagement with consumers
The ENA and its member companies have been very active in the space of consumer engagement and, not surprisingly, John is pleased with the Australian Energy Regulator’s (AER’s) updated guideline on consumer engagement.
“One of the things we are pleased about is the AER has recognised a lot of innovation regarding consumer engagement is actually occurring within network businesses. It was great to see the AER profile SA Power Networks’ work around their dedicated consumer engagement channel Talking Power, and the consultation process surrounding that,” he says.
The key issue for us is to make sure the focus on consumer engagement doesn’t just end up with ‘formalism’, or vast quantities of paper being thrown at customers. Rather we need to ensure the customers are engaged in a way that is meaningful and that provides them with a clear understanding on what issues they can influence.
“So, we have to make sure as we move towards a greater focus on consumer engagement we don’t go through a lip service of creating new regulations that in turn create a stock standard approach to communicating with customers. Any regulatory framework needs to leave flexibility for businesses to innovate in customer engagement in new techniques to generate two-way dialogue in a meaningful way.”
For the ENA, the AER’s guideline on customer engagement deals with the issue well, and John hopes policy makers and regulators will rely on the guideline, rather than hastily tacking on further customer engagement requirements in every new rule change.
“We think the AER got the focus pretty right and we hope businesses will be free to use the recommendations in a common way across different issues, whether that be reliability engagement or consultation on annual price setting on annual tariffs, and so on,” he said.
Delivering change through regulatory reform
One priority area John has already been active in in his first six months on the job is dealing with the energy minister’s reform agenda. In particular, he’s keen to explore the significant regulatory reform program underway through the AER’s Better Regulation Reform Program. The ongoing program of work is designed to deliver an improved regulatory framework focused on promoting the long-term interests of electricity consumers. In just a few weeks, it will publish a series of guidelines covering how the body will assess expenditure proposals, calculate the allowed return on assets, allocate costs and engage with consumers.
“The AER is fundamentally reviewing incentives and frameworks for network service delivery and while we don’t agree with all their changes, we have supported the process because hopefully it is going to provide better outcomes for customers and reduce price volatility,” John says.
“The other policy review process, which the Australian Energy Market Commission (AEMC) is leading, ranges from everything from pricing principles through to metering policies, to national frameworks for reliability.
“As with all reform programs and policy reviews, our first focus will be to make sure we these programs deliver real benefits for customers, rather than simply responding to the latest issue of the day.”
Transforming service delivery models
An inherent commitment to sustainability is one trend John and the ENA is seeing clearly manifest within the energy sector’s leaders; not simply because it is valued by customers, but because it’s transforming the service delivery model for network businesses.
“I do believe we are in a new era in terms of the customers’ expectations and the sophistication of their understanding of energy and resource efficiency – whether that is a small business customer who is trying to make sure they have the most efficient refrigeration appliances, or a customer who wants to be able to optimise their time-of-use under a tariff that rewards them for energy consumption at a time that’s of most benefit to the system,” John says.
“This strong focus on customer outcomes is the direction network businesses are going in and is the reality the energy sector is facing. An industry association like the ENA can not become disconnected from the issues facing its members. We must be able to articulate their priorities and offer strong channels for members to provide input. This is how we will harness the expertise in our industry.”