The world’s energy markets are transforming; transitioning from fossil fuels to renewable energy, from centralised to distributed generation, from supply-led to demand-driven use. How do you stay competitive against this backdrop? What are the most pressing risks for big energy consumers? And what does this mean for energy suppliers, power producers, new projects and government?
To navigate these risks and harness opportunities, there is a need for clear business strategy and informed engagement in market reform. This will reduce uncertainty, increase price stability and improve long-term decision-making capabilities.
Aurecon has surveyed industry opinion across the entire Australian energy market; asking what the future of energy might look like and their current major concerns. Over 100 industry members offered their opinion on the future of energy.
Big energy consumers, project developers and owners were the majority of respondents, with financiers, networks, retailers and policy bodies also contributing. They addressed the fundamental questions of:
The majority of industry members identified price as their greatest concern.
However, regardless of any perceived primary concern, all respondents are looking to corporate Power Purchase Agreements and self-generation of power as the most effective ways to manage risk.
This speaks to the fact that most respondents see price, security and carbon impacting their risk profile and have identified corporate Power Purchase Agreements and self-generation as effective ways to manage all three risks.
Any transition needs its disruptors and technology emerges as the biggest opportunity for shaking up the status quo, with wholesale market reform identified as another transitional factor.
Respondents apportioned less opportunity to evolving network models, which are often required to enable the technology transition. We think these priorities exist because the technology disruption is required before new network models emerge.
In the energy sector, 60% don’t feel confident in the short term – or not confident at all – often citing uncertainty in policy as the key reason for this.
However, stakeholders have an underlying belief that in the long-term, market fundamentals will provide opportunities.
In its current state, the sector is not set up for a robust transition and respondents proposed the main step-changes that might address the issue: strong climate policy which has support across the board and a reduction in how involved the government is in the sector, to offer long-term stability.
In addition, 10% of respondents explicitly requested a form of carbon/emissions pricing.
The Australian energy system is large and multi-faceted, with different market and policy forces operating on the participants and a variety of technologies and business models being deployed to deal with transition and disruption.
We have grouped survey respondents into five distinct energy market participants, with most respondents being big energy consumers and project developers and owners, to find their current concerns and preferred future directions.
Many also see the impact of policy on stability as a secondary risk in the current market.
When you think about the risks to your customers' business, which of the following is top of mind?
There is a roughly even split between these approaches which shows that there are a range of viable options, depending on the individual situation. Many big energy users also identify energy efficiency measures as a secondary course of action to back-up their major mitigation approaches.
Right now your customers are moving to manage their electricity related risks by:
While 50% of big energy consumers/users see themselves purely as market participants, the other half aspire to be leaders and advocates.
Since big energy users are price-takers, there is a desire for innovation, perhaps driven by uncertainty in the energy industry. With more options becoming available to big energy users, it is important that they can get ahead of the changes to be able to establish the best deals.
What do you see as your role in the future of energy in Australia?
The capability gap identified by the other two thirds of big energy consumers arises from a few self-identified factors:
In terms of your business' needs and your strategy to deliver them, what is your biggest capability gap?
To mitigate these, project developers and owners are seeing their clients turning mostly to corporate Power Purchase Agreements, with a smaller group looking to long-term Power Purchase Agreements.
Few of the project developers’ and owners’ clients are looking at self-generation as an approach, raising the question of how much stronger their positions could be if they had the threat of self-generation when negotiating with project developers and owners.
The rest identify understanding network fundamentals, how to influence reform, and identifying and articulating a clear business strategy, as equally frequent capability gaps.
When you think about the risks to your customers' business, which of the following is top of mind?
In terms of your business' needs and your strategy to deliver them, what is your biggest capability gap?
As networks enable and shape the energy transition it is important that they have accepted the magnitude of their influence.
Electricity retailers are an important contact point between consumers, the electricity sector and new business models that are entering the market. New types of leaders are required as innovation from new entrants and incumbents disrupt the status quo.
My role in the future of energy is as a leader driving a low cost and low carbon energy future.
Copyright 2021 Aurecon Group Pty. Ltd.
