Future Energy Ready
How to remain competitive in Australia’s changing energy market

Remaining competitive in Australia’s changing energy market

The transforming energy market is creating both opportunity and risk for the industry

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.

The key drivers transforming the energy market can be summarised into four areas:

Decentralisation

  • Consumer choices and preferences for self-determination
  • The decreasing cost of distributed renewables/storage
  • Unclear policy framework and system architecture
  • Cost and risk of network investments
  • Emerging Internet of Things to manage distributed system
Decentralisation is essential for energy market reform in Australia

Lower carbon future

Australia needs to work towards a lower carbon future

Electrification

  • Electric vehicles
  • Autonomous vehicles
  • Electrification of Industry 4.0
  • Fuel switching: gas and diesel to electricity
Electrification of our assets in Australia

Energy consumption

  • Structure of economic activity
  • Population and demographics
  • New commercial and industrial loads
  • Lower future energy prices
  • Growing hydrogen demand
Energy consumption in Australia

What might the future of energy look like in Australia?

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:

All survey respondents are looking to corporate Power Purchase Agreements and self-generation of power as the most effective way to manage risk.

Price

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.

Technology

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.

Policy

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 future of energy

Energy market participants' perspectives

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.

Windmill and blue sky

Big energy consumers

Price and the carbon intensity of electricity are the major concerns for big energy consumers.

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?

  • 59% The price of power in the future concerns me the most
  • 23% The carbon intensity of my energy is my highest priority
  • 14% Security of supply and network changes are my biggest concerns
  • 4% Power price, carbon and security of supply risks are not key drivers of my competitiveness

To address the risks, most big energy consumers are turning to either long-term or corporate Power Purchase Agreements, or self-generation.

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:

  • 37% Looking at a corporate Power Purchase Agreement type structure to buy renewable energy
  • 27% Entering into long term power and/or fuel contracts, as well as financial products to mitigate price risk
  • 27% Installing solar and/or storage on site to reduce

Big energy consumers clearly see themselves having a leadership role in the future of energy in Australia.

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?

  • 50% Participant: energy isn’t our core business, we just want it to be there when we need it, at the right price, and sustainable
  • 36% Leader: we see ourselves as driving a low-cost and low-carbon energy future
  • 14% Advocate: we want to have our voice heard so that the right frameworks are in place to support our ongoing business

One-third of big energy users are comfortable with their ability to deliver on their strategy and deal with risks and opportunities.

The capability gap identified by the other two thirds of big energy consumers arises from a few self-identified factors:

  • The changing nature of the capabilities needed to optimise commercial energy usage
  • Trouble in understanding network fundamentals
  • Lacking the right people to support commercial negotiations
Big energy consumers Big energy consumers

In terms of your business' needs and your strategy to deliver them, what is your biggest capability gap?

  • 32% Identifying and articulating and articulate a clear business strategy to deal with energy risks and opportunities
  • 32% ‘I’m comfortable with my business’ ability to deliver on our strategy’
  • 14% Understanding the network ‘fundamentals’ – make sense of technical issues like loss factors, curtailment, constraint equations
  • 13% Identifying and articulating how to deliver – have the right people to support commercial negotiations
  • 9% Understanding and know-how to influence market reform – including working with policy makers and within the governance framework

Project developers and owners

Price and security are the major concerns for project developers and owners, with forecasting uncertainty caused by policy uncertainty as a secondary risk.

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.

Looking ahead, 80% of project developers and owners aspire to be leaders in the future of energy.

The rest identify understanding network fundamentals, how to influence reform, and identifying and articulating a clear business strategy, as equally frequent capability gaps.

Energy market reform Energy market reform

When you think about the risks to your customers' business, which of the following is top of mind?

  • 75% The price of power in the future concerns me the most
  • 17% Security of supply and network charges are my biggest concerns
  • 4% The carbon intensity of my energy is my top priority
  • 4% Power price, carbon and security of supply are not key drivers of my customer’s business competitiveness

In terms of your business' needs and your strategy to deliver them, what is your biggest capability gap?

  • 25% Understanding and knowing how to influence market reform – including working with policy makers and within the governance framework
  • 25% Understanding the network ‘fundamentals’ – making sense of technical issues like loss factors, curtailment, constraint equations
  • 21% Identifying and articulating a clear business strategy to deal with energy risks and opportunities
  • 17% I’m comfortable with my business’ ability to deliver on our strategy
  • 12% Understanding how to deliver – I have the right people to support commercial negotiations

Investors

Financiers and lenders have a significantly higher confidence than other market players when it comes to investment.

Financiers and lenders have a significantly higher confidence than other market players when it comes to investment. Financiers and lenders have a significantly higher confidence than other market players when it comes to investment.

Over 50% of financiers and lenders said they were confident or somewhat confident, contrasting to just 10% of those working in policy/governance.

Networks and retailers

Network respondents showed the most concern about security but as with other groups their greatest concern was about price.

As networks enable and shape the energy transition it is important that they have accepted the magnitude of their influence.

All electricity retailers who responded aspire to lead.

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.

  • 100% Retailers
  • 87% Networks
  • 80% Project Developer / Owner
  • 61% Policy bodies
  • 41% Other
  • 34% Big energy consumers
Retailers see themselves as driving a low cost and low carbon energy future Retailers see themselves as driving a low cost and low carbon energy future

Over 50% of the survey respondents aspire to be leaders of the future of energy, given the challenges our major political parties have in navigating the topic, can we get the industry to redefine leadership through action?

Can we get the energy industry to redefine leadership through action?

CONTACT OUR AURECON FUTURE ENERGY EXPERTS TO KNOW MORE

Paul Gleeson - Managing Director – Energy, Resources and Manufacturing

Paul Gleeson

Managing Director – Energy, Resources and Manufacturing
+61 412 868 505

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