Hello, my name is Maria Rampa and welcome to this episode of Engineering Reimagined – a podcast series in which we explore how people from all walks of life are reimagining the future and their leadership roles in it. What can we learn from their compelling and inspiring stories to help us reimagine engineering, to lead the world to a better place?
Energy transition is a ‘wicked problem’ facing all economies, as it is essentially about re-writing the DNA of our economic systems.
How can economies transform to a distributed energy future that benefits everyone from the supplier, to the end-customer, and of course, the environment?
In this episode we explore how AGL, one of Australia’s largest energy generators and suppliers, is transitioning its business towards an energy future that encourages a symbiotic relationship across the supply chain, ultimately creating a customer experience that incentivises everyone to participate.
AGL’s Executive General Manager – Future Business & Technology, John Chambers, and Aurecon’s Capability Leader, Future Energy, Ben McGarry, discuss what role renewables, virtual power plants, electric vehicles and batteries play in the energy transition; how engineers are playing a vital role in advising and implementing change; why we need to engage with our Indigenous communities to assist with this transformation and how the answer lies more in ‘collaboration’ than ‘disruption’
+++++
Ben McGarry: Thanks so much, John, for joining us today. It's so great to talk to you.
John Chambers: Ben's it’s great to be here with you. I'm going to quickly start with a quick acknowledgement of country as well, if I may, just noting that I’m on Boonwurrung Country today as we record these podcasts and it's great to be here with you.
Ben McGarry: Thank you so much. So my team specifically looks at energy advisory and strategy around the energy and decarbonisation space. But obviously, as you know, there's a whole lot of overlap between the energy strategy stuff, and how does a business decarbonize? So more and more, over the last few years, that emphasis has been going from grid disruption and managing renewables penetration on the grid and the risks and opportunities around that towards decarbonisation of transport and industry and the kind of harder to decarbonize sectors. And it's sort of interesting to see that all our clients are all moving the same way. So even if the company's historically just been a grid, connected generator, or energy user or whatever, more and more, everyone's having to spread laterally and come up to speed on what hydrogen means for me, or battery storage, or battery, electric mobility. So it's still really exciting. I'm really loving my career and really excited to be talking to you. So you would say you've come from data and telco and technology space into energy or have you had sort of a longer history in energy itself?
John Chambers: Totally, less than a year in energy, and still working the heck out what's going on.
Ben McGarry: I'm 15 years or something in and I'm still a massive victim of imposter syndrome. Because there's just so much breadth to it.
John Chambers: My newbie-ness might be an interesting conversation, because you know, it's one of those ones where I took the role at AGL. You know, I'm fascinated by the transition. If you talk to me five years ago, when I was at Telstra, and said, do you want to go work for energy, I would’ve said ‘why?’ It was the most boring industry in the world- one product, don't engage customers. And then suddenly, the world just started to change very, very quickly. And so jumped in, but I literally did come in, not with blinkers on but just going, I want to be in the arena, I want to get in and get involved and work out for myself, how can you make a difference here as opposed to standing on the outside throwing stones. And so I think there's no better place than AGL to do that, when you've got the biggest emitter and the biggest renewable investor. So I've learned a little bit in that time, but I’m still working it out, for the average human it’s a very complex space to go, well, what do you do? Do you just go, you know, renewable only grid by 2025? Which is completely unrealistic and would cost would be completely unstable and, and cost consumers? Or do you have a managed transition? And what's the right amount? And is it the individual trying to get to net zero in their life versus the business trying to get to net zero in their outcome versus the mass shift in, as you say, electrification of transport and big, big sources of emission. It's a really interesting space that I'm still learning about. But back to your original question, Ben, yes, 18 years in telcos then basically came to the perspective that telco and most established industries were being disrupted to a degree that I didn't see them getting out of, and formed a basic hypothesis that entrepreneurship, and native digitization were the fundamental sources of value creation in the economy for the last 10 years, and would be to the next 30. And I wanted to get involved in that I didn't think corporate was the place to do it. I started a couple of startups, got involved in effectively starting my own company around advising into breakout growth pathways and how to, I don't even like the word digital transformation, because, again, I don't think companies are great at transforming themselves into something else, I think they cut a few edges off, they polished a little bit, but they don't actually change very much. So advising on how to kind of kind of create whole new businesses that could be the future of your current business, and then ended up well coming into AGL, because they were doing some really exciting stuff in that space. And I saw an industry that needed to do that, frankly, the transition was so broad ranging and happening so quickly that I believe companies like AGL do need to utterly reimagine themselves for this new era. And so I was excited to come back and join one that I felt had the imperative to do something pretty special.
Ben McGarry: Can I ask one thing you mentioned there that was interesting was the idea of lasting value being in entrepreneurship, rather than in maybe the continued monetisation of infrastructure? And I wonder if there's some lessons you carry over from the telco space in terms of stranded assets and disruption of or erosion of business cases for infrastructure that might have been designed and built for one purpose, but very rapidly, gets disrupted? And then leaves you with the question of do you let that die as a stranded asset? Do you try and like hold on for dear life to maintain the relevance of that asset base in a future world? Do you try and change the future so that your infrastructure is still relevant?
John Chambers: There’s multiple layers one I think that’ll for a long time, remain the infrastructure investment layer and to a degree, you know, Google and Amazon are creating new forms of infrastructure. But there's, there's always a need for national and global infrastructure that has genuine infrastructure type returns, that people can build stuff on. And I think the challenge for a telco or an energy company is traditionally we've got to not just be infrastructure, but also product and go all the way to the customer and build beautiful end to end experiences and make some EBITDA from that. And then the last 10 to 20 years, we've got really cranky, because these big global smart digital players have come in and seem to be extracting all the value from the customer on top of the infrastructure layer, and we dammit surely I was on a call just before this with a lady who used to work at Sensis, you know, and the journey they went from going, how could we have gone from owning the customer relationship and being worth $10 billion to not and being worth $500 million in six years, because basically, Google came and extracted that whole customer engagement away from them, that they just kept on not accepting the reality of what was happening. And I think that's what's happening now in so many industries; telco, energy, and others. So the question is, what does the future look like? And what is the role of corporate in the future? Do we want to be an infrastructure player, there is absolutely a role for an infrastructure player. Look at Telstra, they're focused on 5G, building out an infrastructure layer about 5G, and they'll continue to make returns on that because only three people in this country have a carrier license. Google are not going to have one anytime soon, startups are not going to have one anytime soon. Someone needs to have a carrier license, build a national network that people can come do cool stuff on. Will Telstra do really cool stuff with 5G? Will they be the ones who bring, you know, amazing experiences of VR to life that are using 5G and own the end to end value stack? Who knows I don't think I'd bet on it. But they're gonna have an infrastructure play. Same things, it’s the same challenge for energy, people need to own big assets. But infrastructure assets, get infrastructure type returns, we're not used to infrastructure type returns, we're used to higher multiple returns, because we've owned fully integrated assets and customer experiences. And we've got to work out who we are, as we go forward.
Ben McGarry: That's really interesting, the idea that you sort of had a blended EBITDA that reflected a full gamut of value. Whereas now you're gonna have to be a lot more granular and understand the differential returns that come from different layers. And when you mentioned Google, it reminded me when I was in the US living in Austin, Texas, very progressive city with the utility there being Austin energy is one of the most progressive utilities in the world. This was 2014, I think. The house I had had a nest thermostat, I think this might have been prior to the acquisition. And that was tied into my Austin energy utility plan. And I was on a program that let them, you know, surreptitiously turn my thermostat down for half an hour at a time. And it was a seamless user experience. And it's been an endless source of frustration for me that we're still, we're not there yet in Australia. And I'm interested in you having coming from outside- what is it that's holding us back from adopting these really exciting technologies that seemingly the rest of the world is solving five years, 10 years ahead of us?
John Chambers: That's a really, I think, quite interesting use case because I ran smart home at Telstra for a while and we tried to find our version of all that. Like me, I turn my econ on when I need it, turn it off, when I don't turn my heating on it. If you said to me set and forget, I'd say stuff you I'm controlling my energy usage. And no one's doing it for me. And so we failed at bringing thermostats into play here, and many others have as well, because Aussie's are very culturally cost of energy. And a whole bunch of things are very different. The whole smart home market in the US, which is 30, or 40% of homes have some kind of smart systems in their homes these days, was built from the fact that 30% of US homes had security because they need it, 9% of Australian homes had security and that was falling like a stone. So they were transitioning from dumb security to smart security enabled smart homes. We didn't have a platform to build on it still. And the most smart thing in most Australian homes is a Google Home or Alexa. And they're really, really conditions. Well, then you've got what happened with British Gas and Hive in the UK where they double down on smart home tanked the EBITA of the company got the CEO sacked, and, and the share price that you know, less than a half. So you they tried to double down on tech and it just didn't pay off for them as well. So it's, again that I think they probably felt they had more right to the end to end customer experience and to try and make the money that Google makes. And then they did. Whereas Google can afford to invest in Nest and burn cash on that every year because they're making $178 billion in advertising and we're up against that. As well in Australia, we aren't a naturally innovative country, sadly. We’re learning but we're a resources country, our rails are built on resources and financials not innovation and product and so we've also got a long way to go to play in that space. We've got some early unicorns but certainly a long way from US or Northern Europe.
Ben McGarry: Do we have opportunities that other countries don't?
John Chambers: Yes, we do. Renewables is one, right we have an outsized ability to generate power from renewable sources, then then most other countries. Difficult to export but, but it's absolutely a competitive advantage over the rest of the world. And this is why the conversations with Japan about hydrogen, are interesting, because you go, we're in a world where real electricity is dropped to somewhere around $40 to $50, a kilowatt hour in Japan, it's $120. We're in a world where we can generate unlimited renewables, they're in a world where they can generate none, or close to none. Surely, if we can work out a way to export fuel to that country, there's something in it. And that's where hydrogen becomes fascinating, because you go, well, if we can generate it, here exported over there. The price of energy there makes it potentially palatable. But it's a long journey to be able to generate hydrogen at a cost that makes it economic, yet, but the business model kind of sort of makes sense, in renewables, definitely, we have an advantage. Unfortunately, it's an advantage for ourselves that we're struggling to work out how to create a global advantage in but things like solar, I think are fascinating. So we have the highest penetration of solar 40%, globally, and we're probably much more advanced than most countries.
Ben McGarry: I think that's a little understood. fact about Australia is how high our renewables penetration is compared to other markets. And I think you're working to build a range of new technologies to help enhance that renewables penetration, including the largest VPP, or virtual power plant. How's that going? What's, what's the latest on that?
John Chambers: It's great, it's early, right? The hard part about the energy transition is the disruption is happening now, and the big value creation is going to happen in four to 10 years’ time. So VPP is a great example, we've invested a lot, we've got probably more batteries under management than anyone else in the country, both domestic and Commercial and Industrial (C&I). And we're starting to see the green shoots about how we'll be able to dispatch frequency and other things of value into the grid that will make money, think about it- an average energy company, grid connected customers let’s say, the gross margin on that's 400 bucks, then they become a solid customer. And the gross margin for that customer, because of the less use of energy saves the company 200 bucks, and they become a battery customer. So it becomes 100 bucks, because they're literally just using this energy from us. That's a good thing for the consumer, it's a good thing for the environment, a terrible thing for the retail energy company. But as a VPP customer, let's say the ability to work with that customers now become a fully integrated part of the grid, to use power when it makes sense to but also to dispatch power back to the grid when it makes sense to the ability for us to slowly shut down plants over time and use this as the source of our energy generation and storage, not fixed costs of managing plan that say that $100 of margin to us goes back towards the 400 that we started with, because we were able to make all these savings elsewhere, by working with this customer as part of the grid. That's a really interesting proposition for a VPP. That's the fundamental premise of the VPP for the energy company. So the question is, how do you rapidly increase the amount of dispatchable storage that we're VPPing with our customers, and that's where EVs become the game. Because when you've got a household with a EV battery being five times the size of the household battery, that's the kind of storage, you want to have access to, as well as obviously C&I storage, that becomes fascinating. The problem is a EVs aren’t scaling that quick. So this is a long game, but it's the it's the right game for the distributed energy future. And so that's why we're all in now, learning as much as we can. Because we've got to balance the whole technology of doing that. But you've got to balance the customer experience, it's really complex to explain to a customer, we want to control your battery for some shared value, we can't kind of tell you how much just trust us because we're an energy company, and you trust us. Just trust us to orchestrate this battery for you. So we both win that's kind of where the VPP world's at, there's a fair way to go in customer experience, as well as the technology of orchestration to make that the grid of the future. But the beginnings are really good.
Ben McGarry: It's really interesting you mentioned that because I looked a while back at some work that was looking at the value split of distributed residential storage and the split of value between how much it benefits the homeowner for self-consumption versus tariff reduction versus benefiting the distribution network and it's, it's quite interesting to sort of start to unpack that and what you're talking about, for what I'm hearing is it's incumbent on the retailer or the other players in that value chain to try and incentivize the deployment of that resource one way or another, so that it does benefit everyone in ways other than just you having to fork out yourselves to deploy it, because, you know, as we've seen with solar, that homeowners themselves are the ones deploying their own rooftop solar, and they're going to be the ones, buying their EVs or buying residential storage. It must be a really tricky path to tread, as you say, getting the customer to trust you their energy provider, that if you hand over the keys, it's in the customers best interest, particularly when a lot of the messaging is really about self-sufficiency and going off grid like I can have my own solar and storage. I don't even need the retailer to know about it.
John Chambers: Yeah, exactly. That's all part of the challenge. And in fact, to step back and say, how do we design the fastest path to everybody being aligned towards net zero, you would actually say it's not radical disruption of the big folks, it's much more collaboration, because the big folks want this outcome too but have shareholders to work with. So if we were all lined up and said, how do we make this transition together, big energy, consumers disruptive technology It'd be quite a managed process where you're shifting profit pools, from big generation sources to distributed generation sources being shared between well-meaning good energy companies and consumers, but in the most orderly way possible, and really incentivising that rapid take up of consuming distributed energy sources, but as you say, it's usually a lot of the early take up has been on getting off the grid, I can't wait to get away from my energy provider, which kind of means that doesn't necessarily speed up the whole thing.
Ben McGarry: That's an interesting observation. So it can almost be an impediment, because it then removes that pool of potential margin, as you say, that could fund the kind of transformation that's required. And instead, everyone's margins get shrunk and compressed, and you lose the levers that you might otherwise have had available to roll out the kind of platforms that support that. I don't know if there are models from telco or other markets, where the customers have been taken on a journey where they continue funding infrastructure transformation, instead of pulling away from the high prices?
John Chambers: I think the main ones would be telco, where you kind of think through the similar challenges, certainly not a holistic one. Ultimately, because consumers are willing to pay for data. And it's such a mass take up. Think about where mobile data was 10 years ago, 15 years ago, where people were still trying to go, Oh, I don't want to use it. It's, you know, it's expensive. It's just incredibly embedded part of everyone's life. And the spend on mobile data has gone from single digits to 40s and 50s per person on every job is that funds the ability to keep investing in networks. But there's a protection to that, because there's only three carrier licenses in the country. So that ability for consumers with a compelling customer experience to continue to fund that is there. The problem is again, the telcos don't get full payback. There's so many people making money on top of that infrastructure, at the customer level, whether it's Netflix, Facebook, or everybody that ideally the telcos would like to be participating more in that value pool to continue to fund great infrastructure, we have a similar challenge, which is, the folks who have had the, the balance sheets to invest in the infrastructure, are seeking to participate meaningfully, in the end to end customer experience to continue to fund the infrastructure. But it's not necessarily evolving in that way, at the moment, we've got a job to do to earn the right to do that.
Ben McGarry: And I'm imagining part of the work that needs to happen is the tariff reform that allows sort of costs and revenues to be better matched. And presumably, that's what already happened in the telco space where you went from the retail structures went from sort of low fixed costs and high costs around like how many minutes you don't get to talk per month, or how many megabytes of data, just fixed cost, you get a pipe of a certain width and you can use as much data as you like, does that similar transition need to happen?
John Chambers: Yeah, I think you compare a household that's got a solar battery, and EV and is charging their EV multiple times a week and in doing that they're saving money from petrol actually coming out net positive and they become fascinated by how do I make sure I'm charging the EV for the lowest possible cost when the sun’s shining? Or I'm getting access to maybe, you know, zero wholesale prices in the grid, suddenly they go from being dispassionate, disconnected How do I just save money on energy to being I'm actually not just by engaging with the system of the many things that I do every day? I can save myself money but I'm actually transitioning myself to net zero and saving the world it's a freaking very different conversation which is, in some way corollary to, you know, when you start to engage with the internet and the mobility of this thing, being able to do incredible things, wherever you are. On the Maslo's hierarchy, you're getting up to the, you know, much more away from the transactional to the transformative experiences. And I think that's possible in the energy ecosystem as well over the next 10 years. The question is, are the energy companies of today capable of transforming to provide transformative experiences to their customers and capture the value that's on offer by doing that?
Ben McGarry: You've covered both winning hearts and minds along that decarbonisation journey in how individual responsibility and individual price signals and behaviors can build up to become powerful, collective effort. You've also been a committed ally to the Indigenous communities in Australia. How can we design the future of leadership that's anchored in diversity and inclusion?
John Chambers: Engage. Get beyond the paperwork and connect with community become place-based in how you engage with Aboriginal community, it's not a national conversation, you don't have a national RAP that deals with Aboriginal Australia, there is no Aboriginal Australia, there are 250 plus Aboriginal communities around Australia that all have their own stories needs, passions and desires. And so begin there, engage work out what country you're operating on, where you've got to pay the rent, as I call it, in a way, you've been living on their land, extracting value from the land, how you know, really, really need to pay the rent, and then get to know them and work out what their needs are, and then start to connect that back to your opportunity set. So for us, you can develop AGL, we're in a conversation right now about three or four major assets around the country that we've owned and generated energy from that we're going to turn into energy hubs and renew over the next 10 to 20 years to sell energy, what an amazing opportunity to engage early with traditional owners of those lands and jointly work out what projects we can do to bring their learnings into the conversation about how you might renew or heal country as per the NAIDOC theme this year. But also invest in and sustaining their community and create economic growth whilst creating economic development for our company. That's the time to engage early and aligning interests, in a learning conversation, and so really trawl through your supply chain and say, if you did a category view of your spend, you know, most companies, even with a RAP are spending 0.001% of their expenditure with Aboriginal companies, when you start to trawl through your categories of spend, you'll probably find over 20 to 30% of your spend is addressable spend that could be going to Aboriginal businesses, this transition that you go through, but you've got to take a category view and then start to go where can we really start to find some areas to spend more money with Aboriginal businesses than we are today? And then ultimately, where can we do that in a way that uplifts capability and capacity in the ecosystem? There are so many emerging companies I was on the phone with amazing Alana Kennedy runs Ochre Sun, an Aboriginal sunscreen company that uses Aboriginal ingredients to create sunscreen, it is the most phenomenal product, it's priced pretty much there or there abouts with other sunscreen products. Why isn't every Australian company with workforces using Ochre Sun? There isn't an answer. It's only awareness, visibility and the appetite for us to address our supply chains and say, well, we're probably buying through distributor x at the moment. But if we said, we'll only buy from you, if you stock Ochre Sun and we want it, you know, would transform the nature of that business overnight. And there's a 100 more stories like that. But it takes the corporate to break down the habits that we're in to build capacity and capability in Aboriginal businesses and we transform, but we've got to get involved. It’s active it's not just we've got a RAP hopefully someone's gonna sort that out.
Ben McGarry: And I think that's for no other reason, it's only going to get more important because the transition to renewables means collecting diffuse energy over much larger areas right and in in regional areas so that the geographic footprint is going to be many orders of magnitude larger for energy collection infrastructure,
John Chambers: Decarbonisation industry and carbon credits, man, what an amazing connection to country bush foods, there's so much that can be done there at scale. Again, as we're forming these new industries as white people we don't naturally reach out and think about how we could be bringing in the wisdom and opportunities of our First Nations people- they're often an afterthought. And when we creating new industries, there's so much of that happening in the energy space, how do we bring them in early.
Ben McGarry: And it's particularly true that those renewable resources are often in regional and remote areas, so the opportunity could be disproportionately favourable for historically disadvantaged communities. We've spoken a lot about change happening in a large scale on the small scale and driven by corporates driven by individual responsibility driven by market forces. How do you think engineers can most effectively play a role in this energy transition?
John Chambers: Gosh, I can't think of a part of the energy transition where engineers in some form aren’t taking a lead role. So much of the work in the technology of the transition of generation itself, whether it's, you know, obviously solar and batteries and the economic viable position that they take, and the engineering required to do that through to ongoing storage solutions. And I think one of the companies that we know, we've been working with RayGen and an incredible work they're doing around engineering, new types of long held storage solutions, through to the software engineering teams that are increasingly running the retail sector. Now think about our own many 100 technologists and software engineers and our partner, Ove and the work they're doing in the Kaluza platform in the four to 500 plus and growing software engineers, they've got engineering, this new, data driven real time, technology-led future over the transition. It's everywhere. So it's a really exciting time to be an engineer, I think if you're about the transition, and we are only just getting started, because there are still so many problems to solve. But then you work amongst engineers every day, what do you think? Where do you see the most exciting places for engineers to play?
Ben McGarry: I think in the energy transition, the challenge and the complexity is what draws engineers to this space. And I know, it's what drew me much earlier in my career. And I think it's because the fundamental DNA of our economies and of our systems are written around the movement of energy. And when you look back at the history of the energy carrier, it's typically a fossil fuel. So the energy transition is really about rewriting the DNA of our economic systems. And engineers love complexity and a complex challenge like that, that needs to be solved at multiple layers from an infrastructure layer to a market layer to commercial and strategic layer. That kind of complexity is really what excites engineers. And I think there's a bit of a misconception amongst some people that engineers sort of like a linear problem solving where a problem can be well-defined, and where there's a clear pathway from the problem to solution. But I think the reality is that a lot of people working in this space, really are inspired by the idea that this is a hard problem that we're not sure how we're going to solve. And I think that's what really inspires engineers to be a part of the energy transition. You know, you mentioned before some of the technologies that are being experimented with, but aren't necessarily, a silver bullet for a solution for decarbonising our economies. And it's that kind of uncertainty and ambiguity, and those sort of wicked problems that I think really gets engineers up in the morning, and that has is coming to work and doing our best to create a brighter future. I think that engineers everywhere, are really compelled to this problem, and because of its complexity, but john, thanks so much for your time today. It's really been a pleasure talking to you. I really enjoyed the lessons and the insights that you've brought.
John Chambers: Thanks, Ben. It's been a pleasure to be here a really, really thoughtful session. Great to reflect on these intersections between industries like telco and energy as they evolve, but also on the exciting time we find ourselves in and particularly for engineers, I've got to say it's a time where there are more wicked problems to solve. As you framed it in this industry, then you generally get to solve in a lifetime and he right now, so it was really good to talk, man. Really good.
+++++
As we’ve just heard, solving the ‘wicked problem’ of energy transition is not just about the ‘big folks’ – it’s about collaboration from generation sources all along the supply chain to the end-customer – we need to be aligned and we all have a part to play.
If you enjoyed this episode, please tell your friends about it, and write us a review! You can subscribe to Engineering Reimagined on Spotify or Apple and follow Aurecon on social for updates. Until next time – thanks for listening.
