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The

New
Energy
Future
the global transition
Foreword
Driven by technological convergence, the energy landscape is changing
profoundly. The way our energy is produced and used could soon be
fundamentally altered by an inexorable wave that is the start of a great
global transition.
These are dramatic statements. In this series of insights written by
specialists from the Advisian team, we will push the boundaries of this
exciting new energy future in the Australian context, and examine the
impacts and opportunities it will present for businesses globally.
Australia is blessed with fossil-fuel riches which it exports around the world.
It also has abundant renewable energy resources and sophisticated energy
markets. A wealthy country, it adapts to technology quickly and has an
entrepreneurial business culture. All of these characteristics make it both
open to and vulnerable to such change, and as a consequence it is one of
the first places to see this transition clearly.
It is time to focus on what the new energy future may bring. I hope you find
this series, The New Energy Future, a valuable source of information and
inspiration.

Dennis Finn
Global CEO, Advisian
London, April 2016

ii The New Energy Future the global transition


Contents
Foreword.................................................................................. ii

Executive Summary................................................................... 1

The New Energy Future.............................................................. 3

Elements of the new energy future...........................................................5

The challenge of solar energy (PV).........................................................7

The storage solution....................................................................................9

Driving on sunshine................................................................................... 12

The energy internet................................................................................... 15

Climate-driven convergence................................................................... 17

Evolutionary winners................................................................................ 19

About Us..................................................................................21

Endnotes..................................................................................23

Advisian iii
In some Australian suburbs, you are in the minority if you dont have solar panels
on your rooftop. This modular, simple generation technology is tangible evidence of
a transition inexorably occurring, involving several seemingly independent factors
converging to revolutionise the way energy is generated and consumed.
This transition will parallel the emergence of the internet in creating far-reaching and
unforeseeable effects. Because energy is so fundamental to the way we live, major
changes to how we produce and use it will reshape numerous aspects of our society
and economy. In a country like Australia, awash with energy, this transition could be
profound.
Solar panels on rooftops in Australia have only become mainstream in the last
five or so years, but in that short time they have become influential commercially
and politically. As a result, solar is becoming a threat to many of todays traditional
energy businesses. Before that point is reached, two issues need resolving: price,
although costs of solar have been falling rapidly they are still assisted by subsidies;
and intermittent output, as solar panels cannot generate at night and their output
drops rapidly under clouds.
If those issues can be resolved, solar on rooftops, which doesnt need costly
transmission to serve customers, could outcompete traditional options and be the
technology of first choice. But this isnt likely to spell the decline of the grid, which
will add value to a more complex energy landscape by multiplying the value of
other emerging technologies and allowing better business models for customers to
emerge.
Cost effective and modular energy storage will solve the problem of intermittent
solar energy output. Users will be able to store solar energy for example during
daylight hours for use when it is dark or cloudy. But when connected to a smart
grid that can aggregate and coordinate the energy production and consumption of
tens of thousands of users, batteries will also provide grid operators with a new tool
to optimise grid investment and operations, increasing overall system efficiency.

1 The New Energy Future the global transition


So, while disconnecting from the grid using batteries and solar could seem
appealing, particularly in remoter areas where grid connection costs are high,
the grid may actually flourish by letting users hook in to access greater cost
optimisations and reliability.
Cost, which has been an issue in solar energy take-up, is also a factor that has
slowed the adoption of energy storage. But over the next decade, electric vehicles
(EVs) will become significantly more common, and at the heart of each electric
vehicle is a battery which can store enough electricity to serve the average
Australian home for days. As EVs bring manufacturing scale, so will battery prices
drop. While charging these batteries will obviously be a source of new energy
demand, when attached to a grid they could also be a new source of supply and
flexibility. This combination of values will strengthen the EV proposition, hastening
the move from the internal combustion driven car as the default choice.

The key to unlocking the converged


The key to unlocking the converged value value of solar, energy storage and electric
vehicles will be the energy interneta vast
of solar, energy storage and electric
network of devices that generate, store and
vehicles will be the energy internet. consume energy, which parallels the feted
internet of things. To make beneficial use of
this network, entrepreneurs will need to be able to collect and transmit the data
that devices capture about energy use on an open platform. Allowing this is likely
to require significant regulatory reform and the evolution of new business models,
some of which has already begun in Australia. But given such capability, the
energy businesses of the future could deliver unprecedented efficiency in terms of
both energy consumption and infrastructure utilisation.

This new energy future will be a boon to all renewable energies, not just solar,
and the great irony of this is that although this will provide extraordinary
environmental benefits when they are most sought after, the technologies
involved will be adopted not just for their contribution to conservation, but more
for commercial reasons. For the first time, a lower-emissions future looks like a
better commercial possibility, both technologically and economically feasible,
and greater alignment of global climate change ambitions is possible.
While not all firms will be winners in the new energy future, there will certainly be
opportunities for enterprising businessesbe they new entrants or long-standing
incumbentsto flourish by embracing the evolution now underway. This will take
resolve, foresight, and good strategic and technical thinking. In future chapters in
this series, Advisian will explore the details of the coming changes through such
topics as the future of grids, fuel supplies and urban infrastructure, the importance
of energy efficiency, and the advent of shared and autonomous vehicles.

Paul Ebert | Global Director, New Energy

Advisian 2
The New
Energy Future
There is change on the energy horizon. Driven by the convergence of technologies, In
a new energy future is emerging which will have profound implications for
businesses in Australia and around the world. For some, this transition will be very
difficult, but for others it will be transformational.
These changes will cross the boundaries between businesses and their influence
will reach deep into the social and political landscape. Given its position as a
global powerhouse in energy, Australia is one of the first countries to show tangible years
evidence of this. And it all starts with one simple technology: solar panels.
solar PV has leveraged
In some Australian suburbs you are in the minority if you do not have solar panels an estimated

10bn
on your rooftop. In just on five years, the photovoltaic (PV) solar cell has done
what no other generation technology has before: provide a modular, simple and
scalable electricity source, seemingly at the right price point, that gives households $
a measure of energy independence.
Australians have fallen for solar PV, and as a consequence the country has the in investment, with

7,500
highest per capita take-up in the world. While there are particular hotspots, in
parts of Queensland for example, and regions with poor uptake, such as higher
density suburbs of Sydney, many forecasts see installation rates continuing to
grow, with an example shown in Figure 1. Will these forecasts prove accurate? That
is unclear, and currently installation rates in Australia are actually dropping as a
range of issues play out.1 But what is clear is that solar PV has become a big part of
Australians employed in
our energy landscape and installations will most certainly grow. the solar-energy industry
The present popularity of solar in Australia has resulted in an estimated
$10 billion in investment,2 mostly from hundreds of thousands of individuals
and families using their own savings or mortgages. This has given an estimated
7,500 Australians employment in the solar-energy industry,3 and also made solar
a political force in Australia. While much of this investment has been driven by
government incentives, which are slowly disappearing, governments that have
tried to change incentives rapidly face a voting backlash.
This rapid rise of solar has meant that there is now a new and very different player
in the energy arena, which the traditional electricity sector is still coming to terms
with. Small-scale, modular, embedded and simple, solar is the antithesis of a
traditional electricity generator.

3 The New Energy Future the global transition


Put a million rooftop solar systems together and its no This is just the first in a series of chapters that will examine not
longer the domain of the fringe. It is estimated that by 2023, only the shape of this new energy future, but also the impacts
the state of South Australia may at times have its entire and opportunities it will present for Australian business. Here,
electricity needs met by solar systems on mostly urban we look at the basic elements of this change in relation to our
rooftops,4 without any coal, gas or oil. While this is a relative traditional energy systems, and explore a few of them in terms
extreme, just this possibility signifies a remarkable change. of what will happen as they cross the boundaries between
what are, today, separate industries. In further chapters, we
But there is much more to this story. Digging deeper, you
will consider specific impacts and provide more detail.
find that an even more fundamental shift is taking place.
Solar panels on urban rooftops are just the visible part of an There is little doubt that we are seeing the start of one of the
inexorable transition to a new energy future that will have greatest transitions the world has seen. This is neither an
far-reaching consequences. While timing and impacts are exaggeration nor cause for alarm. Businesses unable to grasp
very uncertain, every aspect of the energy industry could be and respond to the changes will be adversely affected. But
profoundly affected, as could society and commerce. those willing to ride the wave of this transitionwhich will
take courage, patience and visioncould emerge as icons.

6000

5000
Rooftop PV installed by State (MW)

4000

3000

2000

1000

0
2005 - 06
2006 - 07
2007 - 08
2008 - 09
2009 - 10
2010 - 11
2011 - 12
2012 - 13
2013 - 14
2014 - 15
2015 - 16
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2017 - 18
2018 - 19
2019 - 20
2020 - 21
2021 - 22
2022 - 23
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2024 - 25
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2026 - 27
2027 - 28
2028 - 29
2029 - 30
2030 - 31
2031 - 32
2032 - 33
2033 - 34

Financial Year
QLD NSW VIC SA TAS WA Historical Forecast

Figure 1. State forecasts for Australian rooftop solar PV take-up, 20052034.5

This chapter is the first in a series where we will examine not


only the shape of this new energy future, but also the impacts
and opportunities it will present for Australian business.

Advisian 4
Elements of the new
energy future
A key part of the transition is that multiple factors are now combining to create
new paradigms for producing, trading and consuming energy. There is a strong
parallel to the growth of the internet from the mid-1990s, which in a little over
two decades has transformed how we shop and do business, entertain ourselves
and even socialise. New technologies like this can have unexpectedly deep
effects. Who would have predicted that the web pages of the late 20th century
would give rise to social media, which has fundamentally reshaped the way we
communicate, think and relate to each other? And yet, it happenedand it has
changed the world.
To explore how a similar revolution could take place in energy, lets consider three
crucial realities.

1
Our civilisation depends on energy
First, our civilisationat least as developed countries understand itcannot
survive without energy. Modern cultures and economies are built around easy and
affordable access to a variety of energy resources. When those energy resources are
threatened, war and human suffering are the likely results. Many millions of people
who do not have access to cheap, plentiful energy can already testify to this.

Australians are embracing the future of


electricity. We are engaging with new
electricity services and technologies
at record levels, such that Australia
is recognised globally as being at
the frontier of key aspects of energy
transformation.
Energy Networks Association & CSIRO, November 201517

5 The New Energy Future the global transition


2
Fossil fuels are inefficient but convenient
Second, our primary energy systems are built around fuels which have very high
energy density. The technologies that use energy, and the businesses that supply
it, have been shaped by this. Fossil fuels are, essentially, a biologically mediated
way of storing solar energy. But this storage occurs very slowly: it is estimated
that it took the prehistoric earth more than a year of plant and biological material
growth to produce enough oil, coal and gas for us to use, now, in a single day.6 We
rely on these sources because our predecessors, and now modern societies, found
them technologically accessible.
Fossil fuels might be an inefficient way of storing the suns energy, but because the
earth has banked lots of this we can, within certain limits, use it at will. Utilities,
industry, transport, commerce and society are built around this concept. Even
mainstream alternative energy sources, such as nuclear, have prevailed because
they fit into the framework for energy generation and consumption that has
developed around fossil fuels.

3
Energy is part of a complex ecosystem
The third reality to consider is that our energy systems, and the business and
regulatory environments that have been built up around them, are extremely
complex. This is generally good for energy businesses: there is a high cost of entry,
change is slow and natural monopolies emerge in certain market segments. As
a result, many energy businesses have significant market strength and trillions
of dollars of assets within their portfolios. This situation also lends geopolitical
strength to those who control energy resources, and links significant wealth to
certain countries, which get significant political leverage as a result.

Considering these three factors helps to remind us that energy then started to displace what traditional energy
energy systems are fundamental to who we are and the industries provide, shifting control away from those
economic position we occupy. It is not our intention in this industries and towards consumers?
chapter to philosophise, but it is easy to see how changes
We could be talking about a major disruption here, as many
to existing energy systems can have significant cultural
people term major changes brought about by technology,
and social impacts. Imagine finding an alternative to oil
but we prefer to think about evolution. For while disruption
or coal that makes economic sense. Entire economies,
is at the heart of the new energy paradigm, it calls society,
communities, businesses and governments would be
politics and business to respond by evolving in time to
significantly impacted.
something better. To discern what this might be, we need to
So, what if our civilisations energy needs could be met while think about how multiple elements are coming together to
avoiding the complexity and cost inherent in traditional drive the transformation of energy.
energy resources? What if a new business model could
Photovoltaic (PV) solar, or, if you like, just PV, is the most
be established that challenges the status quo, because a
immediate of these and a good place to start.
simple technology redefines how energy is produced and
consumed? And what if that redefined understanding of

Advisian 6
The challenge of solar
energy (PV)
We believe PV has the ability to challenge the business models used by many
of todays energy businesses around the world and right across the value chain,
including oil and gas. While no one has a crystal ball, there is mounting evidence
that PV will eventually provide electricity at a lower cost than fossil fuels and will
be a technology of first choice because it offers more value to consumers.
PV, which has been on the fringe of the electricity world for decades, produces
electricity directly from the sun. PV installations are simple and small enough to
be put where the energy will be usedyou dont, necessarily, need to transport
that energy from anywhere else. Wherever there is sunlight, there is an opportunity
to generate power. If you consider the amount of roof space in Australia you start
to see the potential for PV to be integrated into urban environments. There is a
vast amount of solar energy hitting the earth every day and it is there to be used.

PV has the ability to challenge the business models used by


many of todays energy businesses around the world.
The obvious flaw in this vision is what you do during the night. The intermittency of
PV energy is often the first issue its critics raise. Price is also a major concern: PV-
generated electricity has been more expensive than traditional alternatives. But
production volume and technological advancement have driven the cost of PV
down quickly: it now costs roughly a quarter of what it did five years ago7 and it
will drop further as technology and manufacturing advance.
On the basis of generation lifetime cost at the project boundary for new
plants in Australia (essentially the average cost of production at the plant
gate) recent work supported by the federal government estimates that
solar and other renewables are now approaching competitiveness with
more traditional technologies and should be directly competitive by
2030.8 But such figures ignore the cost of transporting the electricity. If
grid costs were included, PV is approaching, or it may actually be, the
cheapest electricity supply option at the point of use right now, in
most urban locations with reasonable sunlight the world over.

7 The New Energy Future the global transition


Why could this be disruptive? As mentioned, there is also the big issue that PV cannot
generate electricity at night, and that generation is impaired
Our electricity systems are traditionally centralised: very large during cloudy periods. Users will, it seems, still have to rely
generators produce electricity efficiently and reliably at scale, on an alternative power source when it is dark and most will
transporting that energy through wires (the network, or more default to the familiar grid supply.
simply the grid) to the point of use. It would be economically Someone has to pay for that grid, and in Australia, energy
foolish to duplicate electricity grid infrastructure: these are users pay a relatively fixed network component in their
natural monopolies, and by commercial necessity they have per-unit tariff. Those with PV still pay the same cost per unit
become highly regulated businesses whose investment but use less grid-supplied electricity. As there is less money
energy users pay for. flowing to the grid, the fixed charges must eventually increase.
PV raises the question of how that infrastructure is used. At Then begins what many commentators have called the death
an extreme, if I can generate power on my own roof, why do spiralput simply, as more people install PV those without
I need an electrical connection? Or, if I still maintain my grid the capacity to invest in such pay higher fixed charges, and so
connection, how are those services used and fairly paid for? on.

If I can generate power on my own roof, Is this the end of the grid?
why do I need an electrical connection?
We dont think so: in fact, we think the grid will actually be
a key element in a new energy future and perhaps even
Because solar can, potentially, distribute the cost of power
flourish like never before, even with continued uptake
generation infrastructure and eliminate the cost of energy
of PV. But it will be used differently and perhaps more
transport, it could become more competitive than the
effectivelya possibility that will be explored in a coming
centralised generation option, which cannot avoid transport
chapter.
costs. So, while solars cost per generated unit might be higher
than that offered by coal, the elimination of network costs But, even considering the prospect of the end of the grid,
rebalances the equation. we need to discuss another technology that will combine
with PV to shift the goalposts yet again. Energy storage
This is a simplified argument, and the devil is in the detail.
potentially removes any intermittency issue and allows
For example, numerous distributed generation technologies
households and businesses to draw power generated from
based on fossil fuels, such as small gas-fired generators,
the rooftop around the clock. Here we begin to see how
are gaining significant ground in energy systems.9 Such
multiple elements will combine to sweep us forward into the
technologies can also supply various heating and cooling
new energy future.
options, including hot water and air conditioning through
chillers. These additional possibilities increase the gas-
based systems efficiency and commercial effectiveness, and
potentially challenge the attractiveness of PV.

Advisian 8
The storage solution
Electricity is one of the most traded commodities in the world, but also one of
only a handful where product storage is not the norm. Yes, anyone with a mobile
phone has stored electricity and people living in remoter areas have been storing
electricity for decades, but across all electrical systems the amount being stored is
small compared to that being consumed.
As a result, when a unit of electricity is created, it must be used pretty much
immediately. This simple issue gives rise to sophisticated trading and technical
markets, and the resulting systems are remarkable technical and commercial
achievements. It also means that the grid infrastructure must be capable of
transporting electricity as it is required, and of maintaining supply during the
absolute high points of peak demand.
Designing grids for such peaks is a tricky problem. For most of the year, that
infrastructure is underused, reaching full utilisation only in the short periods when
very cold or hot conditions cause peak demand, or when faults or maintenance
require rerouting of system capacity. For grid planners, matching investment in
electricity transmission to those periods of peak demand has been challenging.
Such investments raise electricity prices, but not making them can lower
reliability. High prices and blackouts are both causes of political dissatisfaction,
making the job of investing in and planning grids even tougher.
Energy storage could help. If, at off-peak periods, we could store energy for use
during peak periods, it could alleviate the burden of investing in grid capacity that
can deal with those peaks. So why hasnt energy storage been adopted widely?
The main issue has been cost, but this is now being addressed, as we will discuss
in more detail shortly.
Storage allows generation
Storage removes the requirement output to be held in reserve
for power to be generated at the until it is needed. Consider the
implications for PV.
moment it is used.
Put simply, storage can be
charged during sunlight hours and discharged at night. While the reality is more
complex, the basic value proposition is that storage removes the requirement
for power to be generated at the moment it is used. Suddenly, intermittency in
renewable energy output isnt a problem.
This time-shifting of energyknown as energy arbitrageis not new in electrical
systems. Pumped-hydro facilities have been installed in many countries, including
successfully in Australia, for just such a purpose, with water being pumped uphill
and stored in a dam during off-peak hours and allowed to flow downhill to
generate power during peaks.

Theyre the first Australian family to have a Tesla Powerwall unit installed
on their house. Its the first Australian residential install of the home battery
technology from Elon Musks company, which allows users to store solar
power and drastically reduce their energy bills.
Australian Financial Review, 29 January 2016

9 The New Energy Future the global transition


Storage can also do much more than just energy arbitrage. doing similar. Such storage could also be installed with solar
In simple terms, electricity systems are dynamic, as load and generation, in peoples houses, potentially removing the
generation changes and faults occur, and system stability need for a grid connection. In either scenario, storage would
keeping the whole network stable at constant voltage dramatically change the way things are currently done,
and frequencyrelies on what is called system regulation which demonstrates its transformative potential.
services, also called ancillary services. These services are
This sounds like storage nirvana. Whats been keeping us
provided by a range of devices, but central to these have
from it is the costuntil recently there has simply been no
been large coal, gas, hydro and, in places, nuclear plants,
cost-effective way of storing electricity in such a device.
which can provide energy very quickly. As more intermittent
Currently, only about 3% of the electricity-generation
renewable energy emerges, and traditional plants retire,
installed capacity is energy storage, and 95% of this is
the need for such services increases and fast-acting energy
pumped hydro.10
storage can have a role supplying these services.
Hence, energy storage can provide multiple services,
including energy arbitrage as well as system ancillary
The cost of storage is falling
services. Without going into the detail, if you explore storage While forecasts abound, the CSIRO, in conjunction with
further you find that it can supply even more value, including the Australian Energy Market Commission (AEMC) recently
providing specific market services, covering load for periods examined the future of energy storage on the National
when the grid is unavailable, and improving the way grids Electricity Market (NEM) and evaluated trends in storage
and loads interact. By adding services together, known pricing. While the agencies noted uncertainty in the future
as value stacking, and being very strategic on where such trajectory of storage prices, their estimate for two of the
storage is located, the case for storage improves. mature battery storage technologies (lithium-ion and
Not every storage technology can do thistraditional advanced lead-acid) was a 53% decrease in price by 2025.11
pumped hydro, for example, has limitations, as it is relatively Their pricing trajectory for lithium-ion batteries, as just one
slow-acting and has certain geographic constraints. But example, is shown in Figure 2, in relation to trajectories
smaller, modular, fast-acting and even portable forms of published by other agencies.
energy storage can, and could even totally transform the

53%
way electricity grids are planned. Many places in the world
are starting to do just this, using a range of technologies
decrease

2025
including chemical batteries, flywheels, forms of heat
storage, very small pumped hydro and even compressed air in prices by
storage. Utilities and private companies within Australia are

500
Projected battery price ($/kWh)

400

300

200

100

0
2018 2020 2023 2025 2028 2030 2033 2035
Year

CSIRO range BNEF Navigant EIA CSIRO base case Average

Figure 2. CSIRO and AEMC projections of lithium-ion battery prices per kWh, 20182035.11

Advisian 10
1,000,000
On the urban front, small-scale battery systems for home
use are already available. In Australia, they are even being
seen in local hardware stores, although they do require a
level of integration and expertise to install safely so buying
one is unlikely to be as easy in the future as buying, say, a Australian households
refrigerator. Nevertheless, for the first time, the potential is in have installed PV
sight to generate your own electricity, from your own roof, and
to use that energy when you need it. Many consumers find There are also locations where micro-grids will be and
this intensely appealing, and a small number have started are being considered, involving potentially a thin grid
literally disconnecting from the grid, in a movement known as connection which augments a more expensive traditional
grid defection. option and involves local distribution and storage assets.
As grid infrastructure reaches lifetime replacement, and
battery systems drop in price, such options will become more
Grid defection routinely applied.

The possibility that users could prefer to disconnect has But we actually think the case for wholesale grid defection is
been unsettling to utilities and major energy suppliers. If this not so convincing.
occurred at any significant level, their traditional business
There is a significant advantage to having a grid connection,
models would shift around them. Consider for example
which can allow for cost optimisation between personal
centralised generators, or their suppliers of fuel, facing the
expenditure and grid supply. This is potentially a win-win for
possibility of being outgunned by small, decentralised PV
the user and the supplier, and it means the reliability risk for
installed on peoples rooftops. Consider also the communities
that grid sits with a business that is capable of handling it:
that have benefited for decades from the security of jobs in
the utility. What happens, on the other hand, if the personal
traditional energy, and the political issues in play as parties
storage system, or PV generation feeding it, fails, threatening
look to protect the welfare of their key constituents.
supply and even life? This is why effective utilisation of grid
There is complexity behind this that makes it harder to infrastructure is so important, with that grid becoming a two-
discern how things will play out. For example, at present, over way service provider and conduit to greater consumer value.

100% by 2023
a million households in Australia have installed rooftop PV
systems without energy storage. Mostly, these installations are
subsidised by specific government capital incentives, which
are slowly being removed. The current lowering of installation 100% of South Australias electricity needs could
rates of rooftop PV systems is likely a reaction to that
be generated at times by solar PV by 20234
removal of incentives, as is consumers awaiting the rollout
of affordable energy storage, which in combination with PV But as PV and energy storage continue to drop in price,
could improve the simple economic payback . their role within Australian systems will surely increase. As
mentioned earlier, in South Australia, which forms a region
While the market awaits storage options, the existing
of the Australian National Electricity Market, it is predicted
generation base is providing stability for PV users, and
that by 2023 there could be times when the entire system
cover for the periods when the sun isnt strong enough.
load is being generated by PV systems installed on house
Should something be done to make PV users keep
rooftops. This growth in PV is partly responsible for the early
contributing adequately to the infrastructure they still rely
retirement of coal- and gas-fired generation facilities in the
on? Often, regulation cant keep pace with changes, so the
state. Now, the system operator is considering new ways to
whole market becomes skewed, politically charged and,
ensure stability, which is likely to become more difficult with
potentially, inefficient.
those retirements. The solution may include a role for larger-
There will certainly be people who will want to disconnect scale, fast-acting energy storage,12 possibly in combination
from the grid, and locations with disproportionally high grid with more gas-fired generation and renewable technologies
costs, often more remote, where it will make sense to install specifically designed to provide for system stability.
distributed generation and batteries to augment and even
A greater role for energy storage will depend on it reducing
replace grid supply. Both utilities and private enterprises are
in price much further. Central to that possibility is another
trialling just that in a few locations already, and many rural
element of the new energy futurethe electric vehicle.
locations have stand-alone PV/battery systems.

11 The New Energy Future the global transition


Driving on sunshine
Based on fuel alone, the electric vehicle (EV) is already the cheapest vehicle
transport option per kilometre travelled. The precise cost varies by energy tariff,
location, and vehicle make, but in most developed-world markets, even with
depressed oil prices, the cost of charging an EV is less than half, probably even
less than one third, of the cost of oil-based fuels per kilometre travelled. In certain
markets, it is lower still.

EV = cheapest option /km based on fuel alone


EVs also appear to be more reliable than traditional alternatives, and cost
significantly less to maintain. One of the market-leading and arguably most
innovative EV manufacturers, Tesla, now offers its vehicles with an eight-year,
unlimited-mileage warranty and free vehicle charging for their customers at fast-
charging sites being rolled out across the United States and in other target countries,
including Australia (see Figure 3).13 Globally, EVs have been winning car-of-the-year
prizes, and not in fringe EV or environmental categories but overall, against all other
types. The electric BMW i3 was Wheels Car of the Year in Australia in 2014, across all
categories. These are cars worth owning.
Despite their attractiveness, EVs remain a trivial component of the global and
Australian vehicle fleet. To buy, they currently cost about twice what the petrol or
diesel equivalent does, and buyers have shown significant anxiety about vehicle
range because charging takes longer than filling up with liquid fuels and charging
infrastructure is scarce. At least anecdotally, actual effective range for EVs has so
far appeared not to meet consumer expectations.

Northern
Territory
Queensland

Western Australia
South Australia

New South Wales

Figure 3. Tesla fast-charging sites in Australia. Victoria

Free Tesla Superchargers


Tasmania
Commercial partner sites

Advisian 12
Declining battery costs will likely accelerate uptake of these
technologies. AEMO projected an uptake of around 165,000
electric-only vehicles in the NEM by 202425. While electric
vehicles will be a source of demand, they may also offer
battery storage that could be used to offset peak demand.
Australian Energy Regulator, December 2015

The battery will be the key element in resolving these issues. The pilot phase of the Southern
The effective range of EVs is improving, and as production
scale increases, prices are expected to drop. Tony Seba, California Edison (SCE) Charge
who lectures in entrepreneurship at Stanford University and Ready Program was approved
presents on the area of technology disruption,14 predicts
that EVs will reach purchase-price parity with traditional
by the Californian Public Utilities
vehicles around 2019. To achieve this will require roughly Commission (CPUC) If met
halving the cost of EV batteries; Seba believes this is possible
with public acceptance, the utility
and that the effects of the price drop will stimulate similar in
other sectors. would later be allowed to deploy
In driving down the cost of EV batteries, the automotive up to 30,000 charging stations in a
industry will also affect the price of larger industrial battery $333million Phase 2 that would run
systems. This will open further mass-market opportunities
and accelerate unit-cost reductions through scale. Tesla is
through 2020.
already providing home and utility energy-storage systems
Utility Dive, January 2016
at a price point which has challenged many in the market.
Shortly after Tesla announced its Powerwall storage product
in April 2015, Bloomberg reported that the units were pre- The government response will be critical; many countries
sold until mid-2016.15 The majority of these orders came have significant strategic and tax revenue interests
from utilities and large businesses, which can presumably in the existing vehicle paradigm, which might lead to
commercialise the benefits more readily than home users. protectionism and regulatory roadblocks to EVs.

If EVs meet this prediction of price parity by 2019, we will Consequences for the petroleum and related industries could
have an option that costs no more to buy than an internal be profound. EVs will certainly not spell the end for the oil
combustion engine vehicle while being more reliable and industry, as numerous critical industries rely on the products
significantly cheaper to run. Why wouldnt you buy one? of oil and certain transport options will continue to rely on
Seba contends that once price parity is reached, drivers will it, but EVs will significantly alter the value proposition oil
flood towards EVs and the internal combustion engine will presents. The vehicle service and maintenance industries will
cease to be the default for passenger vehicles. be similarly affected, although presumably they will be able to
adapt to a changing fleet more rapidly than oil companies.
Many challenge the view that EVs are about to supplant
traditional vehicles, but we contend that probably the only The fleet of EVs taking to the roads will require charging,
uncertainties about this outcome concern when price parity which could have both positive and negative implications for
will be achieved and how consumers will approach the utilities. Most grids, particularly those serving households,
products on offer. There is also uncertainty about how the were never designed to charge large numbers of EVs, and
traditional vehicle and oil industries will rise to the challenge there might be issues around capacity, particularly at urban
that EVs present. street level.

13 The New Energy Future the global transition


Emerging use patterns and consumer preferences will, in part, dictate how the
new demand is accommodated, and utilities and new entrant retailers will
develop novel business models and practices to optimise the situation for their
customers and grids.
It is also likely that vehicle suppliers will try to carve out roles in electricity supply.
Finally getting their hands on the fuel side of the industry, they will bundle in
energy options with the vehicle sale, leading to totally new entrants into generation
and supply. A very different energy world will emerge.
Not convinced? Well, one further
consideration might change your mind. If you have 50,000 aggregated EVs to source and sink from,
When charging, an EV battery consumes you have a significant player in the electricity market that
energy, but once charged, it can become could outperform traditional generation and grid control
a power source. As such, an EV can be
both a sink and source of electricity.
technologies in both cost and performance.
The average EV battery stores enough energy to supply the electricity needs of a
typical Australian home for daysup to a week in an emergency, if handled well.
When it is tied to a rooftop PV system, it is technically possible to use the EV battery
to store energy when the solar system is producing excess powerliterally driving
on sunshineor when the grid price is at its lowest. Then, the battery can provide
energy when it is needed or at its most valuable.
EVs could also be used as significant arbitrage and ancillary service assets within
electricity markets, across portfolios, providing energy when needed and consuming
it when cheapest. If you have 50,000 aggregated EVs to source and sink from, you
have a significant player in the electricity market that could outperform traditional
generation and grid control technologies in both cost and performance.
Of course, there will be challenges in achieving such a scenario: it could affect EV Investors welcomed the
battery life, and houses have only so much roof space. But the use of EVs in a more
signs that Mr Vesey is
complex way is not a pipe dreamit is already happening.
shifting AGL towards a
Pacific Gas and Electric in California is currently trialling the use of privately
owned BMW EVs to provide demand-response services for transmission-system cleaner future and going
management, where their charging (or demand) is controlled depending on what after the home battery
the grid needs.16 The system works by sending a signal, via BMW, to EV owners
who are eligible to let their vehicles be used for this purpose, for which they
storage market, which
receive compensation. Both the grid and the EV user benefit from such a situation. is expected to surge
The road to better utilisation of private and industrial assets starts to open, and
things get even more interesting when one throws autonomous , or self-driving,
in Australia given the
vehicles into the mixa topic we will explore in a future chapter. popularity of rooftop
To truly realise the value proposition here, we need a smarter world. The solar.
remaining element of the new energy future, which will act as the glue that ties
everything togetherEVs, PV, grids, consumers and industryis known as the - Australian Financial Review, 11
energy internet. February 2016

Advisian 14
The energy internet
Consider how much commercial value has been unlocked by mobile devices.
Designed initially for voice communications, mobile phones have evolved to
become, for many people, a main conduit for a wide range of daily transactions.
Mobile devices, being able to produce, analyse and control data through a plethora
of enabling applications, give rise to and promote the spread of new business
models. The commercial ecosystem around these devices continues to evolve,
unlocking remarkable innovation and social and economic transformation.
Something similar is happening in electricity markets. Using grids in a smart way
has been around for decades, evolving to create what we now term smart grids,
where load can be controlled to accommodate the constraints of generation
plants and transmission grids. This smarter approach allows for a more flexible
relationship between generation, grid and load, improving efficiency in terms of
cost and asset use.
An early example Australians are familiar with is off-peak hot water, which
historically has offered very coarse load control. Utilities have also trialled the
use of other loads, such as pool pumps and air-conditioners. This concept has
matured, and one example of the modern smart grid is a new generation of
refrigerators, which can now be remotely switched on or off individually for short
periods when required by the utility. While most
such installations have been driven in overseas At the heart of the
markets, this ability can be used to reduce energy internet is
energy use at peak times, for which the owner
is compensated with a reduced tariff.
greater interaction
with consumers and
While there is value in these applications
and significant progress in their deployment, the key to unlocking
business has struggled to realise the concepts the potential of the
full potential. This is partly because the actors smart grid.
involved have legacy constraints, such as
regulation, that make it impossible to access the full value unlocked. Many of
those actors, such as the more traditional utilities, are too removed from end-user
influences to respond quickly, are restricted in their operational mandates and
may also lack the entrepreneurial and risk appetite required for innovation.
Unlocking the potential of the smart grid requires greater interaction with
consumers, and this is really at the heart of the energy internet, which is closely
related to the internet of things. These terms are a little vague, but in relation
to energy essentially through the advent of networked devices and appliances,
businesses are collecting data that lets them examine peoples energy use and
tailor solutions to meet specific personal needs. Businesses, including energy
businesses, can now achieve much finer alignment with their customers
individual demands, and at the same time can optimise their aggregate response
in a way that benefits the business.

15 The New Energy Future the global transition


This possibility applies not just to electricity, but also to gas, demand is at its lowest, or enabling this on an app to occur
telecommunications, and even water supply and waste- automatically. Energy could even be provided to the vehicle
water removal. All these services can even be bundled and through induction coils built into the road.Ultimately, the
controlled by a single supplier in what is known as the energy internet will become a platform that optimises
autonomous utility model. energy solutions for individuals while also managing supply
and demand in aggregate, in a way that crosses business
The key element of this
Ultimately, unlocking kind of system is that it
boundaries. A whole range of new tradable commodities
the energy internets could emerge, most of which we have not even begun to
responds individually to
imagine.
value for consumers each customer. Of course,
is all about data. not all customers are alike We believe this utopia will only truly flourish if entrepreneurs
and that includes the fact are allowed to capture the necessary data on an open
that many people do not want others eyes peering into their platform of the sort that the internet is today. In most
energy-use patterns. This is acknowledged in the Energy regulated markets, this will require reform, possibly including
Networks Association and CSIROs interim report on their changes to principles of data ownership and access. There are
Electricity Network Transformation Roadmap, 17 published also tricky issues to consider in relation to data security, since
in December 2015, which attempts to chart a course for grid by knowing someones energy-use patterns it is a relatively
operators through the current energy transition. Adopting a simple matter to infer their demographics and income levels.
sharper customer focuswhich includes convincing energy Such data could easily reveal the number of occupants in a
users that they will benefit from accepting itto shift away building, when they are at home, and even their ages. Similar
from supplier-driven business models is just one of the many analyses are already routinely performed on internet use.
challenges facing traditional energy providers. While beneficial direct-marketing possibilities emerge from
such analysis, so does a potential for deception and crime.
Ultimately, unlocking the energy internets value for
consumers is all about data. Suppliers will need the Ultimately, the energy internet will allow for more optimised
technologies to acquire the right data, to analyse it, to make energy use and production, and we think it provides
decisions for particular circumstances, and to profit from outstanding opportunities for innovative business models.
the trade that results. Think of how data could be used to While it is difficult, so far, to fully promote these in Australia,
optimise the interaction between the technologies we have movement by a number of smaller, entrepreneurial firms,
discussedsolar, energy storage and the electric vehicle. The as well as by larger utility incumbents, shows that energy
potential is readily apparent. businesses are already thinking about how to combine the
elements we have discussed into new products and services
Consider the following. By working with an innovative
for consumers.
energy provider, a business could make a decision to install
significant rooftop PV, a small battery, energy-efficient But incumbents and new entrants alike have a painful
industrial appliances and a load-control and telemetry transition ahead: the established players see their traditional
device. The businesss energy use could then be monitored business model being undermined, while the new ones dont
and controlled, taking market conditions into account, to yet have all the elements perfectly aligned so that they can
minimise energy costs and maximise investment return. By truly prosper. But we think it is only a matter of time before
matching the demands of this business with other loads, those elements do align.
the energy supplier could arbitrage between businesses,
One final driver that could accelerate this alignment is further
aggregating the benefits of optimised energy use across
global pressure to reduce greenhouse-gas emissions.
business boundaries, and even wheeling advantage through
the grid. Depending on tariff arrangements, this could A series of bewildering changesare
then minimise the customers grid connection costs, even
leveraging a grid-support payment by lowering the cost of
set to sweep through the normally
running that grid, if aggregated and controlled correctly. conservative power industry over
For urban loads, EVs could be among the devices controlled. the next 25 years. These will include
Data communications could allow an energy supplier to multitrillion dollar investment in
follow vehicles, providing energy at times that suit those
vehicles owners. Imagine, for example, a driver receiving
small-scale solar and other renewable
a message on their mobile device that power is currently energy technologies.
cheap, prompting them to charge their vehicle while energy Bloomberg New Energy Finance, New Energy Outlook,
June 2015

Advisian 16
Climate-driven
convergence
The transition underway in the energy industry is good news for renewable energy.
The emergence of energy storage signals a solution to renewable energys output
intermittency. A truly optimised energy internet would also release the potential of
further distributed generation investment, particularly for households and small
businesses, and allow for output from a range of technologies, over vast areas and
diverse output profiles, to be aggregated and presented to the market. The grid
itself may prove its ongoing value by holding the key to this optimisation, a topic
we will explore in a later chapter.
The term renewable energy covers a huge array of technologies, which we
could barely even begin to enumerate here. All have their unique strengths and
weaknesses, but they share one thing in commonvirtually zero greenhouse-gas
emissions. Until now, we have barely mentioned emissions, and it may seem
curious that, when talk of climate change is so prevalent, the above narrative
lacks any climate-related driver. The transition underway in energy is happening
seemingly without reference to its environmental value.

net emissions
cop21 = by
2050
And yet, there are environment-related drivers. The final, published agreement
from the climate-change-related Conference of Parties 21 (COP 21), held in Paris
in December 2015, was interpreted by many as showing that debate on the
subject had matured, where past meetings had looked hopelessly partisan. While
the outcomes do not appear particularly punitive and are yet to be signed, the
agreement is a treaty under international law, and aims to see essentially zero net
emissions by 2050 the world over.

17 The New Energy Future the global transition


Why has that debate matured? We think that while the It is ironic that the evolution underway in our energy
scientific consensus to act on climate continues to strengthen, supplies is making the environmental benefits of using
governments may be seeing signs of tangible, real solutions renewable energy less of a selling point, right at the time
emerging in energy markets. These solutions have improving when those benefits are most sought after. Businesses and
commercial and technical feasibilitywithout a blue-sky individuals wont need to be convinced that they should
connotationand governments could be softening their consider the environment if they would do it anyway for
approach as a result. Not all governments will agree, and the economic benefits. The situation is not yet that clear-
there will be winners and losers in the new energy future. cut, as wholesale use of renewable systems still presents
But the timetable outlined in Paris for emissions reductions technical and commercial challenges and more work needs
and target updates appears to align well with the published to be done to drive costs lower and maturity levels higher.
convergence of technologies discussed here, very roughly the However, government initiatives motivated by environment
20232025 timeframe. This could just be a coincidence, of and the development of industries to profit from this, like
course, but if so it is well timed. the implementation of a carbon price or cleaner energy
technology development support, would accelerate the
The point here is that de-carbonisation of the global
transition.
economy now has a route which is starting to make more
commercial sense. Renewable energy, which has rapidly This is why we think convergence could be closer than
been gaining credibility and cost competitiveness as people think.
economies of scale grow, is one key factor in this new
reality. Participants in the Paris talks, along with most
energy analysts, agree that coal, oil and gas will continue
as primary energy supplies for decades, and that simply
being more efficient with our energy use is the first way to
reduce emissions. But the only way to reach the 2050 target
is to use renewable energy in a big way. The evolution we
have described, in energy production, use, distribution and
markets, could provide the means to achieve it.

Convergence could be
closer than people think.

Advisian 18
Evolutionary winners
The energy evolution we have described would transform our society: we have
only just scratched the surface of how. We acknowledge there is a great deal of
uncertainty about how many aspects of the transition will play out. The future
will certainly look different to what anyone expects, and the timing of each
development that leads to its creation is anyones guess. But the fundamental
elements of the new energy future are converging, and we think they are
unstoppable.
In further chapters in this series, we will explore some of these elements in
more detail, covering such topics as the future of grids, effects on fuel supplies
and urban infrastructure, the role of energy efficiency, and electric and shared
autonomous vehicles.
We hope not just to identify the issues that will arise as the new energy future
approaches, but to explore the ways that businesses can begin to respond and to
position themselves as evolutionary winners rather than dead ends.

19 The New Energy Future the global transition


Advisian 20
About Us
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to clients who develop, operate and maintain assets in the resource, energy and
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21 The New Energy Future the global transition


Further information and contacts
Authors
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Global Director, New Energy Australia
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Advisian 22
Endnotes
1. See latest installation rate figures for small scale installations at the Clean Energy Regulator
website: www.cleanenergyregulator.gov.au.
2. Based on a subsidised $2/kW across the 4,729MW of solar rooftop PV registered by the Clean
Energy Regulator as at October 2015, as reported by the Australian PV Institute at http://pv-map.
apvi.org.au/analyses.
3. Australian Bureau of Statistics, Employment in Renewable Energy Activities, Australia, 2014-15,
March 2016.
4. Australian Energy Market Operator, National Electricity Forecasting Report OverviewFor the
National Electricity Market, June 2015.
5. Ernst & Young, Calculating the Value of Small-scale Generation to Networks, July 2015.
6. J. S. Dukes, Burning Buried Sunshine: Human Consumption of Ancient Solar Energy, Climatic
Change 61 (2003): 3144.
7. International Energy Agency, Trends 2015 in Photovoltaic Applications Survey Report of
Selected IEA Countries between 1992 and 2014, Report IEA-PVPS T1-27:2015, published 2015.
8. Electric Power Research Institute, Australian Power Generation Technology Report, work
completed November 2015, http://www.co2crc.com.au/dls/Reports/LCOE_Report_final_web.pdf.
9. See, for example, Brandon Owens, The Rise of Distributed Power (General Electric, 2014).
10. Taking published figures from the United States Department of Energy, Global Energy Storage
Database, hosted by the Sandia National Laboratories, http://www.energystorageexchange.org/.
11. CSIRO/AEMC, Future Energy Storage TrendsAn Assessment of the Economic Viability, Potential
Uptake and Impacts of Electrical Energy Storage on the NEM 20152035, September 2015.
12. For a summary of the issues and the potential role of larger-scale energy storage, see AGL,
ElectraNet and WorleyParsons, Energy Storage for Commercial Renewable IntegrationSouth
AustraliaPhase 1 General Project Report, research conducted under an ARENA Emerging
Renewables Measure grant, December 2015.
13. Tesla Motors, Supercharger, accessed 12 January 2016, https://www.teslamotors.com/
supercharger.
14. See http://tonyseba.com/.
15. Tesla Has Already Received an Estimated $800 million Worth of Battery Orders, Bloomberg,
8 May 2015.
16. See a good summary of this program at BMW USA, Introducing the BMWi Chargeforward
Program, accessed 23 February 2016, http://content.bmwusa.com/bmwi_pge/index.html.
17. CSIRO and Energy Networks Association, Electricity Network Transformation Roadmap: Interim
Program Report, December 2015.

23 The New Energy Future the global transition


Advisian 24