Addressing the energy elephants in the room

“I want to address the elephant in the room and that is that AGL is a public company, from time to time we will get unsolicited bids on various components of our business and potentially on the whole business,” AGL CEO and Managing Director Andy Vesey has told a CEDA audience.

Speaking in Sydney Mr Vesey said, “We are duty bound to review them, if they have merit, if they have value for our shareholders, benefits for our customers and meet the obligations that we have to the communities we serve and our people, we will take them very seriously. 

“And that is for all that come to us.

“Liddell is part of our portfolio, we announced in April of 2015 that we would close it at the end of its economic life, which is at the end of 2022. 

“From that period to its close it is an extremely valuable piece of our portfolio. 

“Past 2022 we have put plans together that will utilise that site for our future plans to integrate renewables, provide security and storage for the NSW market as well as the national energy market as a whole.” 

Mr Vesey then discussed the decarbonisation of the energy sector and the need for enhanced reliability. 

“Reliability is a tough deal, I think it’s doable, but I don’t want anyone to believe for one second that it’s simple,” he said. 

“As we look at this transition from legacy, low-priced fuel, ageing plants to new renewable plants such as wind and solar, and demand response with storage, whether that’s pumped hydro or other things – that’s a great future.

“And I think you can have the same level of reliability there, that you can have from other things.”

Mr Vesey said the policy settings are vital to achieving that level of reliability because renewable energy is unpredictable due to its reliance on weather. 

“So, the guarantee part of the National Energy Guarantee is critically important, and I’d hope that you could all be supportive voices in that development because this is clearly one of the more important things that we have to do.” 

Energy Security Board Chair, Dr Kerry Schott AO said system reliability issues arise once you get over 20-35 per cent penetration of renewables.

“Australia is fast approaching that critical point across the grid,” she said.

“South Australia is at about 50 per cent already and other states are approaching it but we’re very aware of the issue that when the wind and solar isn’t there we need dispatchable power.”

Dr Schott said the current design of the National Energy Guarantee is to put the responsibility on retailers to meet a reliability obligation and to meet an emissions intensity target. 

“The emissions intensity target is set on what is required under the international agreement that was signed by the government in Paris,” she said. 

“The electricity sector will carry about a third of the Paris obligation.

“The government for 2020 will set an emissions intensity target that will translate into something that the retailers have to meet when they put their load together and that trajectory will be set out to 2030. 

“Most people have an aim of getting to 2050 and zero but at the moment we’re just aiming to get the mechanism in place.”

TransGrid CEO, Paul Italiano said there is a profound international momentum towards doing something about reducing emissions.

“Climate change is real and the human contribution to climate change is irrefutable,” he said.

“We’re at the middle of, not the cusp of, a really profound change in the way our electricity market is operating in NSW as we’re moving from an older model, highly concentrated traditional sources of generation, towards a more distributed model of renewable generation at both the consumer level and at large scale renewable level.”

Mr Italiano said other industries will electrify their energy source as they surge for a pathway to de-carbonise their energy which will add a secondary wave of pressure being put on the electricity sector.

“At TransGrid we’ve been aware of the electric vehicle conversation for some time, but we’ve never spoken about it publicly,” he said. 

“Electric vehicles are not everything, they simply are something, but it’s something that I think it’s time for us to talk about. 

“One electric vehicle will roughly double the energy consumption in a household. 

“The average household has 1.7 vehicles in NSW, so as more and more of these vehicles become electric we’re going to see more and more energy consumption. 

“Households account for about 60 per cent of the energy consumed through our network.”

Mr Italiano said we need to strap ourselves in for an electric vehicle revolution in Australia.

“All the major manufacturers of motor vehicles for the Australian market have publicly committed to making their fleet almost entirely electric by 2030,” he said. 

“These companies will not maintain a manufacturing line solely for Australia to enjoy internal combustion engines. 

“By 2030 we’re anticipating a dramatic increase in the amount of energy consumed, at a rate that is far greater than the ability for distributor generation to pick up this slack. 

“There’s quite dramatic forces that are affecting how we operate in our jurisdiction and how the national energy market functions.”