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Electrification of everything – together we can

Highlights from the AFR Energy & Climate Summit 2022

The 2022 AFR Energy & Climate Summit reflected a significant change in policy and market dynamics compared to previous years.  The Policy inertia and climate wars seem to be behind us.  The debate was not ‘why or what’, but rather ‘how.’  How do we achieve the significant transformation needed to 2030 and 2040, to reach a net zero target by 2050?

This year felt like we passed a tipping point for many energy market participants, who have mostly held on through a period of uncertainty, with several smaller, innovative retailers unfortunately exiting the market.  There are still substantial headwinds to come, due in part to the Russian-Ukrainian crisis and high fuel costs.

We heard of the incredible challenges that the market is facing over the next 8 years to 2030, and the tangible actions or signals needed to turn ‘optimism to confidence’. Partner Sandra James opened the summit, stating ‘we must hold our nerve and stand by our commitment to the transition. Our expectations on ourselves and each other must remain high.’

While some were optimistic, generators and retailers spoke of their financial pain. We heard that due to unexpected rising costs and contractual positions, difficult conversations with financiers, banks and shareholders were increasingly common.

The market bodies overall were more upbeat – with plans for increased collaboration, and a focus on improving the experience for consumers.

Keynote speaker Daniel Westerman from AEMO was buoyed by making it through a very challenging Winter 2022, where the market was suspended in an unprecedented move.  He has toured global market operators to bring best practice back to Australia and emphasised the importance of cooperation between all facets of industry. 

This need for cooperation at scale was a theme through the Summit and reflected by the Panel on ‘The Big Picture’, who reminded us not to lose sight of the big picture. Their view was that now we have stronger emissions reduction targets, we can come together with unwavering focus to ensure Plan A is delivered. Taking a hedged position to deliver a less optimal Plan B is too costly and unwieldy.

Deloitte’s Dr Pradeep Philip emphasised the huge challenge ahead: ‘an industrial revolution in less than half the time’.  The economic opportunity associated with the energy transition is similarly massive if well delivered.  Inaction is not an option – it will cost us our health, productivity and of course the planet, and the modelling shows that the cost of inaction is greater than taking positive action. Skills and innovation will drive the transition, and secure Australia’s place as a global renewable energy superpower.

It was fantastic to see the state and federal governments singing from the same songbook, which was a great contrast to the disharmony of recent years.

The Hon Chris Bowen led the ‘charge’ (pun intended), emphasising the success to date in setting targets, with the call to action: ‘there’s only 86 months to 2030’. The reform of the Safeguard Mechanism and the development of a Capacity Mechanism are respectively instrumental in bringing down sectoral emissions and paying for system security (not currently incentivised in the NEM).

Later comments from Greens leader the Hon Adam Bandt, who wants to see coal and gas penalised out of action, suggest on-going heated discussions on how these mechanisms will be designed and legislated.

The NSW, VIC and QLD state Ministers expressed relief at the new federal targets, which in turn gave authority to make their recent significant policy and investment announcements.

The WA Minister, the Hon Bill Johnston, was pleased at WA’s position. Plentiful gas is already secured by the WA 10% domestic gas reservation policy, coal will be closing by 2030, there’s a capacity market already in place, and much lower energy prices than on the East coast.

With cost-of-living pressures front of mind for many Australians, there was much discussion on the immediate cost of transition, with a huge infrastructure spend needed over the next 8 years.

The Gentailers spoke of the difficulty in fuel supply chains, and contractual positions which were causing much grief to them and to their bottom line.

Jeff Dimery from Alinta forecast an approximate 35% increase in the default offer for many customers from July 2023 onwards, coming hot on the heels of a 17% increase in this financial year. This caused an audible gasp in the audience, with ripples through the media and market.  Such a number may strike fear into the hearts of small, medium, and large Australian energy customers.  A small mercy is that this increase would be less than the 300% in the UK for next year…. However, there will need to be a laser focus on dealing with hardship customers.

Anna Collyer from the AEMC noted the pressure on consumers in the short term.  She also emphasised the need to look longer term and empower customers through technology, by using our usage data to build (or retrofit) smart homes, with smart appliances.  Rewarding innovation can help to reduce the load on the grid in times of peak demand. 

There was significant discussion around how to ensure empowerment across our communities in delivering the transition.  Ensuring opportunities for workers in regional areas and bringing more women into the workforce will be key to delivery, but also in delivering a (more) just transition.

Saul Griffiths brought the context of the energy efficiency and electrification policy mechanisms included in the landmark US Inflation Reduction Act. He made the case for a significant re-think to the demand side in Australia, advocating for significant government investment into Australian homes to reduce load on the grid.

In the view of Deloitte, electricity which makes up about 20% of the energy mix today, may need to comprise over 60% of the energy mix by 2070. Moreover, clean energy sources for electricity will need to shift from around 35% to nearly 100% over the coming decades. Similarly, hydrogen, comprising just a fraction of energy mix today may need to reach around 15% by 2070.

While the energy market may have faced a storm over the past year, I am hopeful that as a nation and energy market, we are more united in stepping up to meet our 2030 targets and beyond: together we can.

To discover our new report ‘Energy System Deep Dive – The Electrification of Everything,’ please click here.