Editorials

A Revolution is Coming in the Energy Business

By Michael Costello

Nations,
governments, organisations, businesses large and small have to be organised and
disposed to adapt to change, to discard the old and grasp the new, maintaining
their core values but accepting what new realities have thrown up.Sounds easy but the problem is the one identified by Machiavelli many centuries ago in
his second most important work, The
Prince: “It must be considered that there is nothing more difficult to
carry out, nor more doubtful of success, nor more dangerous to handle, than to
initiate a new order of things.”

Machiavelli uttered
many a truth but I suspect that many in this room would recognise in that
particular quote, the source of the great frustrations which can face those
engaged in trying to do new things in either public or private life.

That frustration is
this.The instinctive reaction to
anything new, to any major proposal to do things differently, certainly to any
proposal for radical change, or to any large project, is ‘no, no, a thousand
times no.’

Now that is not
altogether bad and doesn’t necessarily just reflect inertia. There are plenty of mad, bad and totally
self-serving ideas around that justify scepticism and meticulous
questioning.And a ‘NIMBY’
instinct – not in my backyard – is often fully justified, and always
understandable to those concerned.I’m not talking about sensible scepticism but about destructive
cynicism, about heeding only the noisy voice of minority protest, and showing
no interest in broad support.And
worst of all are the routine efforts to conjure up or suggest bad faith, cover
up or downright misrepresentation.

Sometimes you feel
it would just be better to keep your head down, your mouth shut and just plod
along doing the same thing in the same way that has worked in the past.If it ain’t broke, why fix it?The trouble is that eventually all
things are broken.If you don’t
adapt, if you don’t change then, as Darwin said, you don’t survive.

If ever there was an
industry where just plodding along comfortably seemed to be the way to go it is
in the utility industry.Water,
sewerage, gas, electricity – what can possibly go wrong.I put it to you however that over the
next decade the energy business will be transformed.That it will be the next great global industry.That it will be the focus of
technological inquiry and technological advance.If we don’t get ready and we don’t respond we won’t survive.

Consider some global
facts:

·By 2030
world primary energy demand will be at least 40 per cent higher than it is now;

·Electricity
demand will grow by 76 per cent between 2007 and 2030 requiring an additional 4,800
gigawatts of capacity.Just in
case that number didn’t sink home, let me point out that 4,800 gigawatts is almost
five times the existing capacity of the United States.

·Over the
past twenty years China has connected some 700 million people to the
electricity system.The country is
now 90 per cent electrified with about 80 per cent of Chinese electricity
fuelled by coal.China is
currently constructing the equivalent of two 500 megawatt coal fired power plants
each week.

Consider some Australian
facts.Over the next five years
the energy sector will require $90.7 billion to refinance existing
generation and network assets and to invest in both existing and new
assets.Of this $90.7 billion, $76
billion will be directed to new and existing network assets of the kind which
ActewAGL runs.Network capex
requirements are driven by a range of factors including replacement of aging
infrastructure, the roll out of smart meters, population growth and regional
economic development and continuing growth in demand for energy driven by our
consumption of air conditioning, plasma televisions and the like.I might add that in what is a positive
in environmental and economic terms there will be a very significant new demand
for energy for electric vehicles.

Consider some
ActewAGL facts.Over this current
five year regulatory period we will be spending $380 million on our
electricity and gas assets.ACTEW
will be spending $517 million on assets.ActewAGL is currently doing a complete
strategic study of new requirements on new sewerage networks that could also
require major investments over the coming decade in new sewerage capabilities.

There is no way
around it.Prices are going to go
up because of this increased network capital expenditure.Add to this the tightening of credit
availability and climate change policies, and it will be substantial.

Let me give you one current
example.Under the recently
approved electricity prices in New South Wales a typical Country Energy
residential customer will pay $918 more in 2013 if the CPRS is implemented as
planned and even if the CPRS is not implemented, $601 more.Note that only one third of that
increase is attributable to CPRS.Two thirds will happen anyway.

You may have noticed
in today’s Australian Financial Review, Grant King, the CEO of Origin Energy,
saying that prices will treble over the next ten years.

These increases in
costs are not going to stop, and in my view, will be even higher at the global
level than in Australia, unless deep new technological advances come to the
rescue.In the long run, such
advances will need to be as profound as solving the commercialisation of
nuclear fusion, which unlike nuclear fission provides cheap, limitless energy
with little nuclear waste to dispose of.And my own guess is that Star Wars-type laser energy beamed from
sub-orbital reflectors back to Earth-based storage will play a big role – but
that just may be comic book fantasy.

But both of those
things are a long way off, if indeed they ever eventuate.More likely in the short and medium
term will be radical breakthroughs in electricity storage technology such as
batteries into which huge research dollars are already being invested.If that were to happen, it would
completely change the energy industry.

Businesses like mine
will have to wait awhile before technology comes to the rescue.In the interim, price increases will be
entirely blamed on ActewAGL and other energy businesses and will be alleged to
be a result of our rapacious nature, exploitative behaviour and general all
round hopeless incompetence - all of that in alliance with unfeeling regulatory
bodies.

Now, however unfair
that may be, we cannot just sit here and hope it will all wash over us.It won’t.We have to be part of the solution.

One obvious way is
to make our traditional dumb distribution networks much smarter.We intend to upgrade the existing low
voltage distribution networks with sensoring and monitoring devices and then
insert a layer of ‘intelligence’ into the networks by integrating
telecommunications and IT equipment, including smart metering.This will improve network reliability
and reduce network interruptions; it will lower maintenance and replacement
costs; lead to greater asset utilisation; improve grid management; and provide
industry and consumers with much more information on energy patterns and
greenhouse emissions.All of this
will help to some extent ameliorate the price increases.

Secondly, we will be
offering to business new services in distributed generation.For many businesses these coming price
increases will tip the balance from buying electricity from the grid to
building their own gas-fired generation capability. At present, this makes sense only for very large businesses,
but as prices increase and small gas generation technology improves it will
make sense to smaller businesses as well.

We also hope to
offer through a large-scale solar power facility of 40-50 megawatts a much
cheaper solar power alternative (less than half the price) to the photo voltaic
installations currently being placed on people’s residences and on commercial
buildings.

Finally, and
importantly, we intend to work with householders and businesses to find ways to
better manage their energy usage.This will require very active community and business outreach and
support programmes and we are working hard on developing that over the next
year or two.

Some people say how
can you trust an energy business to assist in reducing energy consumption.The answer is self-preservation.To be not part of the solution but just
the problem, then sooner or later we will pay a heavy price and alternatives
will be sougght.

Excerpt of a speech by ActewAGL CEO Michael Costello AO to the ACT Chamber of Commerce, 14 April 2010.