Improving Australia’s energy mix means investing in new assets – and that requires a better environment for channeling capital into innovative energy solutions.
Some companies are taking matters into their own hands but the road to self-reliance is not straightforward. Benefits include reduced volatility, less operational risk, improved sustainability and potentially lower reputational risks.
There are three common solutions: embedded networks; commercial and industrial solar; and corporate power-purchasing agreements (PPAs).
Among the first group are embedded networks which use a tri-generation plant: these take in gas, and simultaneously output power, heating and cooling. Melbourne Airport installed an 8MW tri-generation facility in 2014, for example. Sydney Town Hall began running a 1.4MW tri-generation system in 2016 to manage peak demands, and will sell excess power to the grid.
Secondly, commercial or industrial solar allows a business to cut its operating expenditure and boost supply reliability, particularly when combined with storage and an energy management system.
Sydney’s International Convention Centre installed a 520kW solar array on its rooftop which will provide around five per cent of its energy requirements.
Thirdly, a number of larger energy users have explored using corporate PPAs to underwrite the supply of electricity. Corporate PPAs – in which a company either buys renewable energy from an independent generator or itself invests in energy generation – have become increasingly popular.
The trend is led by the US, where Facebook, Amazon and Alphabet were among the first entrants.
However, corporate PPAs are complex agreements and they require a far longer-term commitment, typically a decade and ideally longer, to underwrite a project. Yet they are finding traction in Australia as organisations look to ensure their infrastructure energy needs become more self-reliant.
In May 2017, for instance, Telstra signed a PPA with RES Australia to buy the output of the latter’s 70MW solar farm being built in Queensland.
Universities are going down the self-reliance path too: Monash, which recently put out an RFP for an annual 55GWh renewable project, expects all its energy needs will be met by renewables by 2030.
Corporate PPAs allow companies to access the power and green certificate without needing to own the asset. That has benefits for the balance sheet and takes advantage of the supply of competitive capital seeking exposure to renewable energy assets.
While there’s excitement about corporate PPAs it’s still very much at an early stage. Given the complexity of such arrangements, the trifecta of cost, reliability and sustainability need to be addressed on a case-by-case basis to provide sufficient motivational force in the first place.
These changes in organizational self-reliance fit a broader pattern in the energy sector: the decentralisation of energy assets.
Take solar PVs: a decade ago Australia had just 9MW of installed capacity; today it stands at a little over 6,200MW. Depending on the source, 1GW is enough to power 800,000 homes.
Therefore this amount is enough for 4.3 million homes (at the lower level), which is about half of Australia’s housing stock.
There is a movement towards sustainability in social infrastructure too, as we’ve seen in hospitals, schools, prisons and low-cost housing. The best time to incorporate on-site generation assets is during the initial design and construction, ensuring lower costs and future-proofs the structures.
We expect self-reliance will become increasingly sophisticated, with declining battery costs and the ability to use energy management software to trade surplus electricity from solar, creating localised trading markets.
The advent of peer to peer trading, virtual grids and demand management are all seen as innovative new technologies which will further disrupt the industry and drive change.
The journey towards self-reliance – distributed generation – is only going to accelerate.
Clearly it is a significant challenge, but it’s also a real opportunity given the renewable resources Australia’s blessed with: plenty of sun, wind, and land – all of which should ensure Australia plays a leading role in energy development now and for the foreseeable future.
Craig Shortus is Head of Utilities & Infrastructure and Tsen Wong, Director, Utilities & Infrastructure, Institutional Banking at ANZ