By AGL Energy Limited | 01 November 2016
SIEW 2016: 5Qs with Andy Vesey, Managing Director & CEO, AGL Energy Limited
About Andy Vesey
Andy has over 30 years’ experience in the energy industry including strategic and commercial leadership of large energy organisations, and working in complex regulatory and political environments. His experience extends across the energy supply chain, including power development, generation, distribution and retail businesses. Andy commenced with AGL in January 2015, officially taking over as MD and CEO in early 2015.
1. What are the major reform priorities for Australia’s energy market?
Long-term and integrated energy policies are required if energy markets are to continue delivering reliable and affordable energy supplies, while contributing to Australia’s climate change objectives and facilitating innovation in products and services for energy consumers. The key policy priorities for Australia’s energy systems are:
- Integration of climate change policies with energy market design to facilitate the long-term decarbonisation and modernisation of the National Electricity Market. Energy-only markets may not be suitable for electricity systems with a high proportion of intermittent renewable generation and a new fit-for-purpose market design may be necessary to incentivise both the entry of lower-emission generation capacity, and the necessary complimentary firm capacity to be available at times of low renewable output or high demand (to maintain security of supply and system stability).
- Updating regulatory frameworks for energy products and services to ensure they are fit for purpose for new technologies like rooftop solar, battery storage, digital metering, electric vehicles and home energy management – so that customers are able to select products and services that suit their circumstances from a wide range of options.
- Requiring robust ring-fencing provisions so that regulated entities are not able to derive competitive advantage from their position as a monopoly service provider, and that regulated revenues should be strictly for monopoly services and not used to provide contestable services ‘beyond the meter’.
2. How can Australia attract the financing needed for a next generation energy infrastructure?
The generation mix in Australia’s National Electricity Market is old and relatively emissions-intensive, with more than 80 per cent of generation still sourced from fossil fuels, particularly coal. Around 75 per cent of the installed thermal capacity is already operating beyond its original design life. Both renewable and lower‐emission fossil fuel generation will form an integral part of the energy mix throughout the transition to a low‐emission global economy. A stable and long‐term policy framework and trajectory for this transition is essential, to ensure continued investment in zero‐emission energy sources and the orderly retirement of old and emissions‐intensive power stations.
Given the significant oversupply of generation capacity, a policy to progressively close ageing coal power stations is required to provide sustainable market outcomes for new renewable energy investments. In the longer term, the National Electricity Market’s energy‐only design may need to be reformed to integrate climate and energy objectives, and to ensure that prices for both low-emission generation and firm capacity needed at times of low renewable output, justify new investment over the business cycle.
In July this year we launched the Powering Australian Renewables Fund (PARF) with equity partner QIC, on behalf of its clients the Future Fund and those invested in the QIC Global Infrastructure Fund. The PARF is the first of its kind financing vehicle created to help kick-start renewables investment in Australia. The PARF will develop, own and manage approximately 1,000 MW of large‐scale renewable energy infrastructure assets and projects, representing investment of AU$2 to 3 billion – and expects to commit to its first new build project by March 2017.
3. How will Australia’s energy market be affected by its 2030 goal to reduce emissions by 26-28% below 2005 levels?
AGL supports the development of policies by Commonwealth Government to reduce emissions in a manner consistent with its commitment to a ‘2 degree goal’. The electricity sector is Australia’s largest source of greenhouse gas emissions, producing around a third of the national total. The decarbonisation and modernisation of the National Electricity Market will therefore play an important role in meeting Australia’s international climate change commitments.
Achieving this target will require significant entry into the market of new renewable and low-emission generation capacity, and the progressive closure of ageing, emissions‐intensive coal power stations. The policies that are likely to be required to facilitate electricity decarbonisation over time include:
- Emissions standards for new power stations (similar to the USA);
- Regulation to drive the progressive closure of aging emissions‐intensive power stations, or retrofitting with CCS (as implemented in Canada); and
- Continued incentives for renewable energy and near‐zero technologies, which also ensure energy security and capacity standards are met.
4. How are AGL’s business priorities aligned with the global push for a low-carbon energy system?
AGL is Australia’s largest private owner, operator and developer of renewable generation. Our 2015 Greenhouse Gas Policy outlines a renewed commitment to contribute to Australia’s climate change objectives. As the owner of significant greenhouse gas emitting assets, AGL has committed that it will not extend the operating life of any of its existing coal‐fired power stations, and that by 2050, AGL will close all existing coal‐fired power stations in its portfolio. AGL will also continue to advocate for effective long‐term government policy to reduce Australia’s emissions and facilitate further investment in renewable and low‐emission power generation.
The National Electricity Market is moving away from its traditional, linear supply model, to a more decentralised, bi‐directional and customer‐driven market, and customer preferences are leading this transformation. Distributed energy sources and emerging technologies are enabling customers to choose from a wider range of products and services, and to have greater control over their energy usage and how that service is delivered. AGL has established its New Energy business to focus on the delivery of distributed energy services and solutions. Our goal is to be a leader in the transformation of how customers engage with energy, the development of new business models and innovative energy offerings to customers, as well as the integration of new technologies and digital capabilities.
In addition to PARF, we have also launched what will be the world’s largest Virtual Power Plant (VPP) demonstration, which will ultimately involve 1,000 networked batteries installed in homes and businesses in South Australia.
AGL is partnering with Australia’s federal renewables funding agency The Australian Renewable Energy Agency (ARENA) and leading US‐based energy storage and management company Sunverge, on this demonstration. The project will be rolled out in three phases over 18 months and will provide 5 MW of capacity, offering customers the opportunity to save on their energy bills.
5. What are your thoughts on the SIEW 2016 theme “New Energy Realities”?
Globally, energy markets are in a state of transition, as a result of new technologies, evolving customer expectations and a global commitment to reduce greenhouse gas emissions. Regulatory and market settings that were designed for markets supplied by large, centralised (and mostly thermal) power stations, and with clearly defined generation, transmission, distribution and customers, may no longer be fit for purpose. More than 1.5 million Australian customers now produce some of their own electricity supply with solar rooftop PV, and new technologies such as digital meters, battery storage and energy management software may give rise to increasingly sophisticated multi‐directional flow of energy to, from and between energy customers – blurring the traditional roles of market participants. In this context, we’re preparing our business and have just announced a AU$300 million Digital Transformation program to help meet the energy needs of customers, now and into the future.