What happens when the energy business model doesn’t work any more?
The electricity industry is facing up to exactly this question with the growing realisation that demand for their commodity has peaked, and no amount of marketing will make the public want to buy more – it’s just two expensive. What’s worse, the arrival of “socket parity” for solar PV for residential and commercial users threatens to reduce demand even further, leaving utilities with declining revenues even as they invest more in infrastructure.
The significance of this should not be underestimated. The utilities are presented with a terrible dilemma and are not too sure how to react, particularly with politicians from the nation’s mainstream parties trying to run up the escalator the wrong way. The most obvious strategy might be to gradually morph the business model from a commodity-based one to a service-based one, as is starting to happen in Europe. But as energy utilities have historically had one of the worst business-consumer relationships of any industry (this tends to be a global phenomenon, not just Australia) this is a massive cultural leap, and would take a CEO with leadership and vision to push through – or a realisation that a host of other service providers, from retailers, IT firms, solar technologies and other, would eat their lunch if they didn’t.
…you dig a deeper hole
Little surprise then, that the principal strategy in the short to medium term has been to push back against the deployment of renewables, on all manner of fronts. The most revealing is that of the Baillieu government in Victoria, which seems determined to dig up half the state, dry it, and sell it to India, simply on the principal that it is there and they own it, and if they leave it in the ground it won’t be worth much. And, anyway, how do you sell the wind? Utilities have been more prosaic, either attacking feed in tariffs, or lobbying for an amendment to the renewable energy target. Some are seeking changes to billing methods that trap commercial users in demand tariffs that lock in a high fixed component, reducing the attraction of solar and its ability to defray rising costs.
This, along with the push to time-of-use tariffs is an interesting gamble by the utilities. Effectively, they are inviting consumers to find an alternative to the grid, and come up with a combination of renewables and storage that can beat the grid on cost. It’s a challenge that energy storage technology developers are likely to take up with some relish, knowing full well that utility costs are going up, and new technology costs are going down. And customers too. One Queensland farmer with a 30kW system, who alerted us to the potential tariff, says he can’t wait. “I’ll get off the grid as quick as I can,” he told us. And we sensed that many others agreed.
Socket to them!
If the arrival of socket parity is not threatening enough to the energy incumbents, the arrival of wholesale parity is an altogether different matter. This week, a Spanish solar PV company Solaria Energia has become the latest to announce it was developing a large-scale 60MW PV array in Spain, despite the fact that it will not receive any subsidies such as feed-in tariffs. The project is expected to cost just $75 million. (This compares to the round one Solar Flagships project in Australia which was billed at $660 million for 150MW. But costs have come down a long way since then).
There are now 5 such projects in the pipeline, totaling more than 1,800MW (more than either Australia’s entire rooftop PV capacity, or its wind capacity), and they are being seen as the ideal test for the premise that solar can compete with fossil fuels without subsidies. If they are to be built, they will be likely trying to source power purchase agreements with industrial users, who pay $140/MWh in Spain. The wholesale price is around half that.
The solar PV developers are working on the principal that they can deliver electricity to their industrial users for $120/MWh. “Solaria is demonstrating its commitment to the Spanish market, where grid parity is becoming a reality and PV is already a mature energy technology capable of competing with traditional energy sources,” the company said in a statement. The next step is for this to happen in Australia – and there is already talk that a few projects are in the pipeline – albeit on a modest scale – that will rely only on renewable energy certificates as incentive.
Sorry, we’re all out of planets right now
In the count-down to the Rio+20 conference, scientists and environmentalists are taking stock of progress on the environment in the last two decades, and it is not making pretty reading. The UN Environment Program says good progress is being made on just 4 of 90 stated environmental goals, progress in eight has gone backwards, and there was little or no progress on Really Important Issues such as climate change. Efforts were being paralysed by indecision and the world is speeding down an unsustainable path.
UNEP warned of “irreversible changes to the life-support functions of the planet.” Failure to rein in global consumption of natural resources and alter patterns of production may bring irreversible changes that cause tens of billions of dollars of damage to human health, agriculture and coastlines, the study found. “The race for development needs not be at the expense of the environment or the populations which rely upon it,” UNEP said.
It recommended that countries collect more reliable data, set firmer environmental targets, and redefine how wealth is measured to include quality of environment rather than just gross domestic product. “Rio+20 is a moment to turn sustainable development from aspiration and patchy implementation into a genuine path to progress,” UNEP Executive Director Achim Steiner said in the statement. A “transition towards a low-carbon, resource-efficient, job-generating green economy is urgently needed.”
Is it to too hard to be green?
Ironically enough, this was the theme of a speech made by Greens leader Christine Milne at a Sustainable Business Australia function in Sydney on Thursday. Milne had been challenged with the proposition that the Greens were too progressive for even progressive business. Milne’s appeal was not new. It was an appeal for “sustainable business” to speak loudly, and with unity, to counter the considerable forces arrange against the. “If you don’t speak up, you will lose,” was the abrupt message.
She also spoke on a similar theme to UNEP’s Steiner – living on a planet with finite resources, business as usual is no longer good enough, it’s time to couple growth from impact on resources and environment, and we can’t solve problems with the same mentality that solved them. All this, she noted, was considered heresy in the Australian environment, particularly in the media. Even the tourism industry couldn’t bring itself to talk about the threat to the Barrier Reef (and its own multi-billion dollar business) from the unfettered development of coal ports, it just wanted environmentalists to stop talking about it.