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Australian energy retailers look to muscle into solar market

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Australia’s two biggest energy retailers are looking to muscle their way into the burgeoning rooftop solar market after concluding that the combination of solar and storage could eat into their dominance of the retail energy market.

Both Origin Energy and AGL Energy are investing millions into building up substantial solar teams that will focus on the household and business markets, offering leases and power purchase agreements in a new attempt to dominate the rooftop solar market, which is now nearly at 4GW across Australia.

The strategy is two-pronged: firstly to head off the threat of what they have previously dismissed as “fly-by-nighters” – a growing number of companies offering solar products. Some of these rivals, however, are substantial, and include the likes of Macquarie Group and US heavyweights SunEdison and SunPower, along with a host of new and smaller players.

The other part of the strategy is to address the bleeding wound in their retail strategy; the “churn” rates that result in up to one-quarter of their customers switching providers each year in a ritual of discount seeking.

By offering leases and power purchase agreements, where the retailers will retain ownership of the rooftop solar systems – and possibly battery storage and other products down the track – the retailers hope to lock their customers in for 10, 15 years or more.

And “muscling in” is very much the word. Both companies have huge balance sheets and want to deploy that financial towards solar financing – as well as storage and electric vehicles. Origin is about to tap into a big cash flow from its LNG business, and AGL Energy is getting big cash flow from its recently purchased coal generator in Victoria and NSW.

Origin Energy was once Australia’s biggest installers, tapping into the rush for rooftop solar when state governments offered big feed in tariffs.

But Origin turned away from new technologies and decided to focus on LNG after the FiTs were reduced, and after cutting its losses in the innovative Sliver solar technology, and its geothermal joint venture with Geodynamics. Origin lost as much as $500 million in those investments.

Phil Mackey, who once headed the emerging technology business – including Sliver – returned to head Origin’s revived solar business last year, after being moved from the emerging technologies business to head up the LPG business.

Now that the LPG business has been more or less bedded down, with first production due within months, Mackey – a former head of petroleum engineering at Santos – has returned to lead what Origin thinks is its next growth business.

jp ross picHe has been joined by JP Ross (pictured right) a former Greenpeace clean energy activist who became deputy director of California advocacy group Vote Solar, before becoming one of the first executives of US solar leasing company Sungevity, co-founded by another ex Greenpeace man, Danny Kennedy.

Sungevity is now operating in Australia, and is one of a number of companies looking to tap into the solar market – through leases and power purchase agreements – and eat into the influence of the big three retailers.

Ross has been appointed head of “mass markets”, targeting the household and the growing commercial markets.

He is also responsible for helping develop Origin’s solar strategy – he was vice-president of development at Sungevity – and his LinkedIn page says Origin is seeking to regain its mantle as the biggest solar energy provider in Australia

It continues an interesting merry-go-round of solar executives. While Ross is completing the circle from campaigner to energy upstart to big utility, Sungevity hired James Myatt, the founder and former boss of Australia Power and Gas, now owned by AGL, to head its Australian operations.

Meanwhile, former Origin Energy executive, Steve Harris, is now involved with Northern Rivers Energy, which hopes to establish Australia’s first community-owned energy retailer in the country around Byron Bay.

AGL’s solar history has been less glorious. It bought a small installer business, Rezeko, but never hit great heights, and the company is still not ranked in the top 10 installers in the country. More recently, however, the company said it was looking at its solar and storage, and in home marketing strategy, recognising that technology and “disruptive business models” would develop quickly.

It is understood that it is building up a major team in Melbourne – focused on solar, and the household and commercial market – with mooted staff numbers of 100-150.

Both companies have been critical of solar tariffs, presumably to help slow down deployment. Origin has labelled solar as a “free rider” on the grid, while a senior AGL executive recently described solar tariffs as a “scam”, which might not help their marketing campaign.

Both companies have argued that remaining solar subsidies should be removed, and have pushed for low and voluntary tariffs for solar exported back into the grid.

There’s a degree of irony about that, considering how PPAs operate. While energy retailers will only pay around 6c/kWh for electricity that households export back to the grid, from solar systems that the household owns, if the retailer owns the solar system itself, then they will sell those same electrons to the household for about 20-25c/kWh.

Still, PPAs and leasing are considered to be the next big thing in the solar markets, particularly as it is a way to attract lower income owners, renters, and others into the solar market.

Origin is believed to have been testing the PPA model with its own employees to see how it works. There is an interesting analysis of solar PPAs on Choice magazine that can be found here.

AGL Energy and Origin Energy are both being coy about their solar plans however, apart from flagging that major initiatives are on the horizon.

An Origin spokesperson said only in a statement: “As we have previously stated, Origin is repositioning its solar business and looking to bring to market new solar offerings that provide more choice to customers.

“To support this activity and Origin’s broader objective to be a regional leader in energy markets, we will continue to ensure we have the right team in place with the appropriate skills and experience.”  

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  • Alexander Dudley

    Giles, unlike Peter Greste, you really need to finish your sentences.

    • Alan Baird

      Well done!

  • John Silvester

    As they say “if you can’t beat them, join them”

  • Matthew Wright

    These financing arrangements are pretty bad. If you have access to redraw on your home loan or can refinance and then redraw then you are in a far better position than going with one of these deals.

    • wideEyedPupil

      And you’d not be supporting two companies (Origin and AGL) who have done the most to undermine the RET in recent years 😉

  • Rob G

    They’re digging their own graves. We’ll end up with more and more solar and less coal fire. That’s good. But with a growing “shop around’ awareness, it won’t take long for most people to find better deals directly from solar businesses and bypass these guys. They plant the seed and someone else collects the harvest – good fun!

    • wideEyedPupil

      Owners of rental/investment properties will probably go for leasing arrangements even if they cost considerably more in LCOE terms.

      • RobS

        Don’t quite see why when they can gain the same effect but at a lower overall cost by rolling the cost of the system into the mortgage on their investment property. I can certainly see renters taking advantage of system leasing if landlords permitted them to, but investment property owners have an incentive to do it in the mist cost effective way possible and PPA’s only add an extra middle man who is only in it for a cut of proceeds.

  • Ian

    These Johny-come-latelies are misguided, 4GW of solar already installed and they want to throw muscle behind more! The network’s core strength is exactly that, it’s a network. These companies should be investing in technologies to network supply and demand. Low-cost batteries are desperately needed, throw muscle at a gigafactory on Australian soil. Electric vehicles absolutely have to be encouraged, Origin throw enough financial muscle at this to make Elon Musk blush. Come the day, when solar and electric vehicles are ubiquitous, people will want to buy, sell, swap, store and transmit their electrons much as they do with information on the Internet or goods in the marketplace. AGL and the like, may want to get in on that market. For renewables to grow, we need fair exchange and networking of electric power, electric storage and conversion of transportation to electricity.

  • Warwick Johnston

    Giles, AGL were a top 10 company but fell out of the top 10 ranks in 2014. They look like they’re on their way back up now