Australia’s largest generator of electricity has chosen a new managing director with an eye to the future, particularly the evolution of a new business model and the inevitable emergence of solar and storage to give the company’s near 4 million consumers more choice about the energy they use.
AGL Energy announced on Tuesday that they had hired a 56 year old American, Andrew Vesey, to replace Michael Fraser who steps down early next year. The market had expected an internal appointment, so were surprised by the choice of Vesey, but hey acknowledged that the ability to deal with new technologies would be key.
Deutsche Bank analyst Hugh Morgan said Vesey had significant experience in emerging technologies.
“We view this as important given emerging issues such as solar PV, battery storage and smart grids,” he wrote in a note to clients. “The AGL Board highlighted that Mr Vesey’s appointment was not driven by a desire or need for a new strategic direction for the company.”
That last part may not be quite right. In an interview with RenewEconomy, AGL Energy chairman Jerry Maycock said the appointment was made with an eye to manage existing assets, and to the future – that of distributed generation, solar and storage, and how to manage the desire by many of its customers to manage their own energy needs.
AGL Energy, Maycock said, needed to ensure it played a role in helping its customers manage that process, providing the technology or management services.
Vesey was hired because he had a deep interest in new technologies and business models, and had written several papers on the subject. As head of the big US utility AES, he had also experience with large-scale renewables, rooftop solar, and battery storage.
Vesey is not new to Australia, having led Victorian network operator CitiPower that is now part of Spark Infrastructure. AGL said Vesey has more than 30 years’ experience in the energy sector, including strategic and commercial leadership of large energy organisations. He has deep experience in working in complex regulatory and political environments.
It was no coincidence that AGL Energy made the announcement on the same day that one of its senior executives, Marc England, made a presentation in Melbourne that outlined how AGL Energy intended to tackle the challenge of distributed generation. Although, like his chairman, England expected the incumbent business model to continue longer than some expect.
Still, England said that AGL Energy estimates that 3 million Australian households will be “fully or partially” off grid by 2030, but that means that two thirds of energy users will remain fully on grid.
“Australian energy consumers are in the midst of a transformation from passive and unconscious consumption to empowered and more energy literate consumption,” he told a utilities conference in Melbourne on Tuesday.
“This transformation has no doubt been brought on by disruptive technologies, new policies and fresh competition in our industry that are shaking up the way we source, consume and pay for our energy.”
The question for most is how quickly that will happen. UBS, for instance, has suggested it may become economic for households in suburbs of the main cities to be off-grid by 2018. It recently said having solar and adding some storage, but not go off-grid, could make economic sense now.
England, however, said AGL Energy agrees with the estimate of the CSIRO Future Grid Forum, which suggested that this wouldn’t occur until after 2030, and that by 2050, more than 2/3 of generation would still be centrally supplied. (The CSIRO chaps did say they may be out by a decade or more).
“The demise of the centralised grid is a long way off. And while consumers will become increasingly empowered, the grid will continue to coexist with solar PV and batteries,” England said.
“Many consumers will never move away from the grid, simply because they cannot generate nearly enough energy for their own needs – urban businesses, people living in apartments, those with shaded roofs, or locations where winter has a large impact on solar generation, for example.
“The disruption we are going to experience in the Energy Utility industry is more akin to that seen in Computing, than others such as Cameras or Telecoms. Energy in the home and business will become “Ubiquitous”, where consumers have multiple sources to get their energy from rather than a complete swap out of technologies.”
And, he added later:
“We must not get carried away, however, with blind euphoria for the love of change, and forget that this industry needs to work for all consumers not just a few. This will be a long journey and even at the end of it, the vast majority of homes and businesses in Australia will still require back up from the Grid.”
Indeed, he suggested that solar was still enjoying heavy cross subsidies – to the tune of $270 per household in Queensland, and he was convinced that the vast majority of consumers would remain with the incumbents and not be tempted by “fly-by-night” outfits. He was particularly concerned that householders were putting on too much solar on to their rooftops, installing 5kW systems when 3kW would do. Better information was the key.
“We see a future where AGL provides consumers with a home energy ecosystem, providing them with the smarts and insight, to have choice, flexibility and control, at as low a cost as possible – and if they still want grid power they will get it at competitive prices, too.”
As RenewEconomy highlighted in recent months, all three big gentailers, AGL Energy, Origin Energy and EnergyAustralia are refocusing on solar and storage. The question remains, how quickly will it happen, and who will adapt successfully?
Maycock, in his interview with RenewEconomy, said that the company didn’t know. It was impossible to tell how quickly that transformation would happen.
One suspects that having bet the short term future on coal, and changing the colour of the business model from green to black, the hiring of Vesey is done with the thought that it may happen quicker than expected, and the business model colour may have to evolve quickly back to green. Everything else has, including the cost falls in solar, and now the cost falls and business case for storage.
AGL Energy said Vesey will join AGL in January and take over from Fraser in February, after the release of the interim results.
“Vesey brings a strong understanding of generation technologies and operational excellence programs in a wide variety of generation types, including coal, gas, hydro, solar and wind,” the company said in a statement.
“He also has experience in research, development and commercialisation of new technologies that are likely to shape the future of electricity markets. His experience in creating value in energy companies with evolving business models will be an advantage to AGL.”