AGL gives equal billing to new technologies in energy restructure

AGL Energy has announced a corporate restructure that will give its nascent New Energy division – including solar, storage and electric vehicles – equal billing with its incumbent wholesale and retail operations.

The new structure will see New Energy emerge as one of seven core business units, alongside energy market operations and other administrative operations. A division with zero revenue to date is ranked equally with one with more than $10 billion in annual receipts.

“The industry is rapidly changing and faces significant challenges,”  newly appointed CEO Andrew Vesey said in a statement. Vesey, who took over from Michael Fraser just over a month ago, has previously flagged a focus on the technologies that will usher in a massive transformation in the energy sector.

AGL Energy is not the only big utility to toy with a restructure. In Europe, E.ON has actually split its businesses between the old and the new, and will focus on new technologies such as solar, storage and micro-grids. Coal, gas and nuclear remain in the old company.

In the US, the biggest generation company NRG is taking a similar focus on new technologies, saying that the era of centralised generation is coming to an end. It sees its future in solar, EVs and storage, too.

AGL Energy is not ready to talk down its incumbent assets – its coal-generation suite is now the biggest in Australia, and it is also the biggest emitter.

But to give an idea of the significance of this restructure, the energy market operations division – which now combines the wholesale and the retail market operations – boasted combined revenue of more than $5 billion in the December half. The new energy division, which now ranks equally, was created less than six months ago, generated no revenue in the December half and incurred outgoings of just $8 million, mostly in set-up costs.

New Energy is currently headed by Marc England, AGL’s former head of strategy. Its remit, under the new structure announced today, includes metering, solar, disruptive technologies (storage, electric vehicles etc), and emerging technologies. It also includes energy services.

England – who will have to re-apply for his position under a spill of all senior executive positions – last year noted that Australian energy consumers “are in the midst of a transformation from passive and unconscious consumption to empowered and more energy literate consumption.”

England said then that transformation is being brought on by disruptive technologies, new policies and fresh competition in our industry that is shaking up the way we source, consume and pay for our energy. But he still thought it would take time.

Vesey – considered by market analysts to be an expert in new technologies – has challenged the new energy division to match the incumbents in revenue and profits over time.

Indeed, AGL has become the first major utility in Australia to roll out solar PPAs, a financing arrangement that will see utilities own rooftop solar arrays and sell the output to the homeowner or business operator.

This is seen as the first move towards the new model that will inevitably see the adoption of battery storage – AGL thinks it could be economic by the end of the year – and electric vehicles.

But the big utilities still face massive competition from numerous new entrants, a range of technology firms and companies testing new business models, as well as large solar players moving into the energy management business, and the big players such as Google and Apple that intend to use their software prowess to do the same.

According to comments made by England in the last six months, there appears to be a belief that while change is coming, it will come slowly enough for utilities like AGL to manage the transition, and the fate of their incumbent assets – mostly their coal generators.

But it is clear that those within energy markets – at least privately – now recognise that this change may not be so gradual. That’s because solar costs continue to plunge, battery storage costs are lower than anyone thought possible, and the desire for homeowners to manage some or all of their energy needs is being sharpened by the attitude of policy makers.

As Ross Garnaut pointed out this week, policy seems designed to protect the interests of fossil fuel, but the end result may simply be to encourage consumers to quit the grid.

AGL’s statement on Thursday also included the announcement of the departure of Paul Simshauser, the group’s chief economist and head of corporate affairs. Simshauser created some controversy in energy markets for his lobbying against feed-in tariffs, and his recent description of continuing tariffs as a “scam”.