Big Oil sets sights on Australia’s transitioning energy market

Big Oil might not quite be ready to let go of the trillion-dollar oil and gas industries it has made its fortune on, but it does have an eye on the future. And, apparently, it is here in Australia.

News on Tuesday that Royal Dutch Shell is looking to take on Australia’s “Big 3” energy incumbents (reported by the AFR) is not the first move by Big Oil into the Australian energy market.

Over the last few months, Total has moved into large-scale renewables investment via its subsidiary Total Eren, signing a landmark power purchase agreement with Powershop for the 200MW Kiamal solar project and accruing one of the biggest renewable energy development portfolios in the country.

BP is also back in the Australian solar market. Having been a leader – and for some time the only major player in the nascent solar PV industry (it’s hard to find a solar industry veteran who did not work for BP Solar at one stage) – it is now back in the country with UK developer Lightsource.

And they are not the only big players looking to muscle in on the opportunities in Australia.

Innogy, the renewable energy arm spun out of German utility giant RWE – and now part of a merger deal with another German utility giant E.ON – last month bought two undeveloped solar projects totalling 460MW and signalled further investments in wind and battery storage in its first play in Australia.

Innogy has yet to unveil its full intent in Australia, but it would be a surprise if it limits itself to investments in renewable energy projects, given its newly merged owner is looking to become the “utility of the future” and could move up the integration ladder down under.

Italy’s Enel is also emerging as a major player in Australia, and is joint owner of the 220MW Bungala solar farm, currently under construction near Port Augusta in the shadow of the former coal generator; and likely to be the biggest solar farm in Australia once complete.

Why the interest from these international energy majors in what had previously been a closed shop in Australia?

Well, it is pretty clear to everyone that energy markets are transitioning – to both renewables and storage, and to a distributed rather than centralised system.

Australia is at the forefront of this – despite the wishes of many in the conservative government and commentariat – thanks to its extraordinary wind and solar resources, the absurdly high price of grid power, not to mention the huge momentum in states like South Australia, which is charging (figuratively and quite literally) towards a super-high penetration of renewables.

The big energy players in the world don’t want to miss out, and are demanding a ring-side seat, as well as seeing the opportunities to steal the advantage from slow moving incumbents more focused on protecting their sunk investments than embracing new technologies.

What is capturing much of their interest is the growing role of the consumer – Australia’s energy market institutions now freely predict that up to half of all demand could be served by distributed energy, much of it generated on their rooftops and stored locally.

That means that the industry is no longer dominated by a couple of dozen big generators, but by millions of individual “pro-sumers”.  The possibilities in both technology and business models are fascinating for all.

The corporate sector is also breaking down barriers – by-passing the traditional utility to secure direct contracts, or ownership, of large-scale renewable projects and on-site generation.

CUB, the owners of Foster’s, Crown and Fat Yak, intends to source 100 per cent of its energy needs from solar by the end of the year. Telstra has signed two major contracts for wind and solar, is working on storage, and is still considered as a chance to enter the market as a major energy retailer on its own account.

Zinc refiner Sun Metals is building a solar farm to underpin its expansion; Nectar Farms is turning to wind and battery storage to power what will be the country’s biggest greenhouse (a $350 million project that had been headed overseas); and smaller businesses are turning to renewable based micro-grids.

Biggest of all, Sanjeev Gupta, the owner of the Whyalla Steelworks, is planning on building more than 1GW of solar, plus the world’s biggest battery storage (bigger than Tesla’s) and some pumped hydro as it seeks to become a retailer of its own.

Its merger with Ross Garnaut’s Zen Energy to create SIMEC ZEN will create a new competitor that will gather major industrial and commercial users seeking to slash their high electricity costs by using more wind and solar.

Into these fractures, the world’s biggest oil companies are seeking to insert themselves.

Neither Shell nor the AFR could bring themselves to mention renewables in their article, but any attempt to challenge the incumbent retailers will necessitate a major investment in renewables in Australia.

Shell recently bought energy and broadband company First Utility in the UK as part of a push to take on that country’s energy incumbents, and to pursue the model that analysts presumed Telstra would adopt : the combination of communications and energy in a digital world.

“We see ourselves as being able to disrupt existing sites in countries and I don’t think we’ll settle for less as we try it here,” Shell’s Maarten Wetselaar told the AFR.

Total Eren told RenewEconomy last month that it intended to become a major player in Australia – and already had plans for a major battery storage installation next to the Kiamal solar project.

The company is not only backed by Total, the world’s fourth largest oil and gas company which is seeking to be known as the “responsible oil major”, but by the family of French car makers Peugeot.

“They have big ambitions in the renewable energy space, very big ambitions, and they want to expand ownership over time,” its local head Michael Vawser says.