The big take-outs from the announcement of the TRUenergy results on Tuesday were quickly seized upon by the mainstream media: the much hyped IPO is being delayed, and the contracts for closure program for the brown coal generators is in serious trouble.
Neither announcement should be a surprise. The IPO, which was touted as the biggest in Australia for 2013, simply has to deal with too many variables – the future of the carbon tax, the shape of the renewable energy target, and proposed changes to the regulatory regime highlighted by Prime Minister Julia Gillard last week.
And despite the June 30 deadline, the contracts for closure scheme – the buyout of up to 2000MW of ageing brown coal generation by the federal government dubbed the new cash for clunkers program – remains unresolved. As pointed out in these page often enough, the sheer generosity of the government’s compensation package means the brown coal generators are making too much money to want to shut down. Perhaps Canberra will find some willing sellers of black coal generation – which finds itself particularly badly squeezed – in NSW and Queensland.
The real interest from TRUenergy came not from its results but comments delivered a few days earlier by CEO Richard McIndoe at an IPART conference in Sydney. He recognised that the electricity industry was going through as fundamental a change as that of the telecommunications sector a decade ago. No longer would utilities simply deliver as many electrons as they could to the front gate – they were now obliged to package up a suite of products enabled by the introduction of smart grids and smart meters and the like, and deregulated pricing.
“It is the kind of cultural change we have seen and accepted in telecommunications where we have moved away from fixed telephone rates to more flexible pricing plans to suit individual needs and use,” McIndoe said, according to prepared notes provided by the company.
But here’s the thing. McIndoe, like his counterparts at other Australian utilities, talked of customers and their ability to manage and control their consumption. But there is an even more fundamental change that is taking place in the global energy industry that creates even more of a challenge to utilities and regulators – the emergence of customers not just as consumers, but as producers of their own energy.
Germany, of course, is at the forefront of this and their two biggest energy utilities E.ON and RWE, both former nuclear giants that have had their biggest asset stripped from them after the fallout from Fukushima, have to face a radically different energy grid and business model because of the massive rollout of solar PV and the ambitious green energy targets of their government.
Here’s how RWE’s new CEO Peter Terium kicked off the press conference for the company’s annual results in Essen on Wednesday. “We live in exciting but turbulent times. Our core markets are changing remarkably fast. The liberalised electricity market we had high hopes for is showing signs of disintegrating. Political intervention is on the rise. The regulated part of the market is growing, while the competitive part is losing ground. Today’s customer is tomorrow’s electricity producer.”
That, in Germany, is the key. As Terium noted, another 7,000MW of solar PV capacity will be added this year – twice the growth anticipated by the German government – with a corresponding impact on demand from the grid, and the revenues and profits of conventional generation such as coal and gas.
“The high cost of photovoltaics can be criticised from a macroeconomic perspective,” Terium said. “But as an energy provider, our main task is to do something worthwhile with the volumes of electricity they produce.”
Those “worthwhile” things include some of the technologies and ideas canvassed recently in RenewEconomy. Terium noted that while the solar transformation had been confined to roof-tops, RWE was looking at new approaches such as “virtual power plants” (see our story on CSIRO’s work on this) which would pool the output from decentralized renewable sources such as rooftop PV, as well as combining storage devices with micro combined heat and power plants that could also act as backup for renewables.
Terium said the company was also pushing new concepts to leverage the output of rooftop solar on commercial installations and other renewable energy sources, as well as the expanded use of “smart meters,” electric mobility and fibre-optic broadband projects. All these point to the ability of harnessing its customers as co-producers. The revolution of “self-consumption” described by the International Energy Agency and the US Department of Energy is well under way – utilities have to learn how to modify their traditional producer-to-consumer model to one where their customers may be producing as much energy as they buy elsewhere.
“Almost no other industry is currently undergoing such dynamic change as the energy sector,” he said. “The success of this transformation of the energy industry will be decided at the local level.”
Terium has branded the reorganisation of RWE – a giant of a company with more than $60 billion in annual revenue – as its “fit for future” campaign. Although the company is taking legal action over the manner and timing of its forced nuclear exit, he said the company was leaving nuclear power “with conviction.” “The cluster risk this technology presents is not an option in the long run,” he said.
RWE this week opens a new brown coal generator, but it is one with a difference – it is designed to act as a peaking plant that responds to variable output of large-scale renewables. Both it and a gas plant also opened this week can vary their output by 500MW within 15 minutes.
But Terium said that while the company continued to invest heavily in renewables “all over Europe,” these would be the last of its investments in fossil fueled plants – at least for the immediate future. The radical changes to the industry meant that even recently opened gas plants were operating well below capacity. How to ensure enough capacity to shepherd renewables through their growth phase, and to underpin the realignment of the transmission network, remain the key regulatory challenges for the government and the industry.