Sale of NSW energy networks: Is this a lemon? | RenewEconomy

Sale of NSW energy networks: Is this a lemon?

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Sale of NSW electricity network needs to take into account growing take-up of solar, and the arrival of battery storage.

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With the NSW Government about to announce how it intends to proceed with the selloff of Networks NSW, the question which needs to be asked by both the Government and the market:  is this asset a lemon, or can it provide a real benefit to the consumer?

The two major options being considered by Premier Baird are:

  1. That the Government sells 49% of Networks NSW, retaining 51% majority ownership,
  2. That the Government wholly sells the metropolitan part of the network and retains full ownership of the network in the rest of the state.

networkThe NSW Government is hoping to achieve a sale price in the vicinity of $15 billion, which it intends funnelling back into major infrastructure development in the state.

Whilst this is commendable, there is a question over the value of a company which is providing an outdated service and has a substantial ongoing maintenance requirement and associated cost.

Networks NSW is primarily the ‘poles & wires’ which provides all consumers with their electricity, and there is currently a guaranteed market which continues to grow.  But how long will this be the case?

It is clear from recent reports that NSW electricity consumption has started to plateau, and in some instances reduce, over the last couple of years.  This has occurred due to the numbers of NSW residents, and businesses, who have now installed solar and other renewable energy systems to try and reduce their electricity costs.  This trend is actually accelerating as the price of solar panels continues to fall more and more people are purchasing solar systems.

As it was recently stated by some in the electricity sector: ‘Solar is the greatest threat facing the electricity sector currently’.

Now consider this for a moment.  What happens to the market value of Networks NSW if we add Residential Battery Storage to the mix?

What if there is suddenly a massive demand by customers to purchase battery storage systems to support their existing solar arrays?  There are currently in excess of 200,000 solar systems up and running in NSW either connected under the old Solar Bonus Scheme or on net metering.

With such demand the price of storage would drop significantly, and quickly, and would generate a lot of interest from people who don’t currently have solar.

What would happen to Networks NSW customer base?

Consider this for a second.  The NSW Government would pitch any sale of the Networks NSW as a safe and secure investment for mum & dad investor’s as well as pitching it towards investment by Superannuation funds and other major investors.

Would you want your superannuation fund to invest in a company which has a dwindling customer base and facing an uncertain future?

This is the lemon the NSW Government has to tackle.

Networks NSW needs to restructure its operations and needs to embrace solar in conjunction with Residential Battery Storage.  They need to look at the model Vector Energy have been operating in New Zealand and expand it here in NSW.

Consider the long term revenue stream which would be generated by 200,000+ battery storage leases?

Consider the potential reduction in maintenance costs long term as more and more suburbs turn to micro grids to support themselves and the lifespans of battery systems increase.

If Networks NSW encourages customers to install their own solar arrays and provides a cost effective leasing arrangement for battery storage to these customers they guarantee a long term customer base for the company and provide opportunities for future growth.

If solar is the beginning of the end for the electricity sector and Networks NSW, then perhaps Residential Battery Storage leasing is Networks NSW saviour?

Only time will tell.

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  1. James Fisher 6 years ago

    Battery storage alone won’t allow people to leave the grid. They will at least need to add a backup generator or fuel cell for when the weather is poor for an extended period. With today’s electricity prices, a low cost ‘Bunnings’ generator is likely not far from being cost effective and would likely compete with today’s cost of battery storage. Has anyone done this analysis?.

    I am not a believer that battery storage costs will plummet in the same way PV has. Most of the cost in the leading battery technologies is based on the cost of the materials that make them. For instance, the cost of the lead in a lead acid battery is upwards of 80% of the total cost. There is little scope for these material costs to drop no matter how large the uptake of residential battery systems. In fact it may cause the price of many of these materials to rise. For lead acid storage to become widespread its cost needs to much more than halve which is highly unlikely under any scenario.

    For battery storage costs to plummet we will need a new disruptive technology to come through. In the same way the invention of DSL provided a quantum leap in data rates over copper. This may happen, but we don’t have it today.

    • Keith 6 years ago

      Tesla’s 85KWh Li batteries seem pretty disruptive to me …… it will be interesting to see where the costs go as the production gets scaled up.

      • James Fisher 6 years ago

        Agreed, however this technology is relatively expensive when compared to Lead/Acid alternatives and so has further to go to get down to the required price point. These batteries are built to operate in the hostile environment of a car and that necessarily adds significant cost. They have limited cycles and I don’t buy that they will be cost effective to double as battery backup for your house. I accept that something might come along and achieve this massive cost reduction, however I am an engineer and I like to see more than just wishful thinking.

        • nakedChimp 6 years ago

          Li-Ion (LFP) is nearly cost competitive over 5-10 year range to LAB, you’re not up to date.. it’s not excessively more expensive.

    • Chris Fraser 6 years ago

      Yes, ATA did some analysis for communities 500 houses big, with LiFePO4 batteries and biofuel generators as backup.

    • juxx0r 6 years ago

      Battery storage alone will allow people to leave the grid. But putting solar panels at the correct angle is a good start not just putting them at 20 degrees on your roof.

      Energy efficiency, solar housing, low hot water consumption all play a part too.

      As for battery costs, batteries are getting 5% better every year, so they’ll be halving in cost every 14 years. As for the gigafactory, that’s expected to reduce the costs of batteries by 30%. So whilst you’re probably correct that they won’t do a 100 fold skydive like solar has, they will continue to get better and cheaper.

      If they halved in price from today’s price i’d cut the cable.

    • Roger Brown 6 years ago

      Tesla will be the disruptive technology to come through. Their car and its batteries have been evolving and have just started to build a Tesla Battery Plant for their cars for now , but have talked about using the car for a storage power bank .Produce your own electricity and fuel to drive your car ? They are saying 300,000 miles warranty on batteries . Bunnings Generator with today’s fuel prices only going up , while costs coming down for solar , would need to see a CBA first .

  2. michael 6 years ago

    sounds like a compelling argument to sell before the asset value falls? smart move government. and also a great opportunity for those who believe this hypothesis to go short whichever company buys it and make some coin.

    • nakedChimp 6 years ago

      dunno, the city grid will be needed for sharing electricity between people who can generate (roof) vs. people who can’t. German cities/communities already trying to buy back their grid from the oligopolists/local monopolists…
      It’s the best piece of the lot.
      The grid back out, yeah, well.. to costly, people will be better off having their big storage/genny backup/whatever..

  3. Motorshack 6 years ago

    There are also other ways to cut the costs of a solar PV system, and therefore free up enough capital to defray the costs of batteries.

    A) Tracking mounts dramatically improve the amount of power that can be generated while avoiding most of the costs of extra silicon. The trick is to build the right kind of mount, but lots of people are now doing that. It is a myth that tracking mounts are too expensive to be worth the bother. The truth is that badly designed trackers are not worth the bother. Well-designed ones definitely are.

    B) Pay cash for the system, and therefore avoid the rather large amount of bank interest that many people pay. Along with paying cash, build in increments, as you can afford to buy them. No need to go off-grid on day one. Take your time and pay a lot less overall.

    C) Don’t buy enough batteries to go days at a time without sun, but only enough to go overnight. In a pinch, a few days a year, a small generator is expensive per kWh, but still relatively cheap on an annual basis. After a few years you will have enough hard data to know the most cost-effective size for the battery bank – and the batteries will probably be cheaper as well. So, another reason to build incrementally.

    D) Cut the load that must be met by aggressively getting rid of any inefficiencies in the building being served. This is really step one, for anyone adopting solar PV, in any situation.

    Given all this, you might find that storage, even at today’s prices is feasible, and without much increasing the cost of the system as a whole. It’s just a matter of playing every possible angle as aggressively as possible.

  4. Ronald Brakels 6 years ago

    Private money will only buy the assets if they are legally permitted to turn the thumbscrews on consumers. Any government that allows its people to be thumbscrewed its doing the exact opposite of what it is paid to do.

  5. Alan Baird 6 years ago

    Selling the grid may be a good move if the asset will end up losing value. There is one problem with this scenario: if grid investors behave as they normally do ie. as much as neo-cons like to trumpet the praises of hairy-chested “risk-taking investors”, in reality, owners of corporations HATE risks and will moan and groan if people do the logical thing and vote with their feet, departing from the grid. Then you’ll see govts, Labor or Liberal, propping up the privately-owned grid with penalties and increases in rates, something like Medibank “opt out if you’re game” rules. However, the idea of freedom from govt AND corporations does have a certain appeal.

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