Sale of NSW energy networks: Is this a lemon?

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.

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Whilst this is commendable, there is a question over the value of a company which is providing an outdated service and has a substantial ongoing maintenance requirement and associated cost.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