Why Telstra could make $20 billion play in Australia energy markets

Will Australia’s telecommunications giant Telstra finally make good on a plan to challenge Australia’s incumbent energy utilities and launch a major charge into the energy market?

It’s an idea that has been talked about ever since analysts and consultants first thought of how telcos could bring about a “Kodak” moment for energy utilities as new technologies such as rooftop solar and distributed battery storage upended decades-old business models.

And the idea seemed to have greater currency when Telstra, the dominant telco in Australia, snapped up Ben Burge, the feisty former head of Powershop who was hired in early 2016 to launch a team that would look at offering home energy services to millions of consumers.

It’s been just over two years since the Burge hiring was announced – and apart from some important and ground-breaking contracts for big solar and wind farms, and a plan to offer its considerable battery storage for use in the grid – the retail push has since been downplayed.

You could put the blame on the complexity – business, economic, technical and cultural – in encouraging an industry monolith to turn around and challenge other giants in a new market.

But analysts say it still makes sense, and they suggest that Telstra could be well advised to invest up to $20 billion in Australia’s energy market, in what would be the most dramatic intervention in the top end of the industry for decades.

In a new report, telco and energy market analysts at Morgan Stanley look at Telstra’s likely choices, and conclude that combining telecommunications and energy retailing – as some smaller players have already done – could be much more attractive than other options.

Morgan Stanley admits that its interest was piqued by the series of smaller-scale announcements already undertaken by Telstra. But all were relatively significant.

The first was contracting to take the output from the new 68MW Emerald solar farm in Queensland, the first major corporate power purchase agreement signed by a big Australian company (although zinc refiner Sun Metals is building its own 116MW solar farm).

The second came in December when Telstra led a consortium that agreed to buy the output of the 226MW first stage of the Murra Warra Wind Farm near Horsham in western Victoria, which has a total permitted capacity of 429MW.

Telstra has said that this is just the start of its solar and wind farm plans.

And the third was an indication that Telstra was looking to use its near 1GW of battery storage capacity to offer emergency back-up for the grid, ensuring it could meet critical peaks in the middle of the heatwaves.

Telstra is one of the country’s biggest energy users – accounting for around 1 per cent of total consumption. It is one thing to look after its own energy needs, quite another to supply energy to others. But the consortium it put together for Murra Warra suggests such conversations are happening.

It notes that while Testra could be outmuscled by the likes of Facebook, Google and Amazon on a global scale, it has considerable weight in the domestic economy.

And energy retailing is a 2.5 times bigger market in Australia than the telco market – notwithstanding its regulatory and policy risks and uncertainties. (See table above).