Decoding the New Technology Roadmap - A “how to” for the energy transition?
Much has been written about the Federal Government’s Technology Investment Roadmap Discussion Paper released earlier this month. Given the number of new energy releases flooding the market from regulatory agencies as the quickening approaches, it made sense to break this one down, provide some greater context around some of the issues, and discuss some of the choices facing Government and industry as they seek to enable the energy transition.
First, the architecture. The Roadmap Discussion Paper has been issued by the Federal Minister for Energy and Emissions Reduction, aided by a Ministerial Reference Panel comprising Drew Clarke, Grant King, Shemara Wikramanayake, Alison Watkins, Ben Wilson and Jo Evans. It is public, and submissions are due in late June. It has eight stages: setting a vision; surveying new technologies; reviewing Australia’s technological needs; identifying priority technologies; identifying deployment pathways and stretch targets for deployment; balancing investment across the portfolio; implementing investments and assessment of impact. Stages 4 and 5 are profiled and discussed further below.
Officially, the Roadmap links in with associated technology and energy transition strategies including the National Electric Vehicle Strategy; the ARENA Bioenergy Roadmap; the National Hydrogen Strategy; the Critical Minerals Strategy; the National Waste Policy and the AEMO Integrated System Plan. Unofficially, it sends an extremely strong signal on the Government’s viewpoint on the energy transition, impacting the Energy Supply Board’s Post 2025 program, the AER’s viewpoints on prudency and efficiency of IT investments, the AEMC’s prioritisation of Rule Changes, AEMO’s decisions on system and market architecture, and potentially technology projects all over South East Asia. It is, without gilding the lilly, an extremely important light on the hill for the energy sector.
One of the guiding principles of the prioritisation exercise by the Minister has been to target Government assistance at areas of market failure, and there are none so greater as in the area of new energy investment. Some $700M of funds have been raised in the last few years in series A and B investments targeting disruption in energy markets and new enabling technologies. That there have been no unicorns is reflective of the challenges in value stacking the impacts these technologies can have in the sector. In short, the time for the roadmap and the influence it must have on the many regulatory, policy and investment decisions being taken nationally has come.
Let us profile and take further the opportunities presented by two interlinked technologies which I believe should be prioritised together in the Government’s first Low Emissions Technology Statement due in Q3; virtual power plants (VPPs) and electric vehicles (EVs).
Decoding Virtual Power Plants (Solar, Battery and Integration Systems)
There are two technological tipping points that are necessary to understand to fully embrace the opportunity that VPPs and EVs provide.
The first is that by the end of next year in Australia, households generating their own power using VPPs will face the same longterm energy costs as those households using energy from the grid. This is a critically important milestone because it provides the cross over point at which a household can make and store their own power, and feed that power back into the grid for others to use or buy. The fact that households may do this is critical for (a) AEMO as system operator because they could, for the first time, have the ability to access that power to stabilise the system; (b) network companies, which could, for the first time have the ability to access that power to stabilise the network; and (c) retail companies and aggregators which could, for the first time, have the ability to collectively sell that power into the system as a back-up generator (hence the name Virtual Power Plant). Such an ability could, if the regulatory system is designed correctly, provide greater system security and capacity response for AEMO, allow network companies to avoid the billions of dollars expended each year of managing peak demand, and allow retailers/aggregators to enable consumers to trade energy to and from the grid. There are plenty of risks to be mitigated to make this happen:
- The three beneficiaries (AEMO, network companies and retailers/customers) need a merit order of access to the systems, and an economic model designed to incentivise investment;
- Careful analysis of the optimal technological blueprint must occur to minimise the increased risk of cyber security issues from a multi-entry and exit point system;
- The AER and AEMO must unify to establish the design protocols for a prudent delivery of such a system.
These are not insubstantial issues and the tipping point is fast approaching. Inclusion of VPPs as on the Government’s priority technologies for investment will send a signal to all of these parties to accelerate discussions, and open the door to considering whether subsidy programs such as for VPPs in new homes to encourage accelerated rollout would be worthwhile.
Decoding Electric Vehicles
The second tipping point is in 2024, when the long-term energy cost of combustion vehicles crosses over EVs, and S curve adoption begins. This is a critically important point for two reasons:
- Firstly, the tipping point will trigger an acceleration in the market for VPPs due to the cost reductions from mass production of batteries. In addition, it will add EV battery capacity available for export back into the system and grid ; and
- Secondly, it triggers the need for investment in EV charging stations in urban and rural parts of Australia to cater for the fact that 40% of the vehicles on the road in Australia in 2040 will be EVs.
On the first issue, the latest batteries being fitted to Formula E racing vehicles have the capacity to power a household for three days, a game changer in technology and a clear warning to the policy and regulatory system that technology and cost curves wait for no-one. It is entirely conceivable that households will charge at the local shopping centre, come home and both export and use power from the EV rather than take supply from the grid within ten years. The implications for network companies in this scenario are profound and are already starting to be addressed.
Stromnetz Hamburg, a German DSO, for example, is installing 30 control units to monitor private EV-charging loads. The solution (costing ~€2m) is expected to help the grid operator anticipate congestion issues and appropriately plan the network. UKPN, a distribution network operator in the United Kingdom, is undertaking a project to test (and enable) auto-reconfiguration of networks for transferring electricity demand from heavily loaded substations to spare capacity substations, in real-time, helping accommodate increased EV load. In Australia, only ARENA’s Distributed Energy Integration Program (DEIP), is seriously considering the issues associated with EV grid integration. We are lagging.
On the second issue, the reality is that EVs and combustion engines will share the road within ten years, and in the absence of supportive policy and regulatory arrangements, Australia will be left behind in a changing world and without the technology needed for the smart cities of tomorrow. Over the weekend, Germany announced a Euro 130Bn stimulus package targeted solely at EVs.
How many EVs, how many charging stations, and when do we need them are the exam questions: at a minimum, adopting a mass usage model of 120 cars for each station requires around $6Bn in investment. Adopting the current ratio in California of 25:1 increases this to $29Bn in new investment. Let’s assume the mid-point of $17Bn. As to when, by 2030 we can expect petrol stations to become harder to find and travel distances to refuel to rise; the injection of adrenalin that S curve adoption requires. We have little time to waste clearing the blockages in the system to enable this investment to occur.
Overall, the range of technologies profiled by the Roadmap is broad, and the challenges being set by the Minister are correct. The question of stretch targets is an important one. Can we see a future where VPPs are installed in every new urban household and the value is shared between AEMO, networks and aggregators/consumers, new EV purchases are subsidised, and there are EV charging stations in every suburb? Whether we achieve our potential as a nation is in our hands. The roadmap to the energy transition starts now.
Do you agree? Leave your views and let’s continue the discussion.
Managing Director | Energy Strategy & Advisory
4 年Thanks Matt Rennie , great read yet again. I agree with comments above, and i am a big believer in the “rise of the prosumer” and a decentralised future. And i agree with Peter Newland on price signalling... but if we pull the trigger on incentivising too early, we will have chaos! As an industry, we are just not prepared for this from a planning, policy, market/system and regulatory standpoint. I fear history will repeat (utility scale VRE / MLFs, etc) except this time at the grid edge and vastly more complex scale. And, the poor consumer will pay for us to react, again. Solution? Unified, visionary and courageous leadership from our regulator, rule maker, SO/MO, Utilities, and ourselves. Lets get on the front foot for a change and have Australia ???? lead in this! Its an OPPORTUNITY, don’t let it be a risk!
Director at Peloton Corporate | Senior Investment Adviser at Climate Capital
4 年As clear as always Matt. Australia has a long way to go, especially when we are still dealing with over a decade of policy dysfunction & demonising technology that requires a bureaucratically-driven roadmap, instead of being well down the path of dealing with the future system.
Future Energy Systems at Australian Energy Market Operator (AEMO)
4 年Thanks Matt Rennie. I think our key focus now should be having the pieces in place at the device level to enable remote interaction, communication down the track (via the households own HEMS, distribution network DERMS, an aggregator ... Whatever it might be) if that turns out to be necessary and the best option from an integrated system cost point of view. That way, we might have some portion of future fleet able to be harnessed easily. I think there's an acceptance now that active management of both the DER and the distribution network will be the most efficient means of integrating these devices at scale - minimising costs for those with and without DER. All of course incentivised by the right pricing. Both these technical and market enablers will be important. History with other mass uptakes of largely passive stuff - air conditioners, rooftop PV - gives a good sense of the counterfactual.
Strategy Consultant
4 年It has to be simple, set and forget and valuable for customers.
Strategy Consultant
4 年Very interesting but one key angle always needs to be looked at and that is why would a customer sign up to this, what's in it for them. To achieve the volumes of customer DER required to make a difference then the right price signals need to be setup, otherwise customers will always just do what is right for them, which to me means they will buy solar and battery capacity to meet their needs. Many countries setup price signals that address a whole of system need as opposed to competing price signals from networks retailers and market operators. Its actually funny when you look back at hot water load control, as it was there for the whole system, Gen, TX and Dx, with appropriate price difference to the normal tariff. Also I often wondered why price signals are not used to encourage more load to keep the duck curve at bay.