L.E.K. Quarterly Energy Highlights

Issue 2, 2024

Welcome to our latest energy sector newsletter. This newsletter supports energy sector decision-makers locally and globally with insights drawn from recent work by L.E.K.'s Energy Practice. As an advisory firm that works across the energy value chain, we are excited to share insights and opportunities to support those navigating the energy transition and fostering sustainable practices.

The Time is Now: leveraging distribution networks and consumer energy resources to achieve Australia’s decarbonisation targets

Australia’s 2030 targets to decarbonise its electricity sector are becoming increasingly challenging to achieve. To retain a hope of an orderly transition and deliver for energy consumers, Australia’s electricity sector needs to be pulling every lever at its disposal.

Despite this need to pull every lever, L.E.K.’s analysis shows that the existing plans that are guiding the electricity sector through the energy transition have under-estimated the potential role for energy resources connected to electricity distribution networks (including Consumer Energy Resources, “CER”). There is latent capacity for distribution connected assets and the supporting industries to play a more significant role.

In partnership with Energy Networks Australia (ENA), L.E.K. has worked with each of the Australian Distribution Networks to model an ‘All Levers Pulled’ scenario, which?maximises the?use of the distribution grid and shows that going after these ‘levers’?can deliver $7 billion of annual benefits to consumers by 2030 through distribution-connected resources playing a more significant role in the energy transition. This would allow the energy system to still deliver the consumer cost benefits and emissions reductions that are built into the current energy transition plans in the event that the build of large-scale generation is prolonged.

L.E.K. and the ENA have published a joint report, The Time is Now, which lays out the analysis to support this outcome and provides case studies to demonstrate that these changes are achievable today.

The report also describes a series of pragmatic, near term actions that can be taken by the electricity industry, and by governments, policymakers, and regulators, to unlock this opportunity in the near term and set our energy system on the path to an optimised result by 2030.

You can find more information on the report and download a copy, here.

The rise of battery storage capacity in Australia

Battery storage has historically not played a significant role in the NEM, but this is expected to change rapidly over the next decade. Total storage capacity is expected to increase from around 1GW in 2020 to more than 36GW by 2035, with large increases in both utility-scale storage and distributed storage (consumer energy resources).

The rise of storage, both in the NEM and around the world, is driven by the operational need to ‘firm’ renewable generation, increasingly attractive conditions for trading, and declining battery costs.

Since 2015, the cost of the average lithium battery price has declined with a -13% CAGR driven by advancements in technology, economies of scale, and increased competition among battery original equipment manufacturers (OEMs).

New global production facilities have also expanded production capacity faster than the rate of demand growth, creating short-term opportunities to secure batteries at favourable prices. Price declines are expected to continue, particularly in the large-scale market as OEMs such as Telsa have increasingly been diverting resources into ramping up large-scale battery production.

Read our full article to understand the rapid growth of battery storage capacity in Australia.

A surge in private equity investments in sustainability assets

Recent years have seen a surge in global investments in climate solutions. From 2018 to 2023, global climate funds’ assets under management grew at a CAGR of c.71%. European markets accounted for c.84% of climate assets under management, reflecting significant investments driven by energy security concerns from Russian gas and the war in Ukraine.

KKR, TPG, Bain Capital, General Atlantic and Brookfield have all closed funds within the last three years with values ranging from $0.8-$10b USD. The theme attracting the most investment was efficient and decarbonised use of energy, which accounted for c.54% of climate venture and growth investments. Other themes attracting substantial investment include the decarbonisation of energy supply (c. 20%), sustainable food production (c.18%), and other decarbonisation services (c. 7%).

This trend reflects a growing recognition of the financial and environmental benefits of investing in sustainability assets, as well as heightened ESG concerns, regulatory pressures, and technological advancements, which are driving expansion of the green economy.

Read more to explore the key themes driving this growth.

Riverside receives the "Large Cap Investment of the Year" for Energy Exemplar

The Riverside Company invested in Energy Exemplar (EE) in 2017, which was then a small Adelaide-based software business offering power market simulation software to utilities. Among its software products is the PLEXOS suite of simulation and modelling software that has become the industry standard for modelling energy markets.

Over the next 7 years, EE scaled into 79 countries with major offices in India, United Kingdom, North America and Singapore. EE grew at 30% CAGR since 2018 and serves over 500 utilities and power companies and consultants.

Riverside, who was supported by L.E.K. with vendor commercial due diligence, announced its exit to private equity funds affiliated with Blackstone and Vista Equity Partners in 2024.

Source: Riverside, L.E.K.

Creating value through sustainability

L.E.K. Consulting’s Global Consumer Sustainability survey of consumer attitudes and behaviours shines a clear spotlight on the growing mainstream importance of sustainability. The 2024 survey covered 10 countries, and the evidence gathered highlights opportunities for companies and brands to drive value creation through sustainability.

You can read more about the survey here.

Latest Global Insights

What else do you want to see?

We hope you enjoy these insights.?If you’d like to discuss further, please reach out. If there are other topics that you’d like to see us feature, please let us know.

L.E.K. Consulting's Australia / New Zealand Energy Practice Leadership

Tim McGrath, Partner and Energy Practice Leader (Melbourne)

Jeff Forrest, Partner (Sydney)

Lucy Carter, Partner (Melbourne)