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Plenary session #4
Renewable energy technologies in Asia –
Disruption
5th IAEE Conference, Perth
16 February 2016
Page 2
Matt Rennie EY Global Transactions Leader, Power and Utilities
EY Leader, Australian Power and Utilities
Page 4
The commodification of distributed solar PV is well
underway…
37%: decline in global average PV
installation cost since 2011
53%: decline in Asia Pac average PV
installation cost since 2011
14%: Expected decline in Asia Pac
average PV installation cost over next 5 years
4.42
2.93
2.42
2.73
2.26
1.89
4.35
2.03
1.75
4.00
2.51
2.05
-
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Average Solar PV Installed Price (US$/W)
North America Europe
Asia Pacific Global Blended
Source: Navigant Research
Page 5
…with a significant decrease in the cost of solar PV
Installation Year Module Price
Index 2014$/W
1998 $5.16
1999 $4.69
2000 $3.78
2001 $3.54
2002 $3.62
2003 $3.41
2004 $3.63
2005 $3.67
2006 $3.98
2007 $4.00
2008 $3.57
2009 $2.41
2010 $1.90
2011 $1.31
2012 $0.86
2013 $0.82
2014 $0.78
2015 $0.75
Source: Solar Energy Industries Association, US
► US solar PV module unit
price
► Global blended average price of installed solar PV
Source: Electric Power Research Institute
Source: LBNL Tracking the Sun index
► US blended average price of
installed solar PV
Page 6
… and continued growth in installations expected globally
► Asia Pacific has become the market
leader for installed distributed solar
PV followed closely by Europe
► Asia Pacific is expected to more
than double its annual installations
of distributed solar PV between
2013 and 2018
Annual installed distributed solar PV capacity
by region, 2012–2018
Source: Navigant Research
5.4 10.6 11.7 13.5 16.0 18.8
22.4 10.5
9.1 11.3
12.7
15.6
18.7
22.9
1.9
2.6 3.1
2.7
2.8
3.4
4.0
1.5
2.1
2.3 2.0
2.8
3.9
5.5
0
10
20
30
40
50
60
2012 2013 2014 2015 2016 2017 2018(G
W)
Asia Pacific Europe North America Rest of World
Page 7
Improving economics for advanced batteries will accelerate
energy storage applications …
Installed energy storage cost for
renewable integration, by technology
3.20
1.98
3.25
1.82
3.52
1.87
0.00
1.00
2.00
3.00
4.00
5.00
2013 2015 2017 2019 2021 2023
Th
ou
sa
nd
s (
$/k
W)
Advanced lead-acid Advanced lithium ion Advanced flow battery
Source: Navigant Research
Projected annual sales of storage
technologies (US$b)
1.9 5.3 7.5
10.4 2.7
5.9
8.9
10.5
2.7
6.7
8.8
9.8
0.7
2.2
3.4
4.4
2015 2020 2025 2030
China and Japan North America
Europe Rest of the world
8.1
20.1
28.6
35.2
Source: BCG perspective
Page 8
… which will magnify the value of solar PV in terms of
reliability and resilience …
► When coupled with storage, the value of solar energy is magnified: It can be stored and then discharged during time periods most
advantageous to asset owner.
► These same storage systems can also offer resiliency benefits when the larger grid goes down.
Source: RMI
► In the top chart; only 50% of PV
energy is consumed on site.
► In the bottom chart, 90% of PV
energy is consumed on site
► loads are orchestrated to
operate during hours of PV
production.
► batteries are used to
consume even more of that
PV when the sun isn't shining.
Peak solar power
Page 9
… making going ‘off grid’ an increasingly viable option
► By 2018 the costs of off-grid energy supply from solar PV plus
storage will become cost-competitive with Australian
households that stay connected to the grid.
► By 2020, other mature markets including New York and Los
Angeles are expected to follow.**
► Batteries will lead to a further decline in grid demand and
make disconnection from the grid feasible for many users.
► Step change developments in technology (such as aluminium
batteries) could accelerate this trend.
► Regulators will push the adoption of storage to curb network
operators spending excess capital on grid infrastructure.
► Removal of feed-in tariffs will further incentivise customers to
go off-grid.
Australia, cost of off-grid energy supply
compared to grid ($kWh)*
Source: UBS
* Assumes off-grid capex cost falls 5% p.a.
** Source: Rocky Mountain Institute
Page 10
Energy storage is likely to play a bigger role in the utility of the future, but in what form?
► Will it be rolled out as a merchant resource, helping residential consumers
save versus retail tariffs?
► Will it be larger in scale, used to arbitrage wholesale prices?
► Or, could it be integrated into the utility grid system to allow for improved
resilience and security of supply?
Page 12
Traditional suppliers are responding by investing in rooftop solar PV …
“There is a lot of talk now in the industry about
viewing consumers who want access to distributed
energy resources or a rooftop solar power system
as lost market share. I don’t see it that way. We
aren’t losing customers, we’re just shifting how we
need to compete for them and how we serve them:
they’re the future clients of our distributed power
business.”
– AGL Energy CEO, Andy Vesey
► In February 2015, AGL Energy became the first of the major electricity retailers to formally launch a solar power purchase agreement
(PPA) plan, branded the Solar Smart Plan, which is being managed by a new division, New Energy.
► Origin Energy has launched a PPA program where it will install and maintain solar systems on residential and small business roofs
in Sydney, Adelaide, Brisbane and the Gold Coast.
► Ergon Energy recently contracted with SunPower to offer high efficiency solar PV systems with energy storage technology from
Sunverge Energy in a pilot project in Queensland.
“Our view of electricity markets has changed a little
bit. We are moving very much to the evolution of
solar products, and PPA (power purchase
agreement) products.”
– Origin Energy Managing Director, Grant King
Page 13
… and partnering with global battery storage players rather than trying to beat them
► Australian utilities Red Energy, Ergon Energy and ActewAGL are teaming up with Japan's Panasonic to trial the deployment of
household battery storage.
► In 2015, AGL became the first retailer to announce that it would be introducing a battery storage device into the Australian market.
► Battery storage companies like Tesla and Panasonic are increasingly targeting the Australian distributed energy market to capitalise
on the high penetration of household solar capacity and teaming up with major utilities to deploy its battery technology - rather than
selling directly to households.
“New emerging technologies are offering
exciting opportunities for customers and
energy companies. We want to be part of
this future and help our customers with
ways to control and manage their energy.”
– ActewAGL CEO, Michael Costello “Changing social trends and technological advances,
particularly cost reductions in solar PV systems and now
battery energy storage systems, will dramatically change
– even revolutionise – the way electricity is supplied to
and used by our customers.”
– Ergon Manager Emerging Markets, Glenn Walden
Page 14
What can I learn from competitors and early adopters?
Utilities need to ask fundamental questions in response to increasing stakeholder pressure, …
How do I reorientate and differentiate my business around solar PV, storage
and empowered customers?
What drives shareholder value in this brave new world?
How can I innovate and create a unique experience within the existing
regulatory framework?
What culture and capabilities do I need to enable this unique experience?
How can I manage the trade-offs between 1) customer experience, 2) cost to
service 3) business risk?
Utilities are under pressure from all stakeholders to evolve - incremental change will not be enough
Shareholders Regulators
Competitors
Customers
Utilities
Page 15
… they will require sophisticated approaches to manage decision-making under uncertainty
Unwind, divest centralized production assets
Invest behind the meter: smart thermostats, demand response, energy efficiency, EVs and charging points
Lobby for weaker policy and regulatory support for rooftop solar and storage
Raise barriers to entry for integrating rooftop solar and storage technologies
Navigate the death spiral
Adapt to decentralized
model?
Defend centralized
model?
Business as usual?
Exit?
Generators
Networks
Retailers
Generators
Networks
Retailers
Generators
Networks
Retailers
Generators
Networks
Retailers
Unwind, divest regulated network assets
Reconfigure customer service operations
Aggressive price war to abate rooftop solar uptake
Higher rates over shrinking customer base
Emergence of owners and operators of upstream assets serving mission critical infrastructure and providing backup to new decentralized energy supply model
Traditional retailers become increasingly marginalized
Contest new industries/markets
Optimize generation mix and divest coal-fired generation
Modernize grid and facilitate integration of solar plus storage
Invest in distributed solar and storage
Acquire or partner in solar PV and storage
Opportunity to develop "Aggregator" or "Smart Consumer" business models to offer integrated distributed energy design, financing, energy supply, and energy services.
Aggressively expand utility-scale renewables Emergence of large scale low-cost centralized energy supply model with low incentives to go off-grid