E=mc2 is probably one of the most famous scientific equations which represents mass energy equivalence and allows you to calculate equivalent energy. Unfortunately, energy companies have been using a slight variation of the famed Einstein formula namely
Where C could represent Carbon or Coal.
Fossil fuels like coal, oil and natural gas supply 80 percent of the world’s energy to warm homes, charge devices and power transportation. They are also the primary human source of greenhouse gas emissions.
The energy industry is also one of the largest carbon emitters in Australia.
Australia has one of the largest dependencies on fossil fuels with almost 85% of its energy generation coming from fossil fuels and almost 70% from Coal. The following is an full year energy average of the fuel mix used for energy production till July 2020. 
Australia has been in the top 3 consistently for per capita carbon emissions and the energy industry is the leading producer of carbon emissions. The energy industry accounts for almost 50-60% of the overall emissions with electricity generation, NEM emissions, stationary energy. A significant driver for increase has been the increased production and export of LNG in Australia and continued coal exports.
The world of renewables and alternative fuels are slowly starting to break through. Solar energy and Wind farms are now providing significant energy for states like South Australia and Tasmania. The biggest challenge of renewables like solar, wind and eve hydro are that they are highly dependent on the elements of nature.
Solar energy now costs about $45 per MWh while wind costs about the same as coal per MWh at $50. The renewable energy sector is now supplying the National Energy Market with 10,000 MWh of power, according to the latest statistics by the Energy Council.
Security of supply cannot yet be guaranteed, renewable energy is dispatched into the grid first, because output cannot be controlled. This means that while that while renewables have next to zero cost when generating electricity, it is sold at the spot price of the moment.
Since, using them to provide guaranteed demand is generally difficult, these will still play a supplementary role (significant one though) to fossil fuels in the short to medium term. The most significant parts of renewable energy investment are firming up energy supply particularly around battery storage and pumped hydro technologies.
There is also the small matter of our commitment to the Paris climate agreement, where our obligations include an overall reduction of 26-28% by 2030.
It is highly unlikely that a new coal-based power plant will ever be built in Australia. However, Australia does have a significant capital investment in coal-based power plants. A lot of coal plants are only coming up for decommissioning over the next 15-20 years.
Government and Regulators
In the last ten years household electricity costs rose by 56% in real terms. Energy spot prices moved from record lows in 2012 to record highs in 2017. There are also reliability concerns of the overall ecosystem. Overall, the market has struggled to meet the expectations of consumers and the community. Hence the primary challenge for governments and regulators is the following
- Maintain a reliable supply of power.
- Reduce the overall cost to consumers of electricity prices.
- Reduce the carbon emissions from this sector to help meet the committed targets of the Paris climate agreement.
Unfortunately for the policy makers all the above needs to happen at the same time.
The easiest approach for most governments which has been instituted to reduce carbon emissions is to wean off coal and shift towards gas-based power plants. The recent draft report on technology and investment roadmap for low emission technologies reinforces the view of moving towards gas-based energy generation as it is easily available and doesn’t increase energy costs significantly. UK had a fall of about 38% in carbon emissions by moving to gas after the Climate Change Act of 2008.
The other area of government policy is to encourage investments in renewable energy sources with firm dispatch capability. Hence the priority of investments will be in areas of pumped hydro, batteries and fast start gas plants.
Tesla and Neon energy’s investment in the largescale battery storage is already the largest in the world generating up to 150 MW. This also has had a significant impact on FCAS prices in the energy markets.
Energy grids were primarily established to transport energy in typically one direction (from generator to supplier). The stability of the grid was also relatively easier to maintain as it was constrained to a finite set of generators. However, with the introduction of solar panels, the distributed nature of energy generation has really added to the complexity. The significant uptake in solar panels and other alternative resources have significantly changed the inherent supply model. This will be even more exacerbated if electric vehicles and retail batteries become mainstream. There is also the additional complexity that a lot of these sources of supply are nature dependent and hence cannot currently being relied upon to maintain the stability of the grid (Frequency and Voltage).
Grid congestion is now becoming a major problem. Marginal Loss Factors (MLF) which reflects the difference between the amount of electricity produced by a generator, and how much they are credited for and reaches a customer. MLF’s for renewables have been slowly coming down, which is diminishing the rate of return for renewable investments for generators. This is for sure impacting the overall investment considerations for new players wanting to invest in renewable generation projects.
Grid operators are also struggling with the avalanche of solar feed in into the grid. There is now a growing support for adding a network fee for customers choosing to feedback surplus electricity back into the grid. This will also eventually impact the customers ROI on solar panels and batteries.
Distributed Energy and Energy Producers
Energy generators are moving towards adding significant renewable generation capacity in their generation portfolio capacity. There are also financial intervention as a lot of super-annuation funds are looking to remove companies that are seen to be polluters from their holding portfolio. This is also fast tracking the need for energy producers to move towards a more balanced fuel mix for their generation portfolio.
However, there is a significant challenge where distributed energy resources is disrupting the typical utility model. This is because as more solar panels, batteries and electric vehicles come on to the grid, the energy consumer becomes the producer and the energy company becomes the consumer. This will eventually disrupt the entire energy value chain and hence disrupt the current business models as well.
The consumers are the most interesting dynamic entity in the whole ecosystem. There is a growing momentum in acting towards climate change and reducing carbon emissions. However, this is still a paradox remains at the heart of green and sustainable business: Few consumers who report positive attitudes toward eco-friendly products and services follow through with their wallets. This “intention to action” gap is an interesting are of behaviour analysis. The “action” is far higher in areas like putting solar panels on rooftops as it provides a financial benefit in reducing energy bills. However, something like a carbon tax is a lot less appetising for consumers and almost every time is dependent on “How much” in terms of financial implications.
Hence the consumer tipping point for electric vehicles, battery storage will be when there is a perceived parity or benefit in terms of costs, convenience and features as these are considered large purchases.
This “intention to action” gap is decreasing with younger generations with customers now far more receptive to pay an increased amount towards green and sustainable products.
Technology Focus Areas
The following technologies will potentially have a significant impact in the energy utilities space
Battery storage technology
Battery technology is one of the most researched invested technology areas. This is because fast charging and storage is a key requirement for everything from mobile phones to drones and electric vehicles. However, the significant area of storage research is large scale battery storage. The other aspect of battery storage technology that’s been heavily researched is low cost, long lasting form of energy storage using cheap energy dense materials. Battery storage technology will continue to evolve just like computing power did (Moore’s law) in its ability to store larger amounts of energy at a faster rate.
Carbon Capture Use and Storage (CCUS)
Carbon capture, use and storage (CCUS) refer to an integrated suite of technologies that has a proven capture rate of the CO2 produced from the use of fossil fuels in electricity generation and industrial processes, preventing the CO2 from entering the atmosphere. There are typically 3 areas in CCUS.
- Carbon capture typically looks at capturing carbon emissions pre and post fuel combustion.
- Long Distance Transportation and Storage of carbon
- Reusing the stored carbon in other processes or conversion into alternate material like biomass.
This is an area typically strongly advocated by fossil fuel producers (Coal) as an alternate mechanism towards prolonging coal powered plants.
The carbon capture, it’s uses, and storage are another significant area of research, with a few governments also providing tax incentives for permanent carbon capture and storage. This area is getting significant funding and the number of global projects has gone up significantly in the last 5 years.
Natural gas has been typically the primary source of hydrogen, and hence ironically hydrogen production contributes to increasing carbon emissions. However, reducing cost of renewables has meant that there is growing interest in the production and use of electrolytic hydrogen. Hydrogen is also used in enhancing energy storage and improving transport efficiency of energy. There is also an area of research focussed on hydrogen fuelled cells.
Low cost sustainable transport
Transport is also one of the largest producers of carbon emissions due to the use of fossil fuels. Hence, there is a constant focus on looking at alternatives for sustainable low-cost transport. This area focusses are an interesting intersection of the following areas
- Sustainable alternative fuels/fuel storage making it on par with the current vehicles.
- Low cost and making it mass market.
- Intelligent and autonomous transport.
This is dependent on all the other areas of research as it needs hydrogen fuel cells, electric vehicles, battery technology etc.
Additionally, it is also spawning new business models like Charging Point or EV subscriptions, disrupting the current energy value chain and introducing completely new players like Tesla into the ecosystem
Over the next few blogs, we will look at some of these areas in a bit more detail to get more insights into the future of energy.
- IEA, Global early-stage venture capital investment in energy technology companies, 2010-2019, IEA, Paris https://www.iea.org/data-and-statistics/charts/global-early-stage-venture-capital-investment-in-energy-technology-companies-2010-2019