Good morning to you all, from wherever you are attending, and thank you to the Australian Financial Review and Deloitte for hosting this important conference.
Standing here in central Sydney, I acknowledge the Gadigal people of the Eora nation, the traditional owners and custodians of the land on which we’re meeting, and I pay my respects to their elders past, present and emerging.
I’m wondering how everyone is feeling after the opening day of the conference yesterday? Are you in the optimistic or pessimistic side of the world? For my part, I continue to feel a genuine sense of optimism as we convene this year.
That’s not to downplay in any way the very real issues we have been discussing affecting energy users and providers right now.
The pandemic, climate change, ageing generators, Russia’s invasion of Ukraine … all have reshaped the global energy landscape and nations are grappling with the consequences.
In July at the Sydney Energy Forum, the head of the International Energy Agency described this as the first truly global energy crisis. Where every traditional fuel source is impacted – coal, gas, oil – and everyone is feeling the effects.
And our East Coast energy crisis continues to hit household and business power bills. Affordability is a critical, ongoing concern.
So in this context, why am I optimistic?
To begin: here in Australia, for the first time I can remember, we have a broad consensus about the path to net zero.
And consensus is important because the future is coming, we have to face it together – and we are.
There’s a clear commitment to 43% emissions reduction by 2030 – and with the early closure of Loy Yang A not long after that, you could say the energy transition in Australia has begun in earnest.
We also keep edging closer to international consensus in many ways. Despite naming this a global energy crisis, the IEA is confident that clean energy is key to resolving the situation. Taking it to another level, the US Energy Secretary recently called clean energy a ‘global peace plan’. No one, she said, has ever been held hostage for access to the sun or wind.
My second reason for optimism is, despite the magnitude of what’s ahead of us, the energy sector is not only facing the decarbonising future, we are absolutely making progress to be ready for it.
At the AEMC we’re working through the challenges systematically.
My focus today is on household consumers, and our work for them:
- Last year’s reforms included better NEM integration for all kinds of batteries and two-way energy storage - including those we have not yet invented. We also delivered integration reforms for CER, with a two-way grid where distribution networks must accept exports into the system.
- This year we’ll complete a major review on smart meters – a foundational reform to connect consumers’ behaviour to their energy usage and generation.
- And, next year we’ll finish the review of existing technical standards affecting hardware, connectivity, and consumer protections for more than 3 million rooftop generators. We’ll also look at Flexible Trading Arrangements, opening the market for third-party businesses to help consumers manage the energy they use and create.
The fact is that net zero is going to fundamentally change our lives, in ways we haven’t yet imagined.
But many of those enormous changes will be made in very small ways by non-experts in homes, small businesses, and on the road.
We – as consumers – drove the early years of Australia’s energy transition with our enthusiastic adoption of rooftop solar, and it will be consumers who – literally – bring the transition home by managing energy use and creation in the future.
And that brings me to my third reason for optimism – I believe consumers are up to the task of transformation that weighs on our next three decades.
And the reason I believe that is: the Lesson of the Mobile Phone.
Everyone knows about the house bricks that were the first mobile phones in the 1990s. Back then, they were just another way to make a phone call.
We couldn’t imagine how smart phones would transform our lives – They’ve changed how we work, shop, date, and file documents; how we manage money, fitness, schedules, and memories; how we stay informed, in touch and entertained.
They rendered so many household staples obsolete – the camera, the street directory, photo albums, record collections, and answering machines, to name a few.
Something devised simply to make phone calls on the go has become a tool that manages almost every facet of our lives – and we can’t live without it.
I bet every one of you could reach for your smart phone right now!
And the change happened because consumers took to apps like ducks to water. We liked making calls from anywhere, sure, but it was when apps offered the combination of convenience and control in one device that smart phones really hit their straps.
We want to make it possible for consumers to take the same role in the electrification process.
Now you might think, cynically, of the years we’ve spent urging consumers to engage with detailed bills, or visit comparison websites.
Alternatively, you may be dealing with complaints about falling feed-in tariffs or rising bills, and wondering how much more engaged consumers can possibly be!
But. These are energy’s ‘house brick years’ in mobile phone terms. Solar panels and even electric cars are just a piece of equipment, doing a single job.
In the same way apps changed our attitude to mobile phones, the electrification of everything will change our household attitude to energy.
And how will that happen?
We heard yesterday that AEMO’s Integrated System Plan’s Step Change scenario forecasts a 9-fold increase in grid-scale wind and solar capacity by 2050, with storage capacity to increase by a factor of 30.
In addition to changing the methods of energy generation, the ISP is looking at a near-doubling in electricity usage by 2050.
The reason is that electrification will be a key enabler for other sectors such as transport and manufacturing to reach their net zero emission objectives. The effect on households will also be transformational.
Within our children’s lifetimes, petrol cars and gas stoves – like answering machines and street directories – will become things of the past.
While some may access renewable gases, many households will shift from multiple fuel sources to one, delivered in a single electricity bill. It’s worth considering the difference that could make in our behaviour.
That consolidated power bill may or may not be larger than current spending – but it will definitely be simpler than juggling two or three different fuel costs. This alone, I suspect, will focus our attention and make us seek more control over our energy.
So… when I talk about ‘empowering consumers’? It’s more than just an energy pun!
Apart from more conscious consumption, a significant aspect of the move to net zero is CER – the growing role of households as power generators and storage services.
Australia’s world-leading rates of rooftop solar adoption drive substantial benefits for the customers who adopt them, as well as for the whole energy system.
Rooftop solar and behind-the-meter storage could potentially drive down demand on the system, even as electrification increases the load.
The ISP notes that consumer systems such as this could account for nearly 20% of total underlying demand and the ESB notes that the more CER we have, the less new capacity the grid needs, with a potential $6bn benefit to Australia.
All of which makes it even more imperative to ensure household consumers can navigate the energy market seamlessly.
Now these things won’t happen overnight - but they will happen! We speak often about social licence these days – because we must transition in a way that works for consumers.
This means addressing barriers that may prevent some consumers accessing the tools of the new energy market, and looking for enablers that work. In recent research by the Energy Security Board we came up with four big consumer barriers.
An overarching barrier is simply lack of interest. Of course, energy is getting a lot of public interest lately, but even bill-shock doesn’t mean we’re all ready to ‘participate’ in the energy transition. Many people just want to drive their car and power their home without much fuss or cost.
However, there are insights into what can interest customers from the way households go about installing solar panels. Reducing costs is certainly an enabler, but so too is tackling climate change and another part was about taking more control.
A second barrier is the way we communicate about electricity. For many consumers, the energy transition – and the role they will play in it – is just a lot to digest.
It’s also the reason we have dropped DER – distributed energy resources – and adopted the ECA’s way of describing these assets – CER or consumer energy resources. It helps keep focus squarely on the customer in all our work.
A third barrier is equity, which manifests in many ways.
- The cost of solar panels, let alone household batteries and EVs, is out of the question for many people.
- As a renter, your access to solar power is dictated by the will of your landlord.
- There can be technical or legal difficulties installing EV chargers in apartment buildings that don’t affect free-standing homes.
- And it can still be a barrier to getting solar panels if you live somewhere with a lot of big trees.
Three million rooftop generators is a lot – but it’s not everyone. We have to make plans that don’t build an even bigger energy division based on wealth and location.
And finally a barrier is trust – the last fortnight has shown us how fast consumer trust can be destroyed… and we know that energy companies already aren’t high on customers’ trust list.
Bringing consumers along on the transition means earning trust and continuing to deserve it.
Now, there’s a perceived tension between introducing innovations and protecting customers … But I think another way to look at this is: customer protections bring trust, and trust is what allows innovation to catch hold.
So – what are market bodies all doing about this?
Well, we at the AEMC along with AER, AEMO and ARENA – your friendly sector alphabet soup – are all working on the jigsaw puzzle, and the ESB is taking a coordinating role to make sure the pieces fit together.
Earlier I ran through the AEMC’s progress with systematic reforms to empower consumers to participate in the NEM.
I mentioned that this year a major focus is our review into smart metering. This is a foundational reform, in that the NEM needs a saturation level of smart meters across households and businesses before we can introduce other significant advances necessary to reach net zero.
And yes, I’m aware there is much more sophisticated technology out there – but meters certainly don’t preclude the advance of that technology.
The reality is that we can’t just leapfrog this stage – we will always need something to measure energy, and smart meters are an excellent leveller: they give us a baseline to work with across the grid. But at around 30% take-up, without Victoria, we’re well below the saturation we need.
Smart meters offer all customers enhanced ways to engage with the market right now, as we continue up the tech curve. Even if you’re not generating your own power, relating your smart meter readings to your energy use naturally engages you with the system.
So we are now working with stakeholders to accelerate smart meter deployment in the NEM so that:
- Consumers get data about their household energy use, and
- Providers, in a secure way, can get information they need to provide better service to consumers.
For consumers – smart meters turn power into knowledge. The informed choices they can then make will open the way to greater retail options.
An example is the ‘solar sponge tariff’ in South Australia, which literally soaks up excess solar from eligible customers during the day in return for much cheaper rates overall. This only works because of smart metering.
However, if we think about the four barriers I mentioned before, smart meters tick every box:
Firstly, interest – meters are boring! We ran research with ECA at the start of our review and this wasn’t a big surprise. Not only do people find them boring, they find them so boring that our researchers estimate a third of people who have smart meters don’t even know they’ve got one.
Which raises a big question about that second barrier: communication. We may see something like a solar sponge tariff as a benefit, but our research also showed customers doubt that new offers via smart meters would really save money.
It’s also hard to find out how to get a smart meter even if you are one of those engaged customers who actually knows and cares about them.
Third, think about cost and equity. Many people who could really benefit from the data and retail options a smart meter offers, can’t install one as they are renting or in high density dwellings with body corporate concerns. And the potential cost of a smart meter was by far the most common issue customers raised in the research.
Of course, there’s a significant saving to be passed to consumers if we accelerate the rollout of smart meters, which is by avoiding the costs of house-to-house meter reading and the errors in estimated reads.
But with new technology comes risk and the barrier of trust. Consumers must feel comfortable and confident about the smart meters on their premises and especially, on the back of the Optus data breach, that their information is secure.
Providers will need to demystify the new energy market to:
- gain customer buy-in,
- present benefits that are both meaningful and safe,
- and earn trust at every step of the way.
I suspect energy sector innovators who crack this nut will do very well.
Which brings me neatly to my final point, about innovation, and of course, innovation in the energy world is nothing new.
In fact, I was recently told a story that the vacuum cleaner was invented to soak up excess electricity supply during the day – being pitched to women as labour-saving devices but in truth, perhaps inspired really by load management!
The point being – our evolving market settings must keep offering opportunities for innovation to surface and thrive.
Much of what we do at the AEMC is aimed at setting up the right framework so innovators can go forth - and innovate.
Our work on smart meters, flexible trading arrangements and CER technical standards, for example, all seek to build rewards for greater innovation.
But I understand that founders and start-ups have many, many competing priorities and that engaging the regulatory regime is not high on the list. I feel we can do more to foster innovation across the whole energy ecosystem.
Looking at sectors where innovation has thrived, such as tech start-ups and fintech, the common denominators have been collaboration and mutual support.
And today I’m announcing the AEMC is jumping on this bandwagon.
We are actively engaging innovators and establishing an Innovators Forum, because we want to hear from you, and we want you to hear from each other. If you want to be part of it – come and see me, we’re ready to talk.
In fact, I envision more and more innovators’ hubs in our energy world, sharing ideas, leveraging expertise and developing solutions for a smoother transition.
What kind of competitive advantage can this create for the Australian energy sector on the global path to net zero?
And most importantly, what can come out of those hubs of innovation for consumers?
In conclusion, let’s return to the Lesson of the Mobile Phone, but now let’s add innovators to the picture, as well as consumers.
Just like mobile phones, the hardware in the energy transformation has come first. There were early adopters of the house bricks, just as we’ve had early adopters of solar panels, household batteries, electric vehicles, and smart meters.
And there were innovators – who looked at mobile phones as a hardware product and kept making them smaller and smaller. They looked at reducing costs, creating payment plans, building new aspects like touch screens.
We’re seeing similar focus on hardware in energy products, for instance, as solar panels become larger, lighter, and more efficient. The energy sector is making progress on costs and efficiency for household and industrial batteries.
But that’s still an early phase in the Lesson of the Mobile Phone.
The second step for innovators with mobiles was when a new breed of inventor leapt past the hardware and saw what the equipment could deliver from software.
These are the ‘There’s an app for that’ years, when consumers were educated: first in what an app even was, and then in what it could do.
Initially – that meant email, and Plants vs Zombies.
And we’re heading into that phase for energy, although we still have a long journey ahead of us.
But let me give you an example of low-hanging fruit – of the ‘there’s an app for that’ variety. I said the rollout of smart meters in the NEM was a foundational reform. Can you imagine the potential for app development in the smart meter sphere, to truly connect consumers to their energy use in meaningful, and real time, ways?
Because once we’ve empowered consumers with affordable, accessible hardware, with useful and user-friendly software, we’re on the road to embedding energy use and creation behaviours into the culture.
In the same way that my teenagers conduct their social lives through a myriad of apps and are connected to their school, work and friends in ways I couldn’t have imagined, we will see a generational shift in how people naturally engage with energy at home, in business, and on the road.
Mobile app innovators worked out that consumers were desiring more and more convenience and control from their devices, and that meant quite simple and ‘boring’ things like traffic and the weather became valuable tools – assets that could be sold, monetised, socialised or game-ified.
In the same way, I expect energy innovators – whether in apps or other as yet unseen forms – will take what consumers now find complex, costly, or dull, and make it an indispensable part of savvy energy engagement in the future.
If that change in behaviour seems too much to hope for – just remember what’s now at your fingertips the next time you reach for your phone.