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Byron Shire
December 1, 2022

The graph that shows the death of traditional energy utilities

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At RenewEconomy’s Energy Disruption conference in Sydney this week there were lots of talk, lots of slides, lots of ideas about the future of the country’s energy system. It’s quite clear, as AGL Energy boss Andy Vesey admitted, that nothing will stay the same. ‘We are either going to be the disruptor, or the disrupted,’ he said.

Chances are, Vesey will need to disrupt because it is inevitable he will be disrupted. They key question that corporate leaders like Vesey have to ask is how quickly and how dramatically that change can occur. The big utilities want and need more time to change their business models. It’s not entirely clear they are going to get it.

The big swing factor is battery storage, and how quickly that becomes attractive to the mass market and how quickly the installation of a million and more systems changes the nature of the current energy system.

This slide, from Mojo Power’s James Myatt, was one of the killer slides. That’s how he described it. It shows, according to Myatt, why the current electricity retailer model cannot exist in the future, because solar and battery storage will largely replace electricity sources from centralised power, and their traditional sources of profit.

Myatt sees a future where the ‘fuel’ is effectively free, and consumers – most equipped with solar and storage – are charged for a service tailored to their needs. The business models of the future will be founded on providing and managing those services.

So what does the slide show us? It comes, in fact, from software company Reposit and it shows the amount a house in Canberra fitted with solar and battery storage draws from the grid (that is the orange line) For most of the day it is effectively nothing.

Imagine, now, millions of home installed with solar and battery storage, as is predicted over the next five to 10 years. As the folk from Power Ledger pointed out earlier this week, the ‘crossover point’ between the cost of solar and storage on one hand and the grid-sourced power on the other could occur in 2017.

When that happens, they noted, the amount of ‘load defection’ – the amount generated and stored behind the meter and never visible to the grid, or to the retailers – could shift as high as 97 per cent, with the grid used as a back-up or top-up.

It shows why, according to Myatt, the current ‘gentailer’ model, which relies on heavy consumption from the grid, and investment in large centralised generation, cannot continue over the long term.

‘The big gentailers like AGL and Origin Energy have conflicted models,’ Myatt says, because of their reliance on massive generation fleets and high consumption from consumers.

‘In the current model, profit is linked to consumption. They want you to use more. They might tell you that they want to use less. But they make profit by you using more.’

(It should be noted that Mojo has been having a bit of fun at AGL’s expense this week, planting a billboard in front of AGL’s headquarters quoting Vesey about the management of individual consumers. See pic below).

mojo-agl-590x443

Myatt argues that the future will see a ‘zero-fuel’ model – a ‘de-gentailer’ if you will – because little electricity will need to be bought from the wholesale market.

Consumers will largely generate and store their own energy, and this energy could then be shared, as the likes of Power Ledger and others suggest, using the Blockchain technology that underpinned Bitcoin in the case of Power Ledger.

Myatt says the cost of power will be driven by the capital costs of solar and storage, not the cost of fuel, and those capital cost will be further amortised as more services enter the market, such as for frequency control for the overlying grid.

Mojo believes it has found the answer by delinking profit from consumption, and offering a ‘subscriber’ service that is tailored around the customer needs.

‘I can’t see how you can have model that derives profitability from consumption from the grid. We are not suggesting that consumers use less energy … but we don’t have to be a slave to the upstream position. We don’t have to be conflicted by it.

‘The power station of the future will be fragmented. It won’t be a virtual power plant, it will be very real. But instead of having a 1000MW centralised power plant, it will be broken into thousands of different pieces.’

Battery storage, of course, is the key, as well as smart software and new way of thinking about business models. Myatt thinks the crossover point is around $700/kWh for battery storage. ‘We’re not there yet, but we’re getting close.’

 


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