Australia’s energy transition — the world is watching

Image source: AFR (David Rowe)

Last month I travelled to Portland, Oregon to participate in the Transactive Energy Systems Conference run by the Gridwise Architecture Council, which was formed by the US Department of Energy. Now you may be asking, “what exactly is ‘Transactive Energy’?”

Well, there is no formal definition but when we refer to ‘transactive energy’ in broad terms we mean a dynamic energy system built on economic principles of rewarding participants for the value they contribute to the system. It’s the “two way” energy system that we’ve talked about before. One could argue that we already have a transactive energy system since prosumers are currently rewarded for their excess rooftop solar and large energy users (in some markets) are rewarded for their participation in demand response schemes — the sorts of things we investigated in our series on ‘the negawatt’.

But when we at Nexergy refer to transactive energy, we focus heavily on the ‘value’ component being transacted. We’re focused on ensuring that the ‘value’ of the exchange is equitable for all of the participants transacting. Some may call this ‘peer-to-peer energy trading’, others ‘local energy trading’. With our day-to-day operations focused mainly on the changes occurring in the Australian market, I was very interested to get a broad international overview from the presentations at the TESC, from both energy and technology experts. I’d like to share four key learnings which emerged for me from the three day event.

1. Industry-wide, we’re grappling with how to engage consumers better

Whilst the attendees at the TESC were mainly representing the US and European energy sectors, they echoed the challenges the Australian industry is facing — mass consumer disenchantment with industry and policy (or lack thereof). In Australia this has spurred rapid uptake in rooftop solar and, whilst uptake in other jurisdictions has been slower, the pace of technological change — and the Australian example — has jolted the industry to the realisation that consumers will be at the heart of our future energy systems.

…the Australian example has jolted the industry to the realisation that consumers will be at the heart of our future energy systems.

The overarching question which emerged from my time at the TESC was just how to engage consumers in a meaningful way. It’s something our industry has struggled with, and continues to, with some reporting that the average energy customer in Australia spends just 9 minutes a year thinking about their energy bill. What I observed in Portland last month was a distinct lack of focus and realism on how our sector can engage consumers better. No one is suggesting, of course, that participants of a transactive energy system would set bids for buying and selling energy every 5 minutes, in the manner that I used to do on the National Electricity Market. But we do need a more engaged consumer for transactive energy systems to work than what we currently see. The utility and research pilots presented at the conference either demanded an unrealistic level of prosumer participation, or none at all. And the latter detracted considerably from the level of value to both the consumer and the system long-term. As an industry we’ve got our work cut out for us in determining a happy median between the status quo and over-demanding (and over-expectations around) consumer engagement. We believe this component of transactive energy is incredibly important and it’s something we’re experimenting with at Nexergy.

2. Australia, the land of opportunity

Australia really is the place to be for development and testing of transactive energy technologies. International execs, analysts and researchers see Australia’s embattled attempts at resolving the energy trilemma — security, affordability, sustainability — which has prompted our epic uptake in rooftop solar and other distributed energy resources (DER), as creating a fertile testing ground for new energy technologies. There’s a reason our own Mike Cannon-Brookes was able to unwittingly start a Twitter exchange with Tesla’s Elon Musk which stopped the nation. And just last week, German battery vendor, Sonnen announced an innovative, consumer-focused energy product here in the Australian market. And there’s a plethora of other DER solution providers making moves to enter the Australian market. The confluence of our high energy costs, engaged populace with a high penetration of DER, and historically challenged policy environment, puts us in the right place at the right time to leverage transactive energy systems.

Australia’s embattled attempts at resolving the energy trilemma — security, affordability, sustainability — has created a fertile testing ground for new energy technologies.

3. Technology moves fast, but economics still the driver

Living in Australia, where we have some of the most abundant fossil and renewable energy resources in the world, yet also some of the highest energy costs in the world, it’s easy to forget that energy is driven primarily by economics. Economics is one reason why banks have lost interest in financing new coal-fired power stations, but it’s also why uptake of DER in Australia has been so much greater than in other countries. Conversations at the TESC reminded me that, in general, energy in the US is very cheap. As always, the economic inputs are guided by geographic resource availability, infrastructure and demographics, among other factors. But the cost of delivering of a kWh of energy in Oregon, for example, is half of that in Sydney, with prices in the Pacific Northwest driven primarily by large, cheap hydro capacity. Hence, investing in rooftop solar in Oregon makes less commercial sense than it does in Sydney (where solar resources are better as well). And, more importantly, the momentum required to engage a consumer in a conversation around transactive energy systems in Oregon is therefore much greater.

One lesson we can garner from our friends in the US is that we’ll get better, swifter energy policy if we separate policy reform from climate science ideologies. To my surprise, climate change didn’t come up once at the TESC and I speculated as to whether this was influenced by President Trump’s views on the topic until I spoke to keynote speaker Chris Irwin, from the US Department of Energy. The reality is, due to the strong commercial prospects of renewable energy and energy storage (which are continually improving), we can now divorce energy policy from climate ideologies. Even for those of us deeply concerned about climate change, here in Australia we should aim to avoid conflating the two in the future — especially as our leaders vote on whether to support the Finkel Review’s recommendation of a Clean Energy Target.

4. Good regulation will be key

It’s also important to note that good regulation will be the key to securing the most benefit from DER and transactive energy. In the US this responsibility lies mostly with state, rather than federal, regulators. New York and California in particular are driving initiatives which aim to ensure consumers are rewarded for all components of the value stack derived from DER. The world is watching how these leading jurisdictions go in order to develop replicable regulatory models for other jurisdictions. This includes our own regulators who are currently investigating transactive energy at the distribution level.

It’s critical that our regulators get it right, because whilst energy is driven by economics, we need to be mindful of how consumer-centricity, digital technology platforms and so-called “network effects” have blind-sided other sectors such as transport and accommodation. The difference, however, is that energy is an essential service and we can’t support a system which exacerbates inequity, nor lets the lights go out. I’m heartened by the vision and determination of the folks I saw at the TESC to get there, and excited to be part of the worldwide movement working towards a more equitable, sustainable and reliable energy system.

Posted by Darius Salgo, CEO of Nexergy.

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