Energy CEOs agree on the biggest challenges in the transition

In the last 12 months, Australia’s energy industry has become increasingly focused on overcoming the many challenges in meeting both short- and long-term emissions targets. Though these targets vary state by state, they are all ambitious and require what Origin Energy CEO Frank Calabria, recently described as a “wartime” reconstruction effort.

How far behind are we?

At Australian Energy Week, McKinsey & Co’s Peter Lambert put some numbers to Australia’s progress in the transition, looking at progress in 5 key areas critical to meeting 2030 targets. These areas were rooftop solar deployment, utility-scale renewables, utility-scale storage, new transmission development and coal retirement. According to McKinsey, we are behind on all of these, bar rooftop solar. Notable gaps include needing to “triple the rate of utility-scale storage installation” and “increase rate of transmission installation by about 80%.”

At Australian Energy Week, the general consensus amongst industry CEOs was that the two largest obstacles to meeting these challenges are building the transmission infrastructure to connect renewable projects, and timing the exit of coal to avoid reliability issues.

Neither of these issues are simple.

Can transmission be built quickly enough to meet the 2030 target?

In his keynote address at the conference, AEMO’s Daniel Westerman noted that the energy transition is too slow. “The debate no longer is about whether this will happen, but how quickly,” he said.

This is no small task though. Westerman described it as requiring industry to “redesign and rebuild the aeroplane while we’re flying it.”

According to Westerman, interstate transmission lines are “already maxing out” and that is before the Snowy 2.0 mega project comes online, with dozens of gigawatts of additional renewable generation still needed.

A real challenge for the industry is “addressing the concerns that are genuinely held in those local communities that are asked to host the infrastructure of Australia’s energy future.”

We need to avoid an “us vs them” mentality, according to Westerman, saying “it requires honest and diligent work to build the social license with our communities.”

As the owner of NSW’s transmission network, TransGrid is at the forefront of the challenge of getting buy-in from communities to build new lines. Brett Redman, TransGrid’s CEO still believes that it is possible to reach the federal target of 82% renewables by 2030, but “the timetable is under pressure”.

He also noted that more transparency and better engagement are important, and that larger payments to landholders also need to be an option.

Stephanie Unwin, Horizon Energy’s CEO also commented “we need to bring everyone along with us”.

Interestingly, according to Redman; “For every dollar we spend on transmission, we see, modelled, $2 coming back to consumers”.

Sequencing the exit of coal

Peter Lambert notes “we can’t address these problems in isolation. Coal exits need to align the renewable generation entry, renewable generation entry needs to align with transmission build and storage build.”

“If we try to solve any one of those in isolation, we actually end up creating more problems.”

For example, an accelerated uptake of renewables (and corresponding faster exit of coal) will cause more issues if neither gas peaking or storage is ready to fill that gap.

Brett Redman did call for a delay to close of the Eraring power station, noting that its closure “will challenge the market.”

“A delay of a handful of months is cheap insurance. That just helps ease the transition we are moving through.”

Like Peter Lambert, Brett emphasised timing and the importance of ensuring coal exits only when there is something to fill the gap.

Rik de Buyserie, CEO of ENGIE in Australia, succinctly said; “As we retire coal fired power stations … and rapidly introduce more wind, solar and storage to a physical system that was not designed for this … we need to be having more realistic conversations with ourselves, our customers, governments and policy makers. … The task is enormous”.

What about firming?

Renewables need ‘firming’, either an alternate generation source or a way to store energy when they aren’t operating, and the magnitude of additional firming (largely expected to be storage), is immense.

According the Stephanie, “deep storage” is the number one thing that needs to be solved.

AGL’s CEO, Damien Nicks noted “gas will continue to play a really key role in this transition for many many years.” It’s plays an “important” role in firming.

Will we get there?

The good news is that energy executives still believe that the industry can get there.

Westerman is “optimistic about it”, and Lambert says “we have a good chance”.