by Cara Graham – EY Oceania Power & Utilities partner
Electricity networks have been on a rollercoaster of investment ups and downs over the last two decades. A period of underinvestment (‘sweating the assets’) in the early 2000s led to some large-scale outages, which in turn saw stricter reliability standards imposed. Coupled with the need to accommodate the burgeoning peak demand issue caused by customers installing new equipment such as air conditioners, this resulted in large increases in network expenditure. The term ‘gold plated’ was coined to describe the state of the network that existed at the end of this era.
As network tariffs rose sharply, we then saw the handbrake applied to expenditure. Regulators started to focus on the efficiency of expenditure, and benchmarking amongst peers was introduced.
At the same time, incentives were put in place to allow customers to better control their consumption in response to rising costs of electricity, most notably in the form of generous solar photovoltaics (PV) feed-in tariffs which triggered a solar revolution that has resulted in solar PV now collectively being the largest generator in our electricity systems.
This was heralded by some to be the ‘death spiral’ that was going to be the downfall of many network businesses as customers would reduce consumption at best, and completely defect from the grid at worst.
Decarbonisation and hyper-connectivity
Today, we are on the cusp of a new era that will be characterised by two factors. The first is the decarbonisation-driven electrification of everything, including transport, mining and infrastructure.
Under AEMO’s strong electrification scenario in the Draft 2022 Integrated System Plan, electricity consumption is forecast to more than double from around 180TWh per annum today, to over 380TWh by 2050. Electric vehicles alone are forecast to add 84TWh per annum of load in the NEM by 2050 under this scenario.
The second is hyper-connectivity. Far from grid defection, we will see network connectivity on a scale never seen before. Transmission-level connections will be needed to support more large-scale renewable generation including those in Renewable Energy Zones; stronger transmission interconnection will be required between regions; and literally millions of customer-owned Distributed Energy Resources (DER) will connect to distribution networks.
Electrification and hyper-connectivity are set to be two driving forces behind the network era.
Investing in new networks
But the networks we need in this new era are different to those that have been built over the last 20 years. From the networks’ perspective, they will be more complex ecosystems to manage: they need to remain stable despite dynamic fluctuations in both supply and demand that can result in power flowing in both directions, and require far greater visibility and active management than exists today.
And ideally, all this complexity needs to be invisible to the customer who simply wants their network to be ‘plug and play’, regardless of whether their version of ‘play’ involves a passive load connection only, or active assets participating in one or more of the markets that will become accessible to DER. All of this requires investment.
Nationally, our electricity transmission and distribution networks are currently valued at around $110 billion. It is forecast that $70-80 billion in investment will be needed across these networks between now and 2030 to get our grids into a state where they can support higher levels of electrification and cater to the new ways that customers want to use the grid.
To put this in context, in today’s dollars the original ‘nation building’ Snowy Hydro project cost approximately $8 billion, so the network expenditure we anticipate over the next eight years to 2030 is in the order of ten times this amount.
More action, less planning
As an industry, we have become quite good at planning this transition. We have integrated system plans (ISPs), electricity statements of opportunities (ESOOs), gas statements of opportunities (GSOOs), transmission annual planning reports (TAPRS), distributed annual planning reports (DAPRs), and Asset Management Plans (AMPs). But this new era is already dawning, and we need to start turning our attention to doing, in addition to the important rolling cycle of planning.
At their core, network businesses have three groups of assets they manage to deliver services:
1. Physical assets
2. Digital assets
3. Human assets
‘Doing’ requires making decisions across these three asset groups. It requires having contemporary answers to questions such as:
» How are we managing supply chains to ensure the right assets can be built in the right place at the right time?
» How are we decarbonising the build of our infrastructure?
» How are we engaging with stakeholders to gain social licence to build new infrastructure and encourage the adoption of new products/services?
» What digital assets are we deploying across asset management, operations, corporate and customer to improve efficiency and customer and employee experience, and remain resilient to cyber threats?
» How many resources do we need, where will they come from and how will we make sure they have the right skills?
Decision making in the face of uncertainty
There’s no doubt that uncertainty caused by an evolving policy, regulatory and technology landscapes makes decision-making challenging. But the reality is, there will never be (nor has there ever been) complete certainty in the electricity industry. Network businesses that embrace the following attributes are more likely to succeed in this environment:
» Getting comfortable making decisions on the best set of information available at the time even where there is uncertainty
» Keeping an eye on trends impacting physical, digital and human assets, and knowing when they trigger a need to reassess a decision
» Building a mindset where changing direction is not seen as a failure, but rather that it demonstrates agility to adapt as and when things invariably change
As we embark on this new era of decarbonisation-driven electrification and hyper-connectivity, the critical role of network businesses is clear, as is the significant investment required. Done right, it will be the antidote to the ‘death spiral’, contribute to meeting decarbonisation targets and unlock value for all customers.
