Plenary session #4

Renewable energy technologies in Asia –

Disruption

5th IAEE Conference, Perth

16 February 2016

Page 2

Matt Rennie EY Global Transactions Leader, Power and Utilities

EY Leader, Australian Power and Utilities

Page 3

Solar PV and battery storage disruption

Page 4

The commodification of distributed solar PV is well

underway…

37%: decline in global average PV

installation cost since 2011

53%: decline in Asia Pac average PV

installation cost since 2011

14%: Expected decline in Asia Pac

average PV installation cost over next 5 years

4.42

2.93

2.42

2.73

2.26

1.89

4.35

2.03

1.75

4.00

2.51

2.05

-

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Average Solar PV Installed Price (US$/W)

North America Europe

Asia Pacific Global Blended

Source: Navigant Research

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…with a significant decrease in the cost of solar PV

Installation Year Module Price

Index 2014$/W

1998 $5.16

1999 $4.69

2000 $3.78

2001 $3.54

2002 $3.62

2003 $3.41

2004 $3.63

2005 $3.67

2006 $3.98

2007 $4.00

2008 $3.57

2009 $2.41

2010 $1.90

2011 $1.31

2012 $0.86

2013 $0.82

2014 $0.78

2015 $0.75

Source: Solar Energy Industries Association, US

► US solar PV module unit

price

► Global blended average price of installed solar PV

Source: Electric Power Research Institute

Source: LBNL Tracking the Sun index

► US blended average price of

installed solar PV

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… and continued growth in installations expected globally

► Asia Pacific has become the market

leader for installed distributed solar

PV followed closely by Europe

► Asia Pacific is expected to more

than double its annual installations

of distributed solar PV between

2013 and 2018

Annual installed distributed solar PV capacity

by region, 2012–2018

Source: Navigant Research

5.4 10.6 11.7 13.5 16.0 18.8

22.4 10.5

9.1 11.3

12.7

15.6

18.7

22.9

1.9

2.6 3.1

2.7

2.8

3.4

4.0

1.5

2.1

2.3 2.0

2.8

3.9

5.5

0

10

20

30

40

50

60

2012 2013 2014 2015 2016 2017 2018(G

W)

Asia Pacific Europe North America Rest of World

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Improving economics for advanced batteries will accelerate

energy storage applications …

Installed energy storage cost for

renewable integration, by technology

3.20

1.98

3.25

1.82

3.52

1.87

0.00

1.00

2.00

3.00

4.00

5.00

2013 2015 2017 2019 2021 2023

Th

ou

sa

nd

s (

$/k

W)

Advanced lead-acid Advanced lithium ion Advanced flow battery

Source: Navigant Research

Projected annual sales of storage

technologies (US$b)

1.9 5.3 7.5

10.4 2.7

5.9

8.9

10.5

2.7

6.7

8.8

9.8

0.7

2.2

3.4

4.4

2015 2020 2025 2030

China and Japan North America

Europe Rest of the world

8.1

20.1

28.6

35.2

Source: BCG perspective

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… which will magnify the value of solar PV in terms of

reliability and resilience …

► When coupled with storage, the value of solar energy is magnified: It can be stored and then discharged during time periods most

advantageous to asset owner.

► These same storage systems can also offer resiliency benefits when the larger grid goes down.

Source: RMI

► In the top chart; only 50% of PV

energy is consumed on site.

► In the bottom chart, 90% of PV

energy is consumed on site

► loads are orchestrated to

operate during hours of PV

production.

► batteries are used to

consume even more of that

PV when the sun isn't shining.

Peak solar power

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… making going ‘off grid’ an increasingly viable option

► By 2018 the costs of off-grid energy supply from solar PV plus

storage will become cost-competitive with Australian

households that stay connected to the grid.

► By 2020, other mature markets including New York and Los

Angeles are expected to follow.**

► Batteries will lead to a further decline in grid demand and

make disconnection from the grid feasible for many users.

► Step change developments in technology (such as aluminium

batteries) could accelerate this trend.

► Regulators will push the adoption of storage to curb network

operators spending excess capital on grid infrastructure.

► Removal of feed-in tariffs will further incentivise customers to

go off-grid.

Australia, cost of off-grid energy supply

compared to grid ($kWh)*

Source: UBS

* Assumes off-grid capex cost falls 5% p.a.

** Source: Rocky Mountain Institute

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Energy storage is likely to play a bigger role in the utility of the future, but in what form?

► Will it be rolled out as a merchant resource, helping residential consumers

save versus retail tariffs?

► Will it be larger in scale, used to arbitrage wholesale prices?

► Or, could it be integrated into the utility grid system to allow for improved

resilience and security of supply?

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Impact on electricity businesses

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Traditional suppliers are responding by investing in rooftop solar PV …

“There is a lot of talk now in the industry about

viewing consumers who want access to distributed

energy resources or a rooftop solar power system

as lost market share. I don’t see it that way. We

aren’t losing customers, we’re just shifting how we

need to compete for them and how we serve them:

they’re the future clients of our distributed power

business.”

– AGL Energy CEO, Andy Vesey

► In February 2015, AGL Energy became the first of the major electricity retailers to formally launch a solar power purchase agreement

(PPA) plan, branded the Solar Smart Plan, which is being managed by a new division, New Energy.

► Origin Energy has launched a PPA program where it will install and maintain solar systems on residential and small business roofs

in Sydney, Adelaide, Brisbane and the Gold Coast.

► Ergon Energy recently contracted with SunPower to offer high efficiency solar PV systems with energy storage technology from

Sunverge Energy in a pilot project in Queensland.

“Our view of electricity markets has changed a little

bit. We are moving very much to the evolution of

solar products, and PPA (power purchase

agreement) products.”

– Origin Energy Managing Director, Grant King

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… and partnering with global battery storage players rather than trying to beat them

► Australian utilities Red Energy, Ergon Energy and ActewAGL are teaming up with Japan's Panasonic to trial the deployment of

household battery storage.

► In 2015, AGL became the first retailer to announce that it would be introducing a battery storage device into the Australian market.

► Battery storage companies like Tesla and Panasonic are increasingly targeting the Australian distributed energy market to capitalise

on the high penetration of household solar capacity and teaming up with major utilities to deploy its battery technology - rather than

selling directly to households.

“New emerging technologies are offering

exciting opportunities for customers and

energy companies. We want to be part of

this future and help our customers with

ways to control and manage their energy.”

– ActewAGL CEO, Michael Costello “Changing social trends and technological advances,

particularly cost reductions in solar PV systems and now

battery energy storage systems, will dramatically change

– even revolutionise – the way electricity is supplied to

and used by our customers.”

– Ergon Manager Emerging Markets, Glenn Walden

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What can I learn from competitors and early adopters?

Utilities need to ask fundamental questions in response to increasing stakeholder pressure, …

How do I reorientate and differentiate my business around solar PV, storage

and empowered customers?

What drives shareholder value in this brave new world?

How can I innovate and create a unique experience within the existing

regulatory framework?

What culture and capabilities do I need to enable this unique experience?

How can I manage the trade-offs between 1) customer experience, 2) cost to

service 3) business risk?

Utilities are under pressure from all stakeholders to evolve - incremental change will not be enough

Shareholders Regulators

Competitors

Customers

Utilities

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… they will require sophisticated approaches to manage decision-making under uncertainty

Unwind, divest centralized production assets

Invest behind the meter: smart thermostats, demand response, energy efficiency, EVs and charging points

Lobby for weaker policy and regulatory support for rooftop solar and storage

Raise barriers to entry for integrating rooftop solar and storage technologies

Navigate the death spiral

Adapt to decentralized

model?

Defend centralized

model?

Business as usual?

Exit?

Generators

Networks

Retailers

Generators

Networks

Retailers

Generators

Networks

Retailers

Generators

Networks

Retailers

Unwind, divest regulated network assets

Reconfigure customer service operations

Aggressive price war to abate rooftop solar uptake

Higher rates over shrinking customer base

Emergence of owners and operators of upstream assets serving mission critical infrastructure and providing backup to new decentralized energy supply model

Traditional retailers become increasingly marginalized

Contest new industries/markets

Optimize generation mix and divest coal-fired generation

Modernize grid and facilitate integration of solar plus storage

Invest in distributed solar and storage

Acquire or partner in solar PV and storage

Opportunity to develop "Aggregator" or "Smart Consumer" business models to offer integrated distributed energy design, financing, energy supply, and energy services.

Aggressively expand utility-scale renewables Emergence of large scale low-cost centralized energy supply model with low incentives to go off-grid