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Australia’s Economic Transformation Part 3: AGL’s role in a changing society and economy

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AGL Energy
08 September 2016

Between now and 2050, Australia’s population and economy are likely to change. Together with evolving technology, community expectations and a need to reduce greenhouse gas emissions, energy companies of the future are likely to be different to those of today. While reliable and affordable energy supplies will continue to underpin the prosperity of our communities, the sources of energy, and the business models that supply it, will evolve to reflect changes to society.

To supplement the 2016 AGL Sustainability Report, we have released the Australia’s Economic Transformation report, which explores the challenges and opportunities for AGL and the broader energy industry in meeting the changing needs of Australian energy consumers, industries and communities into the future.  In this three part blog series I will summarise some of the report’s key themes and findings.  Part 3 considers the role that AGL can play in this changing society and economy, to reflect the expectations of our stakeholders and the broader community.

To develop the Australia’s Economic Transformation report, we interviewed a range of AGL’s key stakeholders - including from within AGL’s own business, environmental groups, consumer representatives, industry associations, analysts and regulators – and asked where they considered AGL’s major challenges and opportunities to lie, over the long term. The key trends that emerged from their responses were:

  • Australia’s industrial landscape is changing. The resources boom is ending, heavy industry is closing, and new opportunities are opening in food; niche, high-tech and value-added manufacturing; as well as in services like health and education. It is not clear whether the skills and jobs from ‘old’ industries can effectively transition to the ‘new’ ones, and training young people for the jobs of the future, including in science and technology is important.
  • Decarbonisation is a growing, global trend that will drive transformation of the energy sector for decades. Australia’s reliance on fossil fuels for both export and domestic use is expected by some stakeholders to decline, and the use of renewable energy is predicted to increase. Communities that depend on coal mining and power generation for employment may need assistance during this transition.
  • Energy technologies are evolving and costs are expected to drop over time to give energy users more choice and control in how they generate, use and share energy. Renewable technologies, distributed generation, battery storage, energy efficiency and electric vehicles, along with new digital platforms and services may change the structure of the energy sector completely.
  • Energy customers (like the broader population) will undergo a generational change but will continue to expect access to reliable and affordable energy supplies. Energy companies that provide excellent service, and which can simplify the growing market complexity for customers will be successful. There is some concern that a growing gap between the wealthiest and poorest households will increase energy hardship.
  • Companies like AGL have a leadership role to play throughout this change, including to explain and simplify energy market complexities, invest in low-emissions and emerging consumer technologies, and to work with governments and the community to develop energy policy that will enhance Australia’s prosperity over the long term.

The report examines a range of ways that the Australian economy and community may change between 2016 and 2050, and what this may mean for the supply of, and demand for, energy.

The population is predicted to grow substantially to 37.6 million, particularly within capital cities where an additional 4.4 million households may need to be housed. A range of factors may change average household demand for energy: new buildings and electrical appliances are likely to become more energy efficient over time, new residential developments may include smaller high- and medium density homes to accommodate a growing number of single and couple households, electric vehicles may increase demand for power and a greater proportion of homes may produce their own electricity with distributed solar PV.

In the future, more homes and businesses will be consuming energy and these new connections, along with different consumption and production patterns, may place strain on electricity infrastructure, particularly during peak demand periods. Using infrastructure more efficiently may help to alleviate this pressure, and reduce the need for new investments – reducing energy costs for all consumers. In recent years the capacity utilisation of Australia’s electricity systems has declined – peak demand has grown (or remained high), particularly with the use of air conditioning on hot days, and underlying energy use has declined, with consumers reducing their consumption in response to higher prices, and with of rooftop solar.

The average-rate volumetric tariffs that are currently widely used for electricity do not provide customers with signals to reduce their demand during peak times, or to shift consumption to lower demand periods. Transitioning towards more cost-reflective pricing structures, particularly for networks, will improve energy productivity and ensure that all consumers contribute equitably to providing shared energy resources.

A shift towards cost-reflective tariffs also promotes greater customer participation in energy markets, whereby consumers are able to capture the value created in the energy supply chain by different choices, such as how to use energy and if and when to make investments in different technology options. By mid-century the uptake of new energy technologies is projected to increase – which may include solar PV, battery storage, electric vehicles, smart appliances, home energy management and other digital services. Multi-directional energy markets and ecosystems may emerge, with technology enabling customers to produce, use, store, and trade energy with each other effortlessly, based on dynamic market signals using peer to-peer platforms. New technological combinations may increasingly offer cost-effective alternatives to costly infrastructure upgrades.

In the future, customers will expect energy companies to offer a wide range of products and services that reflect their growing diversity and enable them to select those that suit their individual circumstances. Vibrant and competitive marketplaces will promote innovation in product development and growing choice for customers. As the economy grows, Australians are expected to become wealthier, with GNI per capita projected to grow by 77% in real terms to 2055. As incomes grow, the proportion of household expenditure spent on services (rather than products) is projected to increase, and this may also prove true for energy, where excellent and personalized customer services may be increasingly valued.  Markets for new energy-related services for homes and businesses may emerge, including innovative financing, energy efficiency, management software, technology operation and maintenance and building comfort offerings.

Australia’s economy is changing, with commercial and social services projected to represent a growing share of economic value, employment and exports, while other sectors such as resources and agriculture may continue to represent a competitive advantage for Australia. The growth of services and a focus on energy productivity and reducing greenhouse gas emissions may reduce the energy intensity of the Australian economy over time, and change the way that businesses source and manage their energy needs. Electrification of transport and equipment, distributed generation, automation and robotics, and advanced ‘green buildings’ may present additional opportunities for optimisation and energy efficiency.

AGL is preparing our business to meet the energy needs of customers, now and into the future. In 1841 AGL lit the first gas street lamp in Sydney, and today is Australia’s largest electricity generator, the largest ASX listed operator and developer of renewable energy, and provides energy solutions to 3.7 million homes and businesses across Eastern Australia, including electricity supply, gas supply, rooftop solar and energy management.  We are committed to providing energy products and services that are reliable, affordable, environmentally sustainable, and that enable greater customer choice and innovation. AGL has established a New Energy division to provide energy services that enhance efficiency and energy productivity, including through the application of distributed energy technologies. We have also invested in market-leading digital services that allow customers to monitor and manage their energy usage to enhance their comfort, convenience and control. While the future is not set, and it is impossible to predict which technologies will ultimately prevail, AGL is developing its technological capabilities to design and trial new product and service offerings, based on our insights into customer needs, values and preferences. By doing this, AGL is poised to create value – both for our customers, and by contributing to greater energy productivity throughout the Australian economy.

Click here to read part one of this three-part series, Energy customers of the future, and Click here to read part two, A changing industrial mix.