Miles George, Infigen Energy: Moderating household and wholesale electricity prices through increasing renewable energy penetration
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Miles George, Infigen Energy: Moderating household and wholesale electricity prices through increasing renewable energy penetration

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Miles George, Managing Director, Infigen Energy delivered this presentation at 2013 Australian Wind Energy Conference. The event gave conference attendees key insights into how the new Abbott......

Miles George, Managing Director, Infigen Energy delivered this presentation at 2013 Australian Wind Energy Conference. The event gave conference attendees key insights into how the new Abbott Government may impact future developments in the industry. The conference has a long-standing history of bring together key policy stakeholders, government representatives, project developers, energy companies and regulators. For more information about the annual event, please visit the conference website: https://www.informa.com.au/windenergyconference.

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  • 1. Moderating household and wholesale electricity prices through increasing renewable energy penetration 9th Australian Wind Energy Conference
  • 2. Agenda Arial Bold 28pt Agenda • Infigen Energy Overview • Wind energy generation displacing fossil fuels as the lowest cost generation source • Wind energy driving lower wholesale and retail electricity prices • Renewable generation‟s zero short run marginal cost drives reduced price volatility and lower spot prices • Wind energy value in the NEM as a hedge against strongly rising gas prices Presenters: Miles George Managing Director 2
  • 3. Infigen Energy Overview An established renewable energy developer and owner-operator in Australia and the US • Sydney HQ; ASX listed (ASX:IFN) • Operate over 1,600 MW of wind energy generation • Own and operate > 1 GW wind energy business in the United States • Largest owner of installed wind energy capacity in Australia and licensed retailer of electricity • Active developer of utility-scale solar PV in Australia and the US • Solar PV and energy storage demonstration plant under construction at Bungendore, NSW • % Installed Capacity – Australia1 Substantial and advanced renewable energy project development pipeline 1. AEMO (2012) and company websites. 3
  • 4. Major Australian Assets Australia's leading specialist renewable energy developer, owner and operator ALINTA, WA Installed Capacity Capacity Factor Completed WOODLAWN, NSW 89.1MW Installed Capacity 44% 48.3MW Capacity Factor Jan 06 LAKE BONNEY, SA Completed 39% Oct 11 LB1 Installed Capacity Capacity Factor Completed 80.5MW 28% Mar 05 LB2 Installed Capacity Capacity Factor Completed 159.0MW 30% Sep 08 Installed Capacity LB3 Installed Capacity Capacity Factor Completed CAPITAL, NSW 39.0MW 31% Capacity Factor Completed 140.7MW 36% Nov 09 Jun 10 4
  • 5. Agenda Arial Bold 28pt Agenda • Infigen Energy Overview • Wind energy generation displacing fossil fuels as the lowest cost generation source • Wind energy driving lower wholesale and retail electricity prices • Renewable generation‟s zero short run marginal cost drives reduced price volatility and lower spot prices • Wind energy value in the NEM as a hedge against strongly rising gas prices 5
  • 6. Renewables to displace fossil fuel generation Renewables are expected to be amongst the lowest cost electricity technologies by 2030 Australian Energy Technology Assessment (AETA) 2012 - Levelised cost of electricity (LCOE) Source: Bureau of Resources and Energy Economics (2012) Comments • Renewable technologies are expected to be the cost leaders towards the end of the decade • The AETA cost estimates suggest that Australia‟s electricity generation mix out to 2050 is likely to be very different to the current technology mix • LCOE includes where relevant allowance for: carbon price, CO2 transport and sequestration cost, plant capital cost (EPC basis) within battery limits, owners costs excluding interest during construction, fixed and variable operating costs, fuel costs and economic escalation factors 6
  • 7. New fossil fuel generation is now expensive High gas prices and difficult in financing coal assets is expected to make renewable competitive • • • The risk (and therefore cost) associated with financing new „dirty‟ power stations and the ongoing fuel cost uncertainty make them costlier than wind in the long term. Global action on climate change may result in a carbon price that renders fossil fuels uncompetitive in providing the vast majority of our energy needs In some regions of the United States wind generation is already more competitive than fossil fuel generation (even with low gas prices) “Wind generation capacity is normally offered for dispatch at very low…prices, and is typically the lowestpriced source of supply available.” 7
  • 8. Agenda Arial Bold 28pt Agenda • Infigen Energy Overview • Wind energy generation displacing fossil fuels as the lowest cost generation source • Wind energy driving lower wholesale and retail electricity prices • Renewable generation‟s zero short run marginal cost drives reduced price volatility and lower spot prices • Wind energy value in the NEM as a hedge against strongly rising gas prices 8
  • 9. Lower wholesale prices in South Australia… SA Historical Information Report Appendix A, AEMO October 2012 9
  • 10. .. strongly correlating with increased wind penetration $80 1400 $70 1200 $60 1000 800 $40 MW $/MWh $50 600 $30 400 $20 200 $10 $0 0 FY08 FY09 FY10 Installed Wind Capacity (MW) (RHS) FY11 FY12 Average SA Pool Price ($/MWh) (LHS) Derived from 2011 South Australian Supply and Demand Outlook, AEMO 10
  • 11. Studies show the RET will reduce wholesale prices Graph: Modelling the Renewable Energy Target for the Climate Change Authority SKM-MMA December 2012 11
  • 12. Decreasing LRET will result in higher retail prices Final CCA Report, December, 2012 12
  • 13. Studies by business representative groups concurred 13
  • 14. Investment research groups also see energy intensive industries benefitting from the LRET… “The main beneficiary of the renewables target is industrial electricity consumers. The renewables target keeps base power prices low and some customers can avoid the RET cost.” UBS Research Note „Looking Macgen in the mouth‟ 5 November 2013 ..so they should be strong supporters of the LRET • • • Energy Intensive, Trade Exposed (EITE) companies are either 60% or 90% exempt from the cost of the expanded RET Scheme However, they experience 100% of the benefit of lower wholesale electricity prices Therefore, it is definitely not in the interest of EITE companies to have the LRET reduced – Particularly as the LRET will mitigate upcoming electricity price increases due to the steep rise in gas prices 14
  • 15. Agenda Arial Bold 28pt Agenda • Infigen Energy Overview • Wind energy generation displacing fossil fuels as the lowest cost generation source • Wind energy driving lower wholesale and retail electricity prices • Renewable generation’s zero short run marginal cost drives reduced price volatility and lower spot prices • Wind energy value in the NEM as a hedge against strongly rising gas prices 15
  • 16. Renewable short run costs reduce wholesale prices MW Demand Simple Merit Order Effect Illustration 200 180 160 140 120 100 80 60 40 20 0 Wholesale price will generally be set by expensive gas generation No wind supply scenario Wind(Free) Gas (High) Wind penetration reduces the need for high priced gas generation Medium wind supply scenario Brown Coal (Low) Low Demand Greater wind penetration keeps wholesale electricity prices lower than they would otherwise be High wind supply scenario Black Coal (Medium) High Demand 16
  • 17. Wind is now generating about 25% of SA‟s electricity …and is far ahead of coal as the #2 generating technology South Australian Historical Market Information 2013 , AEMO 17
  • 18. And for may periods can be the leading supplier of electricity 18
  • 19. Agenda Arial Bold 28pt Agenda • Infigen Energy Overview • Wind energy generation displacing fossil fuels as the lowest cost generation source • Wind energy driving lower wholesale and retail electricity prices • Renewable generation‟s zero short run marginal cost drives reduced price volatility and lower spot prices • Wind energy value in the NEM as a hedge against strongly rising gas prices 19
  • 20. Renewables can be a hedge against high gas prices “Australian electricity prices could become exposed to the possibility of sudden, unexpected high international prices over which we have little domestic control or short term ability to mitigate”. “This can be addressed by supporting the development of a diverse generation portfolio, particularly including renewable technologies (which are not vulnerable to fuel price volatility or uncertainty)”. Source: Delivering energy price security in an age of uncertainty, AECOM July 2012 20
  • 21. Increasing economic activity as the mining boom tapers • SKM Report on Wind Farm investment launched by the NSW Parliamentary Secretary of Renewable Energy • Over $4 Billion of capital expenditure to date in Australia - Including towers manufactured in Australia from Bluescope steel • $17 Billion of further investment this decade to meet the LRET – The majority of this spending will be in regional areas 21
  • 22. With a very modest direct cost to consumers LRET cost is only 1-2% of residential electricity bills 2% 3% 1% 1% Network Energy Generation Carbon Price Retail 11% Retail Carbon Price 8% Energy Generation 25% Network 49% Small Scale RET (PV) NSW Climate Change Fund Large-scale RET NSW Energy Savings Scheme Source: NSW IPART FY13 Price Determination 22
  • 23. Key outcomes of the LRET The RET is achieving its intended outcomes for a modest cost while delivering greater benefits • An effective piece of legislation first introduced by the Howard Government and expanded with bipartisan support. • RET has from 2001 to date resulted in the addition of over 5,000 MW of renewable energy capacity for a modest cost. • The current cost of the LRET to households is approximately $3 per month. • Independent modelling has shown that wholesale and retail electricity prices will increase if the LRET is lowered. • The LRET has the greater benefit of reducing overall wholesale electricity prices. This will be muted if the target is lowered. • South Australian consumers have benefited from lower wholesale electricity prices as a result of 25% renewable penetration. Other states will lose out if the LRET is reduced. • Lowering the target will increase sovereign risk, lower economic activity as the mining boom tapers off and result in a higher cost to deliver less capacity. • Australia needs a balanced portfolio of electricity generation to future-proof its global competitiveness. The LRET will contribute to this objective. 23
  • 24. Questions 24
  • 25. Disclaimer This publication is issued by Infigen Energy Limited (“IEL”), Infigen Energy (Bermuda) Limited (“IEBL”) and Infigen Energy Trust (“IET”), with Infigen Energy RE Limited (“IERL”) as responsible entity of IET (collectively “Infigen”). Infigen and its related entities, directors, officers and employees (collectively “Infigen Entities”) do not accept, and expressly disclaim, any liability whatsoever (including for negligence) for any loss howsoever arising from any use of this publication or its contents. This publication is not intended to constitute legal, tax or accounting advice or opinion. No representation or warranty, expressed or implied, is made as to the accuracy, completeness or thoroughness of the content of the information. The recipient should consult with its own legal, tax or accounting advisers as to the accuracy and application of the information contained herein and should conduct its own due diligence and other enquiries in relation to such information. The information in this presentation has not been independently verified by the Infigen Entities. The Infigen Entities disclaim any responsibility for any errors or omissions in such information, including the financial calculations, projections and forecasts. No representation or warranty is made by or on behalf of the Infigen Entities that any projection, forecast, calculation, forward-looking statement, assumption or estimate contained in this presentation should or will be achieved. None of the Infigen Entities guarantee the performance of Infigen, the repayment of capital or a particular rate of return on Infigen Stapled Securities. IEL and IEBL are not licensed to provide financial product advice. This publication is for general information only and does not constitute financial product advice, including personal financial product advice, or an offer, invitation or recommendation in respect of securities, by IEL, IEBL or any other Infigen Entities. Please note that, in providing this presentation, the Infigen Entities have not considered the objectives, financial position or needs of the recipient. The recipient should obtain and rely on its own professional advice from its tax, legal, accounting and other professional advisers in respect of the recipient‟s objectives, financial position or needs. This presentation does not carry any right of publication. Neither this presentation nor any of its contents may be reproduced or used for any other purpose without the prior written consent of the Infigen Entities. IMPORTANT NOTICE Nothing in this presentation should be construed as either an offer to sell or a solicitation of an offer to buy Infigen securities in the United States or any other jurisdiction. Securities may not be offered or sold in the United States or to, or for the account or benefit of, US persons (as such term is defined in Regulation S under the US Securities Act of 1933) unless they are registered under the Securities Act or exempt from registration. 25