The head of a major electricity generator and retailer in Australia has warned about the significant challenges facing the renewable transition and proffered a bleak outlook for consumers from rising energy prices.
During his speech at the Australian National Press Club on April 10, Alinta managing director and CEO Jeff Dimery said the energy transition to net zero emission was “getting harder, not easier” despite government support and significant investments in renewable projects in recent years.
The CEO stated that there was an urgent task of expanding the country’s renewable generation capacity to meet the increase in electricity demand in the coming decades.
“By 2050, we need to hit 126 gigawatts. That means we need to develop more than seven times the current NEM capacity of 19 gigawatts to phase out coal by 2050. That’s close to a doubling every decade.”
Nevertheless, Mr. Dimery said many energy retailers and wholesalers were not doing well financially, effectively preventing them from investing more in renewable energy.
“Any profits made on generating and trading wholesale energy on average across recent years have generally been in the single digits,” he said, noting that the average retail margin per residential customer of his company was around 2 percent.
“In the last five years, the top three gen-tailers (companies who are both generators and retailers) in this country have collectively written off in excess of $10 billion of shareholder funds.
“There’s a race to net zero, but it’s supposed to be for emissions not profit.”
In addition, Mr. Dimery stated that the costs of developing new renewable projects had increased exponentially, making it hard for energy companies to recover their investments.
The CEO gave the example of the Loy Yang B coal-fired power plant that was acquired by his company for $1.1 billion (US$720 million).
He said two years ago, it cost $8 billion to replace the power station with pumped hydro and offshore wind, but now the cost would be over $10 billion.
The cost of insuring a gas-fired power plant has also soared by 40 percent in the past few years, Mr. Dimery added.
“The industry costs have risen, and current margins and returns are relatively modest,” he said.
“Developers are pulling back on commitments to build large-scale renewables because they don’t want to lock in high prices that may not be recouped.”
Too Much Solar
Mr. Dimery said the early era of renewables, where it was easy for companies to jump in and make a profit, was over.Due to a lack of planning and proper infrastructure, the grid was quickly overwhelmed by renewable energy produced from new projects, leading to curtailment and a lack of profitability.
“We have a glut of daytime rooftop solar energy, at the same time as 95 percent of all large-scale renewables are getting curtailed–basically switched off–in some hours on high rooftop solar days,” he said. A lack of battery storage means much of the excess energy cannot be stored for later use.
“The percentage of all energy produced by large-scale renewables that was curtailed increased from 10 percent in the last quarter of 2022 to 13 percent in the last quarter of 2023.”
The rise in curtailment has caused companies and their investors to step back from expanding renewable sources.
“No one wants to lose 13 percent of their output – and no one dares think just how much more could be lost. That could be the difference between profitable and unprofitable,” Mr. Dimery explained.
“Continued subsidies at one end of the market are driving higher uptake into a glut and undermining the economics of new and existing large-scale renewables.”
Bleak Outlook for Consumers
After sharing about the challenges facing his sector, the CEO warned that Australians would have to pay more for energy in the coming years.“We will spend more as a percentage of GDP on energy, energy services, and energy infrastructure. Capital costs more. Labour costs more. Transmission costs are rising.” he said.
“Whether we pay through the tax base, or pay the large upfront costs of an electric vehicle, or batteries and solar, or we’re paying more for electricity from the grid–we’ll all pay more in aggregate.”
“We need to be honest about that. And, I don’t think the average Australian is prepared for that reality.”
Despite the bleak outlook, Mr. Dimery said that the energy sector, the government and the community could work together to firm up the grid and ensure energy security by leveraging renewable energy in the country.
“For governments, that means maintaining clear public policy, and not getting distracted with new ideas without a firm social mandate. We know what energy mix we need to blend together today. We just need to get on with it,” he said.
“And, for industry, we’ll partner with customers to help them store and shift their load to when energy is cheap … And, hopefully, we’ll partner with governments to bring on large duration storage to help shift the glut of solar out of the middle of the day for use during peak times.”
