Alinta Energy CEO Jeff Dimery has delivered a blunt message for consumers: “Australians will have to pay more for energy in the future.”
“We will spend more as a percentage of GDP on energy, energy services, and energy infrastructure. Whether we pay through the tax base, or pay the large upfront costs of an EV, or batteries and solar… or we’re paying more for electricity from the grid, we’ll all pay more in aggregate,” he told the National Press Club on April 10.
“We need to be honest about that. And I don’t think the average Australian is prepared for that reality. Capital costs more. Labour costs more. Transmission costs are rising.”
As construction costs for new projects increase, electricity generator firms see them as increasingly unaffordable, particularly given the low margins currently being achieved at retail level.
“In 2017, Alinta Energy developed and built the first big battery in Australia for around $1.5 million per MW. Right now, we’re building another one that will cost roughly $1.7 million per MW,” Mr. Dimery said.
“I shocked people when I spoke at a conference two years ago [when I] said that it would cost $8 billion to hypothetically replace our brown coal-fired power station, which was acquired for $1.1 billion. Replacing it with pumped hydro and offshore wind today would now cost in excess of $10 billion, up $2 billion in a mere two years.
Renewables Roll-Out Poorly Planned
Australia had lost its early advantage in renewables and was now struggling to catch up.“Australia had the perfect investment climate for wind, solar, and pumped hydro. It could’ve been seen as the goldrush for renewable generation,” he said.
“But, very quickly, projects started to fail, loss factors increased, and investment cases started to crumble.
“With a lack of planning and proper infrastructure, we quickly found the grid overwhelmed, leading to instances of curtailment and a lack of profitability.”
The uptake of rooftop solar energy generation by householders and businesses means as much as 95 percent of all large-scale renewables are being switched off during some hours when rooftop solar is producing a lot of energy. That meant investors in the large-scale projects risk losing their money.
While stories often highlight small, innovative projects, Mr. Dimery says that is not where the solutions will come from.
“The energy transition cannot be achieved by simply having small entrants building new, shiny, low-capex, quickly built projects that throw extra generation into the grid.
Nuclear Power Like ‘Looking for Unicorns in the Garden’
Mr. Dimery also compared Coalition plans to replace coal plants with nuclear power to “looking for unicorns in the garden.”He noted that while it was theoretically possible Australia could build some nuclear power in the next 10 to 15 years, since nuclear power was banned in Australia and overturning this ban would be a “lengthy process,” it would be unlikely to come to fruition in time to be of use.
“Our shareholders and our board wouldn’t be too impressed if the management team was sitting around contemplating building power stations that are not legal. It wouldn’t be a great use of our time.”
He noted that by 2035, the national electricity market (NEM) is expected to require 82 GW from large-scale solar and wind—four times the current capacity.
“By 2050, we need to hit 126 GW,” he added.
“That means we need to develop more than seven times the current NEM capacity of 19 GW to phase out coal by 2050. That’s close to a doubling every decade.
Mr. Dimery said Australia could not afford to be distracted by “fringe voices” or get stuck in waiting for potential new technology that could pop up in the future.
“We have to work with what we know today,” he said.
Your Annual Power Bill Produces $34 Profit for the Retailer
Mr. Dimery also refuted the notion that, because energy prices have increased, companies like Alinta therefore make super profits.“That isn’t the reality,” he said. “According to the ACCC’s recent pricing report, retail margins are down to their lowest levels.
“The average annual household electricity bill is $1,500. The average annual retail margin for electricity is $34 ... two percent of that average bill ... a little bit less than a family meal at my local Red Rooster.”
That meant companies like Alinta, which both generates and sells electricity, were barely profitable.
“In the last five years, the top three gentailers [generator and retailer company] in this country have collectively written off in excess of $10 billion of shareholder funds,” he said.
“There’s a race to net zero, but it’s supposed to be for emissions not profit.”
