Future Grid Forum (2013)...> Biggest risk to annual electricity bills for residential customers is an economically irrational over-investment in onsite generation (Scenario 2) > Most

2XEP FORUM ON DOUBLING ENERGY PRODUCTIVITY

ELECTRICITY TRANSMISSION AND DISTRIBUTION PRODUCTIVITY

JOHN BRADLEY, CEO, ENA

4 APRIL 2014

ENA

Future Grid Forum (2013)

ENA

ENA Members

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Outline

> Challenges in considering Network Productivity

> The Opportunities for Efficiency

> Enough with the “Dinosaurs” already…

> What’s in it for consumers…

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Network productivity – where do we start from?• Measured Multifactor Productivity

in negative phase with declining utilisation since 1998-99

• Measured Productivity has not occurred in a static environment. The service being delivered is fundamentally changing.

- ‘Unmeasured Improvements’ including Lower Emissions, Reliability Standards, Undergrounding.

- Deteriorating Load Factor due to A/C and falling average demand

• Cyclical investment in lumpy assets

Source: Productivity Commission, Productivity in Electricity, Gas and Water , 2012

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Recent Cost Drivers have been non-discretionary

Asset Replacement Cycle

No clear Regulatory Failure –

Demand Fell below Forecasts, but Capex fell also

Significant Falls in Average Demand

… not matched by Peak Demand

Debt risk Margins doubled in the GFC (now fallen substantially)

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Opportunities for Efficiency… • Pressure on Network costs now moderating

• Efficient peak demand management remains critical –

� Frontier estimated opportunity to save 3-9% of ES expenditure.

� CSIRO Future Grid Forum indicates worth 2c/kWh by 2020, about 8% of retail price.

Peak Demand Management Failure

CSIRO Future Grid Forum Report(2013)

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Tariff Reform and Metering Policy critical … • Tariff Reform and Metering Policies will

be essential- Current cross subsidies

- System resilience to future trends

- Signal to efficient augmentation.

• An integrated Road Map for tariff reform is needed :

- balanced approach to the regulation of advanced metering;

- a consumer information initiative;

- a national implementation framework for flexible pricing based on trigger events and consumption thresholds;

- the refocussing customer hardship programs; and

- deregulation of retail prices

AEMC, Power of Choice (2012)

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Reforms to Regulatory Drivers are welcome• AEMC Rule Change (2012) & Better Regulation Program

- Capital Expenditure Sharing Scheme

• National distribution network planning and expansion framework.

- RIT-D framework, DS engagement strategy

• Forthcoming DMEGIS

- Incentives-based regime

- Innovation allowance.

• Rule clarification - AER can recognise non-network market benefits

• DNSPs support access to better information

Source: APVI Solar Map February 2014

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Enough with the ‘Dinosaur’, already…

> Networks enabling DM, EG• Over 3200 MW of Solar PV, 1 Mn Households• 59% of Energex customers on DM Services

> Networks active in range of storage trials • SP Ausnet’s mobile 1MW/1MWh Storage

/Diesel• Ausgrid’s 60kW battery storage in Sydney• Horizon tender for 6 towns PV/Storage

> Victoria/SA Heatwave response highlighted• Critical Peak tariffs• Advanced meters informed faster responses;• NNS assets (EG & Portable Generation) relied

on to meet the peak;• Network investment in use;• Domestic gas network supported generation• Solar PV shifted SA peak by 2 hours (Spark)

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A very different grid but still required

> Very Different Scenarios possible

> Central grid a competitive option- Distinction between price & cost

- Most scenarios have flat or falling DNSP tariffs in next 10 years

> Exposure to highly volumetric tariffs

> Value to Networks of optionality in future investment

> Opportunity for NSPs to offer extended services.

> Informed consumer choices will be vital.

Future Grid Forum - % of Total Electricity from onsite generation

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Future Grid - implications for Customers

> Economics of ‘Grid Defection’ suggest it may not be best outcome for customers

> Biggest risk to annual electricity bills for residential customers is an economically irrational over-investment in onsite generation (Scenario 2)

> Most centralised Scenario (#1) also has least capex and opex .

Bill Outcomes and Grid Delivered Electricity in 2050

Future Grid Forum (2013)

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All scenarios require efficient access to capital

> All Future Grid forum scenarios require over $300 BN in capital investment

> Cost of Capital can be 50- 70% of annual network revenue, so customers have a direct interest in low risk investment environment.

> Realistic Regulation needed - Regulator says risk is falling.

($BN)

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Level the playing field on abatement…

> ENA has supported abolition of Small Scale RET– Distorts hot water appliance markets - up to $1100 per unit for solar

HW and heat pump but zero for gas.– PC & AEMC estimated cost at $150 - $500 /t CO2e abated– Solar PV target set in 2010 already to be met 5 years early

> Million Solar Roofs policy– Election commitment seeks

additional 1 million Solar Households to commence July 2014.

– Proposes $500 rebate for either solar panels or solar hot water systems

> AEMO NEFR 2013

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If we are serious about Energy Productivity…> Enough with the Arbitrary Targets

> Don’t prejudge the best outcome for consumers- Establish level playing fields for Non Networks Solutions, Carbon Abatement, Smart Meters.

> Recognise need to minimise regulatory risk- Risk changes the cost of capital; - Avoid revisionism

> Retain a User Pays system- Tariffs that reflect the cost to serve a customer are not ‘anti-renewable’,

‘the death throws of a dinosaur’, or ‘gouging’. - Expect Embedded Generators to meet upstream augmentation costs.

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…making forecasting uncertain…

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A long look forward (to 2050)CSIRO’s Future Grid Forum

1) ‘Set and Forget’ 2) ‘Rise of the Prosumer’

3) ‘Leaving the Grid’ 4) ‘Renewables Thrive’

• Peak Demand Mgt• Centrally delivered, low

interaction DSM, storage, EV, AMI.

• High Consumer Engagement

• Onsite Generation widespread (45% kWh)

• EVs Popular

• Volumetric tariffs fail peak demand mgt

• By late 2030s, reduced storage costs makes disconnection mainstream option

• 86% of central and local generation renewable by 2050

• Central and local storage important

• Networks play key role in centrally coordinated optimisation of charging