Substantial changes in the way we use and generate electricity is disrupting our energy supply model, but according to a new AMP Capital paper, efficiency gains will unlock existing supply and throw up a host of new opportunities for investors.
Within 15 years, 20% of us could be driving electric vehicles. By 2050, more than 40% of vehicles on Australian roads are likely to be electric, which will drive up electricity consumption by more than 30%.
How will our future electricity networks cope with this increased demand for electricity while also keeping Australia’s commitment to reducing green-house gas emissions under the Paris protocols? We will need a radical re-structuring of how electricity is generated. The challenge for policy makers, already facing voter backlash from recent energy price shocks, is how to reform the electricity supply sector at an acceptable cost to consumers.
Fortunately, a raft of newly emerging technologies suggest that the sector can be reformed at little net cost to consumers. The cost of small scale rooftop photovoltaic generation, known as solar PV, can already beat the cost of supply from large centralised remote utility scale generators. Low cost energy storage devices, known as Distributed Energy Resources, or DERs can store excess PV production and ensure supply into the evening. They provide network operators increased options for managing supply reliability and quality. DER’s will set the scene for transformation of the sector.
New technology will also. unlock substantial capacity in the existing network – capacity that is currently sitting dormant and this will reduce the need for networks to spend on expansionary capital, according to a recent research paper from AMP Capital’s Head of Infrastructure Research, Greg Maclean, and Michael Cummings, Head of Funds, Australia and NZ.
‘The future electricity network will need to focus on proactively managing all network connected assets, irrespective of whether the network owns those assets. Active management of power quality and the reliability of supply will be paramount and we expect the need for high speed communications and controls within the network will be exponential. This will drive new investment in communication and control systems,’ explains Maclean.
Cummings and Maclean are optimistic that the combination of new technology, if coupled with reform of regulatory structures can deliver a reliable future supply of electricity at little net cost to consumers, while also throwing up attractive opportunities for investors.
The future is almost upon us. Within 20 years the change from today’s inflexible network monoliths that distribute electricity from remote central generators, will be well underway. Increasingly, power will be distributed through a series of small interconnected micro-grids, which will supply a large proportion demand via local DER’s, which are in turn backed up by connection to the wider grid and larger central generators.
Regulatory control must also evolve. Current regulation is based on a strict separation of network operations from large scale generation and electricity retailing. However, AMP Capital’s observes that the network operator is the logical developer of future micro-grids, the current regulatory controls will need to be addressed to keep pace with disruption to the sector.
‘Our view is that there will be an evolution from a one-way, analogue, electricity distribution system to an interconnected, digital energy platform,’ says Cummings.
This technology-led disruption of the sector will create major shifts towards improving both the efficiency of distribution networks and the decarbonisation of the broader economy. Importantly for investors, this will bring a wealth of opportunities ranging from a high yielding bond proxy style assets to high growth assets with some demand exposure.