AEC CEO Opening Remarks - Energy2050: Mapping the Way Forward

Good morning, and it’s great to see you all here today for the AEC’s inaugural conference, Energy2050: Mapping the Way Forward.

I want to start by acknowledging the Gadigal people of the Eora Nation as the Traditional Custodians of the Land we are meeting on today.

We recognise their continuing connection to the land and waters.

We pay our respects to Elders past, present and emerging, for they hold the memories and stories of the land on which we gather and extend that respect to all First Nations people present today.

I’m delighted to be joined here today by many of the AEC team and Board members, including our Chair Frank Calabria who I’ll invite to speak shortly.

I’d also like to personally thank Snowy Hydro for sponsoring this year's event. Snowy is one of Australia’s best known and trusted brands, and I was lucky enough a few weeks back to get out to Cooma to see the unbelievable scale of the infrastructure under construction at Snowy 2.0. I’m very much looking forward to hearing from Snowy CEO Dennis Barnes after lunch about his views on the value of deep storage.

Snowy 2.0 is an illustration of the scale of works we are all collectively undertaking – a once-in-a-lifetime change to our energy system. We’re rebuilding and transforming our grid for a modern Australia that runs on

Today we are meeting at a critical juncture in the energy transition. Recent polling highlights that Australia’s traditional political system is changing at a rapid pace. And with the conflict in the Middle East prompting consumers to place more weight than ever on Australia’s energy independence, the transition remains an increasingly polarising topic.

But pleasingly, we are seeing industry coalescing around an optimal path forward. The transition will be delivered by bulk wind and solar, firmed by batteries, long duration storage and hydro, backed up by gas.

Our Energy2050 vision is the embodiment of that shared understanding coming together. It lays out a vision for what is needed to reach our 2050 goals – a system driven by dynamic and flexible wholesale and contract markets that efficiently reward the optimal generation mix, with consumers at the centre – from households to heavy industry – able to participate as much or as little as they choose, with trusted service providers acting on their behalf. 

Energy2050 is not just a vision, but a series of priority actions. Key pieces of the puzzle that need to be solved to set us on the path to success.

Knowing there is much work to be done, cooperation and coordination will be critical.  I am calling on Governments, regulators, academics, and consumer advocates to lean in and work with industry to develop solutions that will deliver the best outcomes for consumers.

This might sound obvious. But we are increasingly observing growing interventions by state and Federal governments with limited or no industry consultation.

While voters expect governments to play a greater role during this once-in-a-lifetime transition, doing this in isolation results in unintended consequences.

Poorly timed or thought-through intervention reduces investor confidence, or in the case of price regulation like the Solar Sharer offer, could actually result in higher electricity bills for some customers.

But, heeding my own call to focus on solutions and a constructive way forward, the recent review of the National Electricity Market was an excellent example of collaboration.

What made this process different was the level of transparency and regular engagement afforded by the Expert Panel. They were open about the approach they wanted to take and actively invited industry feedback before any decisions were made.

They acknowledged up front when industry might not like what was proposed and provided reasoning as to why they preferred the approach.

That is why industry ultimately backed the Panel’s recommendations. The proposed changes are not without risks, but when industry feels that their views have been genuinely considered and the resulting solution is workable, we won’t stand in the way.

To this end, we want more of this engagement approach.

We talk all the time about the need for investment certainty through enduring policy frameworks.

Some of this certainty is gained from governments being more open and transparent about what they are planning and adjusting policy positions based on industry feedback, where it makes sense to do so.

We continue to call for the Federal and the State governments to not just prioritise the NEM Review implementation, but to be more transparent about how it will be implemented.

Industry continues to retain the goodwill from the review process and wants to be engaged NOW in these discussions, NOT in six months' time when implementation decisions have been made and industry is merely expected to deliver on it. 

The energy transition is no place for political surprises.

Ultimately, it is customers that will be most impacted by the decisions that we collectively make to move the transition forward.

And we should not take that responsibility lightly.

With customers in mind, it would be remiss of me if I didn’t talk about the critical need to unlock more opportunities, and to enable retail models that allow benefits to flow to a diverse and changing customer base.

Customers have a right to be able to trust that the price they are being charged for energy services is fair, but defining ‘fair’ during the energy transition is a complex task. 

Fairness is about making the benefits of the energy transition accessible to everyone.

And note I am talking about ‘energy services’ rather than ‘tariffs’.  Energy 2050 highlights the transition to an energy services market as a critical enabler of success, where energy products are differentiated based on customer needs, rather than price.

To make this a fair transition, we need to be intentional about how we design the energy system for consumers.

Otherwise, we risk rewarding those who can afford to install their own energy resources while penalising those who can't.

We need to create an ecosystem where retailers and third-party aggregators can create more opportunities for customer participation across all segments, and for these customers to be rewarded appropriately for their efforts.

While there are a range of forecasts, it is expected that increased orchestration of consumer energy resources could unlock $45B in system benefits by 2050.

Orchestrated CER allows a retailer to reduce its costs by balancing household consumption, network pricing, and wholesale energy prices. These cost reductions will benefit all, but cannot eventuate without a functioning, sustainable, and competitive retail market.

We talk a lot about retailers needing to build trust with customers to improve the uptake of products like virtual power plants.

And that is true – these products need to ensure that customers retain a level of choice and control over how their assets are orchestrated and that the benefits are ultimately shared.

But there is another barrier. Value.

Time and time again we hear that retailers aren’t passing on enough value to incentivise customers to participate.

And I agree with that statement, but it’s not because retailers are retaining excess profits at the expense of customers. 

Retailers are incentivised to share the benefits of orchestration with their customers as it helps them to actively manage risk, not dissimilar to the way in which retailers currently enter into contracts with large generators.

It is because we need to reform the way network price signals are set.

Network operators should be required to actively pursue non-network services where the benefits of reducing congestion, and therefore capital investment, are shared with customers, via retail products. 

This is the missing link.

Without this, orchestration incentives may never be sufficient to warrant scale. 

Scale in orchestration will help to mitigate the upward trajectory for retail electricity prices.

Yes, renewable energy is the cheapest form of electricity into the future. That is not up for debate.

But it is time for an open and honest conversation with Australians about the costs and challenges of the transition – borne not just by the desire for a cleaner greener grid, but to pay for what is an enormous investment task that will modernise our energy system and ensure its security for decades to come.

The fact is, we are unlikely to see sustained, significant reductions in electricity prices over the next few years.

There is substantial capital cost to replacing ageing fossil fuel generation. It doesn’t matter what you replace this capacity with, it still costs.

As a result, AEC modelling sees wholesale electricity prices trending up over the medium to longer term.

Over time, we expect to see wholesale prices stabilising around $100-$120. This is in comparison to recent years where prices have averaged $80-100 MW/h.

And these prices do not factor in the transmission and distribution investment requirements to support the transition.

There will still be good years where wholesale prices are lower, but these will be driven by favourable weather conditions rather than by any long-term structural decline. This will be a feature of an energy system predominantly fuelled by wind and solar.

Cherry picking a good weather year, doesn’t make a successful transition. We need to be honest with Australians about what they should expect from a transitioning system, and what it means for their energy bills over the long term.

Tinkering at the edges with retail margins will not change this outcome.

Continual reductions in the retail components of the Default Offers, and the chopping and changing of their methodologies, is putting untenable stress on the competitiveness of the sector and limiting the ability to innovate.

There is no more room to give. Retail costs and margins are not optional extras to be applied only when upstream cost pressures abate.

Strong balance sheets will be required for any entity to survive and will be essential for accessing the capital required to invest in a successful transition.

But most importantly - where does this leave customers?

If energy prices do indeed continue to trend up as predicted, there will be a need for a more coordinated and cooperative approach between industry and government to address the impacts of structural price shifts.

We need to think differently about how to best support those that need it, when they need it.

In April, the AEC released its Affordability Action Agenda, which seeks to clarify the roles that industry and governments can play in supporting energy consumers through this next stage of the transition.

The retail industry accepts their role of supporting customers, but they cannot do it alone.

We need automated and scalable energy concessions that flex up and down against prices.

One really critical action the AEC is working towards is the development of an industry led Vulnerability Commitment. Modelled on examples in the UK, the AEC is engaging closely with retailers and Energy Consumers Australia to develop a consistent approach to customers experiencing hardship.

I’m looking forward to hearing more from Ned Hammond from Energy UK later in the program about the impact over the last 5 years of the UK’s vulnerability commitment.

The AEC is leaning heavily into building stronger relationships and collaborating with likeminded organisations. Over the last two years we have embarked on work with a range of stakeholders, including with Networks, consumer advocates, and Government.

But we still need you help.

I call on all of you to work with us. To challenge us. To help us better understand your perspectives. In return, I can commit that we will listen and support change publicly when it is evidently in the long-term customer interest.

I am proud today to open this conference, hopefully our first of many, where industry can put forward its ideas, and be challenged by the many highly respected voices we have assembled on this agenda today.

Thank you all for attending, to our speakers for donating their time, and to our event partner Snowy Hydro for making this all possible.

I’m sure you’ll find today’s discussions worthwhile.

With that, I’d like to welcome our Chair and the CEO of Origin, Frank Calabria for our opening keynote.

Thank you.