Welcome to the December/Birak—'season of the young’ 2019 newsletter that shares unique and original commentary on WA infrastructure. In this edition: 1. Lithium blues 2. China Belt and Road Initiative 3. The trilemma of power 4. Speculation on WA new energy tariffs – 2020 5. Microgrid batteries and economics 6. Interview with Brian Innes 7. The power of vulnerability 8. Infrastructure Australia appointment
Clean Energy Council conference L to R Sally Torgoman, Zoe von Batenburg, Cameron Edwards, Ritika Chopra and Peter Ross.
From the Terrace: A Local Perspective
We are delighted to share some of the intriguing developments in the local infrastructure industry. Amongst other specific commentary, the general theme of this newsletter is remote power generation, stand-alone power systems, microgrids and how they are used. The long development of the required technologies, reduced product pricing and overcoming natural risk aversion in the energy sector, have reached a point where the worldwide transformation of how energy is generated, stored and used is rapidly accelerating. This transformation will have global ramifications and due to a variety of local factors and conditions, Australian firms initially have competitive advantages and related challenges. On one side, the costs of energy should decrease across the entire community while reliability, local transmission resilience and access should improve. On the other side, large utilities with high fixed costs will be increasingly challenged on pricing and service. As we are seeing, government policy, legislation and regulations are in the process of being adapted for these challenges, at least in SA and WA. A consequence of these changes are the increasing penetration of renewables are causing issues in the grid where the Australia Energy Market Operator now wants to ‘spill’ excess renewables to protect grid operations (more on this little chestnut later). In addition, this is an opportunity for the WA state government to make some money, even export dollars! Horizon Power and Western Power are recognised leaders in remote power generation, microgrids and stand-alone power systems however, their focus is restricted to within WA. To my knowledge (and I have asked) this valuable intellectual property, equipment and experience is not being used in projects outside WA. The opportunity is to monetarise this value not only in the rest of Australia but more importantly Africa and Asia. When water and communications are linked the market is large, very, very large. For instance our work with the Asian Development Bank has identified over 200,000 suitable projects in only 18 countries. The question is, how can this additional value be captured?
So, let’s dive into some of the key talking points we have been dealing with over the last couple of months while shining some light (LED of course) on future developments. Best wishes for the summer solstice on Sunday 22nd December and the related festive period.
1 Lithium blues Don’t worry about it. When you have one dominant player (China) of course the market is not free (are they ever) and will be skewed towards their long term strategy. China’s strategy is well documented and we predicted some time ago this would happen. The demand forecast for lithium products in the coming years is so massive that prices will go up again however, the majority of the gains will go to downstream processing companies. From our perspective, China has already won the electric vehicle industry competition, although batteries will likely be only one portion of the energy propulsion mix. Batteries are not the endgame, they are a portion of the market – but it is not a free market. For some reason some Western democracies are assuming that the past will be the same as the future however, these are very different market mechanics compared to the last 70 years. It seems that the key weakness is the limited time between elections to design and implement appropriate strategic plans in this sector. From our understanding of the market, research objectives should not be about improving existing battery technology (China is all over this) but should be focussing on new battery storage technologies. That is where the real value is and where society wants to develop jobs. There are many different types of energy storage technologies including: • mechanical (gravity, hydro, compressed air, fly wheels etc) • thermal (molten salt, waxes, water, concrete etc) • chemical (lithium, hydrogen, ammonia, lead/acid, nickel–cadmium etc) Each have positives and negatives (no pun intended) however, lithium-ion (li-ion) batteries have recently begun leading the field from both a technical and a cost perspective. Over the last eight years the price of a li-ion battery has fallen by approximately 85% and further price declines are likely as production ramps up and chemical mixes and unit configurations continue to improve. Grid-scale batteries are now being deployed in several parts of the world and this is a trend that is likely to grow in the decades ahead. Off-grid electricity demand in Australia is predominantly driven by demand in the mining sector with smaller additional demand from rural communities which has grown progressively in recent years. This entire industry to rapidly transforming with Australia being a world leader.
2 China Belt and Road Initiative The Belt and Road Initiative (BRI) was launched only 6 years ago in 2013 however, its impact has been immense. Since then 136 countries and 30 international organisations have signed BRI cooperation agreements and received over USD 90 billion in Chinese Foreign Direct Investment (FDI) while exchanging over USD 6 trillion in trade with China. President Xi Jinping has described the BRI as the ‘Project of the Century’ although there has been much discussion about the motivation and long term strategy. Despite criticism from various organisations, countries and communities, there has been significant social and economic impacts that would not have been achieved without the BRI projects.
Adam Handley moderating discussion at the BRI forum
The participants in the BRI panel.
At a recent lunch of the Australia China Business Council in Perth, the general feeling was that the political environment between Australia and China was jeopardising tens of billions of dollars of domestic and international infrastructure projects that Australian companies could be part of. Ambassador Qi Zhenhong from the China Institute of International Studies shared many of the compelling benefits of the BRI. A proposal from the lunch was to establish industry round tables in 2020 to further enhance the existing relationships with China and increase Australian involvement in the BRI. The discussion was impressively mediated by Adam Handley (Partner – Minter Ellison) who asked many insightful questions and highlighted key challenges for Australian engagement with BRI projects.
3 The trilemma of power In our interview with Brian Innes, we discuss the trilemma of power, that is, how to achieve cheaper, cleaner power with existing or better reliability. A recent Energy Networks Australia report stated that existing regulations need to be updated for multi-directional grid networks, standalone power systems and microgrids. What is important is that the governments haven’t just selected middle aged electrical engineers (male and female) with decades of experience in power systems. This requires a new way of thinking and being open to lessons from around the world. I’ve been pleasantly surprised by the calibre of the people, many of them women, I have spoken to who are directly involved with formulating these new regulations and how the energy sector will be transformed. As I publicly stated during my Clean Energy Forum speech this year, it is night and day from a couple of years ago, when there was fierce resistance within power company operational teams about developing projects in this new sector. It should be remembered that Western Power and Horizon have been leading the way for well over ten years in this sector and the developments around Esperance, Kalbarri and Onslow are world leading. WA’s unique operating and regulatory environment presents significant challenges that also provide the opportunity to become a world leader in this area. There is no question it is happening with or without government and, as Abraham Lincoln and Peter Drucker said, “the best way to predict the future is to create it”. The opportunity is there for the WA government to go “all in” in not only championing this energy transformation domestically but exporting this knowledge, equipment, systems, software, remote maintenance etc. around the world. This has the potential to create tens of thousands of new sustainable jobs. Implementation of microgrids can assist towards transitioning to renewable power, industrial energy assurance, and relieving global energy poverty. The emergence of this technology presents significant opportunities for WA to become a world leader in this space. This could provide economic growth, through purposeful cross-sector collaboration across the global microgrid value chain. Nevertheless, we need to ensure collaboration between private and public power providers and enable regulation to keep pace with change. A recent ABC news article recently said the Audrey Ziberlman (CEO & MD of the Australian Energy Market Operator (AEMO)) wants the ability to control households’ solar power input to avoid grid overloading and potential power cuts. Putting in batteries would achieve the same outcome while not wasting this green energy, while at the same time improving grid resilience and voltage management. Is installing in smart inverters to spill excess green power to protect black fossil fuel generation really the way of the future? This has become a significant problem in WA where in the South West, approximately one third of households have solar panels. Solar capacity is over 1,000 MW and growing by about 200 MW per year. Muja’s capacity is 854 MW and yes, the authorities have done the maths. The first question is what do they do about it and secondly how can this be turned into a positive industry in the future? Fighting a losing battle, which AEMO seems to be proposing, is wasteful and short-sighted. Big utility grade batteries are one option. Household batteries and smart inverters are others. Why not embrace the transition and export the benefits elsewhere? From our interaction with Western Power, the agency has been very proactive in their approach and we should be thankful Western Power was not privatised. This is an area where commercial opportunity can outweigh benefits to the community, as the Eastern States are finding out to their cost. A friend suggested we should be ‘shorting’ utilities as the energy monopolies are being eroded and their business model and cost base is being undermined by new technologies and business models. Something for the Christmas BBQ discussion…
4 Speculation on WA new energy tariffs – above normal forecasts - 2020
One of the big topics discussed at the recent Clean Energy Forum in WA was speculation over the new energy tariffs (above existing forecasts) that will be released in 2020. The Australian Energy Market Commission (AEMC) recently forecast that power prices on the east coast will decrease by an average $97 over the next three years, while in WA power prices are expected to rise $102 or 6%.
Discussions revolved around: 1) How could tariffs go up when solar and battery pricing continue to go down? Isn't this increasing the incentives to opt out saving the connection fees? 2) Fixed pricing no longer works and a dynamic pricing model needs to be implemented. Do the systems exist for this? 3) Customers now have reliable, low cost alternatives and no longer need to rely on a closed market operator. The monopoly environment is being undermined. 4) Synergy is making great strides towards improving customer service, but it is the fixed costs where the arterial bleeding is. Stemming this bleeding without major restructuring and reform (coming up to an election) is......difficult. Costs would need to be reduced by an estimated 30-40%. 5) Apart from increasing tariffs, does Synergy have potential new major sources of revenue? 6) Current residential pricing is 28 cents per kW and increasing above CPI. This needs to be 10-15 cents per kW to be competitive going forward. How can this be achieved? 7) Does Synergy need a new business model? Of course, there are no clear answers at this stage however, everyone agreed energy generation and distribution is rapidly transforming the market and there will be winners and losers. Who are the winners and losers? It is also happening a lot faster than was being predicted only a couple of years ago and it could be argued that WA has already passed the tipping point.
5 Microgrid batteries and economics A microgrid is a small-scale power grid and can operate independently or connected to the main electricity grid. A renewable energy microgrid can draw electricity via different energy sources including solar, wave and wind power. They can also contain battery storage capabilities and a backup generator. Microgrids such as the Onslow microgrid, have the capacity to provide electricity for a whole community. Microgrids can also be distinguished from stand-alone power systems by potentially having multiple load and generation sources, potentially owned or operated by many parties, within an electrical boundary. Stand-alone power systems (SPS) are usually intended for individual users such as mines, farmers, industry or households.
Minister Johnston at Magellan in front of the Western Power stand-alone power systems – Nov 2019. Note : InfraNomics has a commercial relationship with Magellan. Magellan Power delivers stand-alone power systems to Western Power. Western Power is a world leader in stand-alone power systems. For the project, Magellan Power manufactured AS4777 compliant 10 kVA, 25 kWh Stand-Alone Power Systems comprising of bi-directional inverters, lithium battery modules and microgrids - all Australian designed and made by local engineers and assemblers. WA Minister for Mines and Petroleum; Energy & Industrial Relations Bill Johnston said “It’s wonderful to see local companies like Magellan working in this field. We are lucky have some of the world’s leading technology developers of Stand-Alone Power systems here in WA, which is very heartening to see.” Masoud Abshar, Managing Director of Magellan Power, said the project highlights Australian capabilities to design and manufacture world leading renewable energy technologies of Pilbara quality products. Great to see the WA Government, and in particular Minister Johnston, recognising the contribution of Western Australian manufacturers. Well done to Magellan Power for leading the way in this important industry where Australian companies are world champions in remote power supply. Important points to consider when selecting batteries for a microgrid or stand-alone power systems: Batteries are central to balancing and maintaining a reliable microgrid with stable voltage and frequencies. When considering batteries there are many other variables that need to be considered apart from cost, in particular: • Local servicing support • Specifications and certification for local conditions (Pilbara Quality). Operating in extreme conditions (heat, cold, salt, dust, wet etc) • Warranties • Integration with generation and usage • Reliability • Efficiency of the software and power smoothing tools to reduce wear and tear on other generation • Efficient charging and discharging of batteries to maximise the life of the batteries • Upgrading options • Battery cell management • Energy shifting • Reduced grid charges • Higher renewables usage
Source : WA State Government – Energy Policy Transformation Strategy September 2019 Both microgrids and SPS are designed to provide reliable energy where they: • Are located where grid network access is not available • Replace grid connected power as an alternative to traditional poles and wires • Provide a cheaper alternative to existing power supplies • Increase power reliability • Improve sustainability, reducing emissions, noise and pollution. • Can also be used for buildings, integrated developments (White Gum Valley – Fremantle) or high-rise.
Diesel generation is no longer the most economic and should be replaced with a hybrid solution including solar and batteries. Battery Energy Storage Systems (BESS) + solar + traditional generation (fossil fuel) + grid connection (if possible) is the lowest cost, lowest emissions and most reliable energy solution for most environments. According to ABB’s Microgrid for Commercial and Industrial (C&I) sites presentation from 2017, microgrids can reduce fossil fuel consumption by 45%. Although each project and location needs to be reviewed on its own merits, developments since 2017 and the Australian environment show that fuel consumption savings are now closer to 70% and increasing. Based on our recent projects, energy costs are between 10-15 cents per kW. This is dependent on the configuration and equipment used over the project life.
6 Brian Innes Interview 29 November 2019 Note : InfraNomics has no commercial relationship with Starling Capital or Plico currently or in the past. The questions and answers are independent and unfiltered. Apart from being a transformational business model, consider what operational options are available in the future once a critical mass of customers have signed up.
For the layman can you tell us about Plico Energy? We are building an energy company and everyone is invited. The essence of Plico is that everyone who joins not only will receive a system that includes 6.6 kW of Solar Panels and a 7.2 kW (LiFePo4) battery and software, they will also receive full service and become a part owner in the company. At the end of 10 years the initial investors exit and the assets revert to the community of owners. It will be built unit by unit and will progressively take over the grid until it is the major energy company doing things that only energy companies can do. Major energy companies control ancillary services, help the grid with voltage, frequency, capacity problems and things that households could never do by themselves. Collectively, as part of an energy company, we can do this. You say Plico is an energy company however those are pretty common. Synergy is an energy company, how do you differ from Synergy? Synergy is an energy company that we all own that loses money. Plico is an energy company that we will all own that immediately makes money for the individual. Plico is an energy company that is focused on the customer and helping the customer/ household get the best utilisation of their assets to reduce their costs. Plico is not trying to sell energy, Plico provides a service so households can use their own energy in a better way, generate more of their own energy and make money from this energy. Why hasn’t this happened before? I think it has taken a combination of getting to this price point of $36.50 per week that required reductions in the capital costs to convince infrastructure investors that this is the way of the future. To find a way to use smart software and embracing the local hearts and minds through the local engagement program we have been running over the last year. Has Plico been a technology, finance or political breakthrough? We would describe ourselves as a business model innovation more than anything else. Plico has taken lots of existing technology and finance and combined them in an innovative way to create a new business model. Plico has struggled to convince some investors and government agencies as they have expected to see a new technical widget. By that definition, Ikea and McDonalds wouldn’t have received money either. Many people say your product is transformational in the energy sector, why is that? Everyone in energy talks about the trilemma. Plico delivers energy cheaper, cleaner and more reliably than ever before. Plico can offer over 50% savings over 20 years compared to what customers are currently paying. Fully serviced, fully managed, full support, no headaches to worry about. It is over 90% clean energy as it is roof solar and a battery system. Plico also offers a backup circuit so that if the grid goes down, their lights stay on, so it is more reliable service. Solving the trilemma is transformational. Why did it happen in WA and not somewhere else? Being a proud Sandgroper born and raised, I have to check myself now and again to ensure I’m not being biased. The main thing about WA is that it is the smallest most sophisticated grid on the planet. Yet WA has all of the big grid problems. WA has a very low density grid that costs a lot money. WA has amazing solar and wind resources and a coal resource problem that is transitioning. WA has all sorts of balancing issues because WA is effectively a small 2 GW microgrid. It is a tiny grid from world scale, so WA is coming up against the solar penetration limits already. We know that the Horizon grids have already reached those limits and parts of the WA grid (SWIS) are close to it. For instance in Baldivis they are saying there is already too much uncontrolled rooftop solar. So in order for a Virtual Power Plant (VPP) to really prosper you have to go and find where the problems are. People will pay to solve a problem. WA has more problems than most places so this is the best location to learn and develop. Also companies have been coming to WA for years to test products because no one is watching. WA is a really good place to develop this technology. If Plico has some hiccups, it is possible to recover and build a successful business. WA is a great place to innovate and international investors recognise this too. If you look at the high solar penetration on the grids around the world, like California, they have their own problems and even more problems now with a bankrupt network. There are parts of Europe with higher distributed generation, particularly Germany leading the way. However, they don’t have anywhere near the solar resource we have and they have a massive winter heating load problem which WA doesn’t have. The places we can solve these problems (about VPPs) quickly (years not decades) are going to the economies that have climates like Perth, like California, Portugal and hopefully Africa. Especially in Africa where we hope they never have to build a transmission line again. In your words, what is a Virtual Power Plant (VPP)? At an individual level a VPP provides a user with clean energy reliably. The system will provide them over 90% clean energy, greater control over their energy, more information than they have ever seen, and make better use of their energy at the same time. A VPP allows the collective to tap into the large scale energy value streams that a household cannot get access to by themselves. Plico is very clear that there are certain things it can’t do because of the regulatory environment. What households get is a team of energy specialists trying to maximise the value of the energy they produce (as opposed to being a captive customer). There are benefits of being part of a collective which aren’t possible as individuals. Examples such as stabilising voltage, frequency control (subject to regulatory hurdles) can assist immediately with Synergy’s capacity problems - particularly around their notional wholesale capacity liabilities. We want to do a deal with Synergy and hopefully one day with AEMO. When there are thousands of Plico Members in our VPP with MWs of capacity then we can organise a good deal. When you’re trying to sell 3 kW of extra capacity in a peer to peer trade it isn’t a particularly good contract, and you are going to lose all the value in the transaction costs. How is Plico impacting the regulatory environment? We are 100% committed to focusing on areas not constrained by regulation. Plico is not reliant on regulatory change. Relying on a regulatory change for the business model is a recipe for disaster. We see Western Power as the long term strategic partner as this is a way to deal with Western Power’s low voltage issues and Western Power doesn’t have the measurement capabilities. VPPs actually provide the measurement capabilities (at no cost to Western Power) so that the problems can be fixed. This is the same issue with Horizon. Once Horizon started putting out Smart meters with enhanced measurement they realised how bad the voltage stability issue was, but didn’t have simple tools to fix the problem however Plico does have the tools. Plico will find a way to make it economic. Western Power is very interested in batteries to help stabilise the network. Every house currently gets 7 kWh storage, however Plico can upgrade this to 14 kWh. Plico can install batteries at the marginal cost of the battery cell, no integration costs, no system costs. There is no way Western Power can install batteries at the price Plico can. What have been the biggest challenges for you so far on the project? The contractual process of convincing an infrastructure bank to put in $50 million for mums and dads. This is the big innovation. The complexity of dealing with contracts which are protected by consumer law and the regulatory environment while at the same time saleable. Anyone can write a one-way contract, but that wouldn’t work in this situation. So essentially Plico had to write a contract with themselves because it represents the community entity with external financing from SUSI Partners. Essentially a tripartite contract process which is really creative in its approach. That is the core of the business model. As is common project development, the project dies and was resurrected three times on the way through, but this a sign of good project in the minds of SUSI Partners (infrastructure bank in Switzerland) - who are so happy with the results, they have asked Plico to be their VPP and O&M worldwide. If you were to do the project again, what would you do differently? Very happy with how quickly it has gone, about 12 months. So thankful to the Dunsborough community for their patience and support; they have been through our hiccups because they believed in our vision. Haven’t had much support from some of the media and there is a lot of inertia about supporting the status quo. I’d set my expectations better especially timing and management of those expectations. Stakeholder expectations is the area to focus more on. The key aspect of VPPs is stability of communications and stability of control. This comes down to the evolution of software and technology. The Intellectual Property is coming from Redback Technologies in Queensland. WA is an unusual business environment. For these types of projects how much is political and how much is commercial focused? Why? Plico began the business thinking the company would need to have a strong political focus and that reduced over time. There is no active engagement in the political process. Plico doesn’t need anything from the government. Two critical points to making this work was no banks and no grants. The reason is the risk committees demand changes to contractual conditions which undermines the business model and takes the focus away from the business. What advice would you give to leaders of future projects in WA? The best advice I would give about project development is eternal optimism is an absolute given. Every problem becomes how to get around it. There are lots of road blocks. You need to be resilient as a human to push through those road blocks. That is the most important skill – back your ability to solve a problem. Every problem you see, others are seeing those problems too, so if you can find a solution, you have something different. Do you think the WA economy is sustainable? Why or why not? Absolutely. The biggest problem in attracting major investors is because WA is dependent on a coal power station. If we want to attract major energy companies focusing on data centres, battery manufacturing, processing, renewables whatever, we need to clean up our energy quickly. Because of WA’s wind and solar resources Plico believes WA could be at 90% renewable generation within 5 years. There is nothing holding WA back either technologically or financially. The finances are already there. It is just will. WA could be a shining beacon worldwide. The biggest issue I run into is myths. Myths that batteries are too expensive, it is better to buy a battery now. We also need to accept wind is the cheapest, cleanest form of energy on the planet, and we need to harness as much wind energy as possible. Electric vehicles – WA is ready, as it is mobile power storage. To have a decent career in WA in the future, what advice would you give school kids about the skills or disciplines to focus on? Kids need to learn resilience, creativity, soft skills. You don’t need knowledge, you can find it. Knowledge is everywhere. Learning how to learn or more importantly learning how to access all those things you want to learn, is the key. What type of industries? There is an awful lot of innovation coming. If you can start learning how to automate or program a drone, learn about autonomous skills, WA should be an automation hot spot world-wide rather than trying to hold onto past jobs. WA should be doubling down. My advice to politicians is that “You need to open the flood gates to get all of the autonomous specialists worldwide.” We already have a lot of it here, particularly for the mining industry. Anything to do with the energy experience. Plico want people to enjoy using energy and making themselves feel good. Most people these days feel guilty using energy, and they hate paying bills on a 60 day cycle that shocks them. Plico wants to get to a point where consumers are so empowered that they know the energy is theirs, they made it, it was clean. They feel great about it. The key lightbulb moment I had was that the whole energy industry has been driven by engineers and economists. All the fights have been between economists saying it should be the market and engineers saying they need risk and stability control. These two groups have been butting heads for a hundred years. It should be customer driven. Every successful business worldwide at the moment focuses on what customers want and need. The current energy market doesn’t even know who the customers are. Everyone is busy and you seem to have more demands on your time than most. How do you organise your time? You only win a sailing race when the rest of the boat is running itself and the crew knows what they are supposed to do so the skipper can see where the boat needs to go. The best boats are when the skipper gets his head out of the boat. So really focusing on what is important and let others look after the detail and this is where automation is phenomenal. Do you have any other comments about developing infrastructure in WA? What? We need to find a way to be more ambitious in addressing climate change. When you look at the engineering and the political debate around our energy systems you quickly realise that the inertia in those area would never be able to respond in time based on what the science says. A bottom-up movement, be that environment or social, has always started at the bottom. It never comes from the top. The Plico project is extremely different by design because we want it to bubble up from the bottom. There is no shortage of talent to be found across whatever field you need. WA has the most interesting energy problems and opportunities sitting on our door step. The SWIS is a great place to learn and develop technologies that can be applied around the world. For example, Africa needs to be 100% renewable and completely bypass traditional poles and wires transmission systems. Historically, WA has always focused internationally and is very globally conscious. This sector could be a massive export sector for WA. People, systems, technology, automation, batteries even the regulations. It comes down to will and ambition.
7 The power of vulnerability
It’s unlikely you will often read an article about vulnerability in an infrastructure newsletter, but here is why you should think about this. Joanne Church recently introduced me to The power of vulnerability | Brené Brown https://youtu.be/iCvmsMzlF7o. Vulnerability is important is that according to Brené it is also the birthplace of innovation, creativity, empathy and trust. Our society is being transformed by automation and hard skills will no longer be as valuable as in the past. Soft skills, like communication, emotional intelligence, cognitive or emotional empathy, innovation, creativity, empathy and trust will become more important and can’t be replaced by machines. Business leaders often tout that there is a need more soft skills in the infrastructure industry and perhaps we need to embrace vulnerability from time to time to achieve these uniquely human talents. This also means that companies and people who don’t embrace vulnerability are unlikely to have the soft skills required for the future and are more likely to become redundant.
8 Infrastructure Australia appointment
The positively loquacious Marion Fulker was recently appointed to the Infrastructure Australia board. Marion recently shared a vulnerable time of her life which showed an unknown side. Marion’s leadership of the Committee for Perth has had an immensely significant impact across a variety of issues. Her appointment was well earned, an astute choice and will benefit WA. Now, with more functions to attend, Marion will need to travel to Beijing more regularly for her wardrobe requirements.
Boorda Cameron