As climate policy claims yet another Prime Minister, Corrs sat down with Kane Thornton, Chief Executive of the Clean Energy Council, the peak industry body for the renewable energy and storage sectors. Kane tells us where he sees the policy debate heading, the hybrid technologies he can see appearing and why keeping a measured sense of humour comes with the job description for his role.
Corrs: A tumultuous past few days, Kane, one Prime Minister gone and a new one arrives. It has been suggested that NEG might even continue but without an emissions guarantee. How likely is that and how could this possible scenario work?
Kane: Yes, a brutal couple of weeks in Australian politics again. I think for those of us who have been in this game - and particularly from an energy and climate policy perspective - we've been here before, we've seen this movie before, we were hoping that this one might end differently but unfortunately it hasn't. This time it was the National Energy Guarantee. We really are running out of acronyms now for climate and energy policy mechanisms.
I think it is pretty clear at the moment that the NEG is, at least politically, going to be very difficult to move forward. It was already a complicated negotiation which required all of the States and Territories to agree on it. I don't think they're in much of mood to do that right now. The government has said that it’s dropping the emissions component of the energy guarantee and, frankly, this was the most critical part of the policy. We're now sitting here with no long term energy policy.
Corrs: There are those who’ve suggested that you don't need a national emissions reduction guarantee or policy - that the cost of developing renewable energy generation has dropped and it is now competitive with other forms of energy - that the market will drive development.
Kane: Yes, the cost of renewables has come down dramatically. If we're building new power stations in this country, very clearly wind and solar are the cheapest new forms available. Indeed, private investors today are only interested in funding and building these kinds of projects. They are not interested, to be frank, in building anything else. Now that doesn't mean to say that the business case entirely stacks up - not because these projects need subsidy, they might have needed subsidy in years and decades gone by, they don't any more - but we seem to be expecting investors to put upfront many hundreds of millions of dollars of their own private capital on an assumption about the revenue that will come to those projects over the next 15, 20, 25 years. Without some form of energy policy to give some direction, some ‘boundary’ on what the energy market might look like - and therefore the revenue stream might look like - it is pretty difficult for investors to make that call.
We will, no doubt, see some projects go ahead simply based on the market fundamentals. I think we'll continue to see State and Territory governments put policies in place in some jurisdictions to bring forward investment and give investors that confidence. I think we'll continue to see businesses in particular and also householders go it alone and do their own thing with renewables. But what we're managing here is a major transition from twentieth century energy systems - big centralised largely coal fired power stations - to a very different energy future. That transition needs to be managed carefully and it needs leadership. It needs vision and that's unfortunately what we've been lacking particularly at the Commonwealth level now for many years.
Corrs: Let’s discuss that a little further. There are a number of States that have developed detailed policy settings around renewable energy. Queensland, South Australia and Victoria have targets and a range of initiatives in place. Is that enough to ensure continuing growth and investment, without that Federal level framework?
Kane: There’s no question our preference is for Commonwealth leadership. It always has been and I think it will always will be our preference for the Commonwealth Government to take the leadership role that is necessary to secure bipartisanship and stability on policy. I think it's fair to say most people in the sector think that's the right way forward. The reality is we haven't had that. What we've had instead, as you say, is various state governments both putting in place targets and then following that up with policy measures.
Now that's complex, it's imperfect but it is better than nothing and I think what the State and Territory governments are realising is that they can't sit and wait. It has been a difficult issue for the Commonwealth and, after the last couple of weeks, it’s likely to remain that way. But the States and Territories, I think even more than the Commonwealth, are sitting there and seeing first hand what's happening. They’re seeing the old coal fired power stations closing down, and no amount of political bluster or crossing their fingers will change that reality.
So, these States and Territories realise more than anyone that they need to be driving new investment to replace that generation. They realise that new investment clearly needs to be renewable, given where the economics have gotten to and they're not prepared to sit and wait because if they do, their power prices will go up. If they sit and wait there won't be enough new investment, power prices will go up and actually the reliability of the grid within their state will come under threat. So I think if the Commonwealth still can't get their act together, we’re just going to see more States and Territories take responsibility for ensuring new investment in their power system to keep prices down and ensure reliability as these old coal generators phase out.
Corrs: Presumably the States talk to each other. They’re not in some kind of vacuum.
Kane: Yes. It’s unfortunate that there is politicisation of energy policy. The States that you named are currently Labor states or, in the case of South Australia, it was until recently. Clearly they're talking to each other. But it doesn't matter what political persuasion you are, everyone wants lower power prices. Everyone understands that the only way to do that is to bring in new generation. It just so happens that new generation is environmentally friendly and that unfortunately creates the sort of political battlelines: “Are you right? Are you left? Are you about jobs? Or are you about the environment?” I think the new reality means that governments of all persuasions realise they need to be bringing in new investment and they are. The relatively new South Australian Energy Minister has said that perhaps the States need to work together more cooperatively on energy policy given the brutal toxic complex nature of federal energy policy and politics. That’s refreshing, to be honest.
Corrs: Moving away from the politics, for a moment, let's look at some of the technology. How do you see the trajectory of battery storage developing?
Kane: It is extraordinarily exciting. If we look at what's happened in wind and solar power over the last years, take large scale solar – only three or four years ago the long run cost of large scale solar plants was in the order of $180 to $200 million. Today it is down somewhere in the order of $50 to $70 million. These are extraordinary cost reductions in a very short period of time and that to a large degree is because of scale and learning here in this country. Obviously, global factors are helping bring down the cost of technology itself.
But we're seeing all of the same things happening in battery technology right now. Manufacturing facilities are becoming more efficient, they're producing more of these and the cost is coming down. We’re now seeing projects being built here in Australia, including the world's largest lithium ion battery over in South Australia famously built with the support of Elon Musk and Tesla. We're now seeing a wave of more projects in that large-scale size and again as we did with wind and solar. What we learnt with those technologies is that every time you build one of these they do it quicker, they do it more efficiently and they do it cheaper. We're now seeing that occur with batteries.
The technology is still not quite in the sweet-spot as far as pricing but it is coming down rapidly. We've just seen from last year to this year a quadrupling of the deployment level of household batteries. We know that every time we do that, the installers for example get better at doing it and they can do it more cheaply. And the next year more and more people will be taking it up. It’s exciting – kind of the last missing piece if you like of the jigsaw puzzle. Wind and solar are the cheapest, they're clearly the most environmentally friendly of the technologies. Their variability clearly has been a challenge but it’s a desperately overstated challenge. When you combine these sources with energy storage, batteries in particular, then you solve that jigsaw puzzle and frankly there’ll be no stopping the transition once that starts.
Corrs: Do you see it as a hybrid solution?
Kane: Some of the debate has been pretty silly really in this area. But where the past was largely a small number of centralised coal fired power stations sending electricity out to customers around the country, the future is very much a distributed and diverse set of technologies and solutions.
We are seeing the emergence of an energy system where we've got things like large scale wind farms, large scale solar farms out around the regions. A lot of them are actually in regional and rural Australia which is good from an economic development and employment opportunity perspective.
We’re going to see more hydro power - about ten percent of our system already comes from water. We're going to see things like bioenergy. There is still a lot of development on the next wave of technologies – pun intended – some of the ocean technologies are still coming through. We're going to see more households and businesses going rooftop solar and putting batteries in. We're also going to see electricity being used more cleverly. Smart control systems will ensure pool pumps remain off until points in time in the day where it is windy and parts of the grid and wind farms are putting more wind into the system. So it is more diverse, it's smarter, it's more distributed and it is actually a more resilient energy system with that type of future.
Corrs: In an ideal sense if Kane Thornton was putting together a framework for government investment, what might that look like?
Kane: I think one of the big challenges is we really haven't had a vision for the energy system for a long time now. We've been having these silly political debates on the margins. But I think just outlining and being clear on what that vision might be is important. No one knows exactly the twists and turns that some of these technologies and solutions might take but I think we should give everyone a sense of that future and some commitment to it.
We need that long term energy policy that essentially gives investors the confidence to continue to invest and whether that's a National Energy Guarantee, whether that's a Renewable Energy Target or a Clean Energy Target as was recommended by Alan Finkel, the Chief Scientist only a year ago. There are all sorts of acronyms. We've tried most of them. We've looked at all of them. I think we're at a point where we need to stop bickering about exactly which one is perfect. They've all got their strengths and weaknesses but we need an energy climate policy to give investors that certainty and a sense of the long term direction.
Beyond that, there is a lot occurring in terms of reforming the system – going from that sort of twentieth century centralised model to the twenty first century diversified distributed smart clean energy system. There's a lot of rules that need to change to support that, and to be honest - to the credit of policymakers - there is a lot of reform going on there. It's very complicated, it is a very technically complex reform. Thankfully, it is probably too complex for most politicians to figure out how to argue about it - so that's probably to its advantage! But the rules around how the market works and how you might connect new generation and how a householder might be treated with their battery and solar system that wants to export out to the grid, these are all really important areas for reform. Thankfully, that's the one area that is progressing along at some speed.
We need to consider the standards around how the system works and which technologies can connect and how they connect – right through to the consumer protection. For example, how will a consumer and a householder be treated if they decide to go off the grid and have a battery and solar system if their supplier doesn't meet their expectations? What levels of recourse might they have, what's the system and process for making sure they can actually connect back up to the grid if they choose to? There’s a lot of these highly technical things that I think need a lot of attention and focus and I think thankfully they’re now getting some of that attention and making some progress.
Corrs: Finally, someone in your role and your line of work, what kind of personality do you need? Do need to be an optimist? Do you need to be pragmatic? Do you need to be a collaborator? What would you say are the defining principles for someone who operates in your space?
Kane: What a great question! Given the story that I've just told of the last ten or fifteen years of energy policy, I think patience is clearly one of them and then the other one is very clearly optimism. I think it is easy to get dejected by the silliness of the politics we've had. But when you step back and take a clinical look at what's happening there's cause for extraordinary optimism and I think I need to draw on that optimism regularly.
Collaboration is definitely a core characteristic because achieving that sort of future requires a real partnership – government and policymakers have a clear role to play. The market regulators are critically important. You've got customers out there and that's everything from smaller householders to big corporations. We're all in this together and then we've got an industry that's wanting to invest to meet the needs of those customers to work with policymakers and regulators. So collaboration is key - we can't do it on our own and we need to work together.
You also probably need to keep your sense of humour on the way through as well, given some of the silliness that we've seen over the years and unfortunately we will probably continue to see. You need to be able to unplug and have a laugh at the end of the day.
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