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Burning up: what will we do when the energy runs out?

Podcasts | 5 March 2023

Katja Ignatieva

Associate Professor

Michele Roberts

Associate Dean Post-Experience

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The Business of Supply (episode 3): Today, energy markets are in a state of intense flux. How can leaders inside and outside the energy sector best keep up, and plan for the secure future of their industry?

Guests:

Ben Hutt, CEO & Managing Director at Evergen and AGSM MBA alumnus
Katja Ignatieva, Associate Professor, School of Risk and Actuarial Studies, UNSW Business School
Michele Roberts, Associate Professor, AGSM Academic Director and Associate Dean Post-Experience at UNSW Business School (podcast host)

Find out more about Associate Professor Katja Ignatieva’s research below:

https://www.unsw.edu.au/staff/katja-ignatieva
https://www.linkedin.com/in/katja-ignatieva-564066b
Read now: Energy crisis: why are electricity prices set to rise?
Read now: Credit default swaps: how sector volatility spills into related markets
Read now: When power prices spike and a whole state blacks out

Transcript:

Narration: If you’ve opened your energy bill with a sense of dread in the last 12 months, you’re not alone. With energy prices soaring around the world, individuals and organisations alike have been left asking: how long can it go on like this.

These dramatic price surges – caused in part by recent destabilising events – have underlined the importance of maintaining reliable supplies of energy.

But having reliable access to affordable, sustainable energy is by no means a new concern. Whether its future-proofing against energy supply risks or calculating the impact of human-driven climate change, access to affordable and sustainable energy has been a major issue for decades.

So how best can today’s leaders make sure they and other organisations have access to reliable energy? To plan for the secure future of their industry and work towards a cleaner planet?

In this episode of the Business of Leadership podcast, AGSM’s Associate Professor Michele Roberts is joined by industry and academic guests, to discuss and debate the best ways Australia and other countries can move forward when it comes to the future of energy supply.

Ben Hutt, CEO & Managing Director at Evergen and AGSM MBA alumnus joins us, to share what role he believes renewables, decentralised systems and energy access equality has to play in the future of energy supply.

We’re also joined by Katja Ignatieva, Associate Professor at UNSW Business School. Her research focuses on the dynamics and volatilities of the energy markets and considers what steps can be taken towards smooth energy transitions while retaining cost stability.

Michele Roberts: Welcome back to the AGSM Business of Leadership podcast.

I’m Dr. Michele Roberts. I’m Associate Professor and the Academic Director of AGSM, and the Associate Dean of Post Experience Programs at UNSW Business School.

We are taking a deep dive into the business of supply, and in this episode we are looking at energy. We’ll be looking into what every leader needs to understand about the future of energy and the energy transition and what it will mean for businesses.

Michele Roberts: I’m joined by two experts from the UNSW community.

Our alumni expert today is Ben Hutt, CEO and managing director at Evergen. Ben’s a graduate of the AGSM full-time MBA class of 2006. Evergen has a laser focus on the eradication of coal fired power stations, and the mission is to combat climate change and address energy access by facilitating the transition to a resilient, renewable decentralised energy system of the future. Our academic expert is Katja Ignatieva, associate professor at UNSW Business School. Katja is an expert on dynamics and volatilities of energy markets. Ben and Katja, welcome.

Katja Ignatieva: Thanks, Michele.

Ben Hutt: Thanks for having me.

Michele Roberts: Ben, let’s start with you, tell us a little bit about your work relating to energy supply chains. How did you get into this and what have you been working on and why do you think it’s such an important issue?

Ben Hutt: Thanks for having me, Michele. I’ve spent most of the last 10 years building disruptive software businesses and helping entrepreneurs and investors build companies around the future. Four years ago I began my journey at Evergen with a clear vision that software enabled really by this era of the internet of things where pretty much every device is connected to the internet, the vision was that you could use software to balance and coordinate devices as part of a decentralised energy system. I guess that’s the core premise for me, is that I’m father to three children of my own and three of my wife’s children, we’ve got six daughters collectively, so legacy in thinking about de carbonisation and climate change is something that is super important to me.
I think as we’ve seen this year, transition can be volatile. It doesn’t take much to break a fragile system. So, I think Evergen’s whole business is really around reducing fragility, improving the way assets behave as part of an overall system. This involves things like tens of thousands of homes with solar and storage as a decentralised power plant, but also things like solar farms, solar farms with batteries and solar farms with hydrogen generation and storage on them. There’s lots of different types of decentralised energy participants, but our focus is on coordinating them and controlling them for lots of the different stakeholders and ultimately improving people’s return on investment in renewable technologies so people invest more in them. That’s the whole thing about destroying coal by improving and accelerating the adoption of these new renewable technologies.

Michele Roberts: Thanks, Ben. And Katja?

Katja Ignatieva: My background is actually in mathematical or quantitative finance. I hold PhD in quantum finance, and my research is predominantly in financial econometrics. Basically, I’m trying to come up with mathematical models that allow us to describe the dynamics of energy markets and volatilities. So, for example, I’m looking at the markets from the retailers point of view. Retailers, they have to buy electricity from the wholesale market and sell it to businesses and households, so they face a very challenging task of managing their risks of extremely highly volatile prices. When the energy price spikes and the retailers have to pay this high price on the spot market to purchase the power, but then they have to deliver this power to our consumers, to us and customers at a more or less fixed price.

So, obviously they would be interested in how to effectively mitigate these risks of extreme price fluctuations, and this will eventually help us to stabilise price in the energy markets. My research is focusing on coming up with comprehensive mathematical models that describe the dynamics of the energy markets and its volatilities and trying to provide recommendation to market participants like retailers in the first place, but also policy makers and generators on how to effectively mitigate the risks of extreme price fluctuations. Clearly, while doing this quite mathematical research, I have to gather a lot of information, a lot of background on the operation of the markets, including introduction of renewable generation and leaving the coal power plants domain. Basically, I’m trying to think of how to effectively capture the dynamics of the markets, keeping in mind the transition from the coal and gas plans to more renewable generation.

Michele Roberts: Just to put this conversation in context, I’m going to ask Ben to do something that’s pretty much impossible. Just for those who are not yet across this issue of a transition to clean energy, what will the energy transition look like? As Australian leaders, what might we expect to see happen over the next three to five years or right through till 2050? What will it look like for us?

Ben Hutt: I will try and do the simple version of this, because electricity is fiendishly complicated. What most industry expects is what AEMO described as a step change transition, which really is a rapid adoption of renewables, rapid building of transmission to allow greater resilience, and more interconnected smaller systems as part of the bigger energy system. What we’re seeing now that the federal government has made those commitments is there’s lots of investment occurring in things like offshore wind, onshore wind, solar at scale, lots of storage on solar. Evergen is involved in lots of storage projects, including hydrogen on solar farms. So, we’re seeing this deployment of renewables, but there’s lots of little obstacles in the way of it going as fast as any of us would like. I think part of that is on the supply side. It’s things like unexpected breakages cause volatility, which in some cases cause bad outcomes for the system or bad outcomes for half of the market. So, we need more resilience, which means we just need things to go faster.

Katja Ignatieva: Can I add to this? I agree that we need to increase the share of renewables at a very fast pace, but I’m not sure how realistic we are about the timeframe. I think finding an optimal tradeoff between shutting down all major coal fire generation and then trying to reduce gas emissions at a very fast pace is wonderful, but what happens if we shut down too many qualified generation power plants prior to reaching a sufficient infrastructure or target for renewables? Don’t we risk to fall short of demand within the next couple of years? Then clearly if we wait until this share of renewable energy generation has reached, the prices will also continue to rise.

So, from my perspective, also from a modelling perspective, I agree that in the medium to long term we should accelerate moving to renewables in order to reduce the energy prices, but during the transition stage, aren’t we supposed also to look into alternative short-term strategies to ensure the sustainability and also stability of the sector guaranteeing the uninterrupted power supply to customers? And perhaps from that perspective we should also include investment in old dispatchable generations. That’s probably my academic question to Ben, how does he see that?

Ben Hutt: Well, I think you’re absolutely right. I think this year some of the disruptions in the energy market proved that this is actually a very complex multiplayer game of game theory where people act rationally to maximise their own outcomes. So, if I’m someone who owns lots of coal fired power stations, my objective is to run them for as long as possible, and ideally to get the highest price possible I can for electricity generated by those assets. What we saw this year, and there’s been lots of causes of dislocation in the energy markets, not just in Australia but globally this year, but we saw a period in time where the Australian energy market wasn’t functioning as a market anymore, and it required the market operator to basically tell people what to do and change the rules of the game in order to keep the lights on, which is fundamentally their job.

One of the issues I have in this whole transition is that whilst AEMO has put forward the best version of the plan, which is the integrated systems plan, they don’t have authority to implement it. No one does. No one can sit there and tell, let’s say, AGL, Origin and EA when to retire which plant and balance that with new capacities and new generation or new storage. Coming online to deal with it catches issue of the volatility. We definitely can’t be retiring things early, otherwise the lights go out or power prices get really high. This is the need for an orderly managed transition, and it’s extremely challenging. We saw dislocation in the market this year. It actually, I think, set Australia’s energy market back a couple of years because lots of the small retailers died, and they died because they were inappropriately hedged, for the most part, to deal with a black swan kind of dislocation in the market, and that ended up in them giving all their customers back to the big three.

So, if we were writing a fairytale and it was a battle between old and new or good and evil or fossil and not fossil or some version of that, we took two steps forward and then one step back this year. Now, I’m personally delighted by the pace at which Origin and AGL and others, EA as well, are starting to move and focus on innovation for the solution. But volatility, things not quite always being right, or we had a thing where the wind blew a transmission tower down in South Australia, which led to the whole state being completely disconnected from the national energy market. These things happen, and volatility is generally bad for most people, good for a small number of people.

I think we should expect in this transition more volatility, which is one of the reasons why I’m a massive advocate for storage, so battery storage or lots of different types of energy storage that provide backup power in some extent in the event of volatility, whether it’s at a household level or at a system level. I think that’s super important. But definitely the race is on, and I would love to have someone accountable in this country for execution of that plan rather than just description of it. But currently that’s not something that anyone’s able to do over and above the federal government setting signposts out.

Katja Ignatieva: But unfortunately the setting up of the infrastructure for renewable generation is taking time, as you’re saying, right? So, while we are setting up all these necessary infrastructure, the energy prices will continue to rise. This is happening now in a very turbulent period of time when Australia’s electricity prices are affected by the world prices, which is basically driven by a combination of multiple short, long term, economic, political and whatever weather related events, right? So, we will continue to observe the increase in the energy prices and even more extreme volatilities in the future unless we accelerate the setup of the renewable energy.

But because it’s not that simple, it takes still years, one, two, three years on average to set up a wind station or solar. Shouldn’t we be looking into other short term ways to ensure that the energy supply is uninterrupted to our customers? So, you’re saying clearly we should be putting the coal power plants on hold at some point in time, but currently what’s happening is, for example with Eraring power station at Lake Macquarie, they’re retiring ahead of schedule because their renewable energy is simply impacting their profitability, so they cannot survive in these market conditions.

So, from that point of view, from the government perspective perhaps there should be some strategic decisions in place until renewables can handle most of our needs that guarantee that coal power stations survive until that moment and provide sufficient power for Australian population, and perhaps providing some kind of relief to coal power plans, so incentives to continue to operate until this sufficient share of renewables is reached would be the best short term decision. Then of course in the medium to long term, no doubt the renewable energy generation is the most viable solution, but I think we should be realistic about the timeframe.

Ben Hutt: I agree. Nothing goes fast enough in any way, but it is at least starting to go faster now we have political clarity around what the goals are. I have grave concerns about a capacity mechanism, which is what I think you’re referring to in your notion of can we support coal to keep them alive longer than they should be, because they remove price signals and investability around large-scale renewables, so they actually slow everything down even further. It’s creating an artificial market for something that should just not be there unless it includes some sort of measure of carbon efficiency or a cost of carbon to continue to incentivise renewable electrons over fossil fuel-driven electrons.

People have talked about having a renewable energy storage target, which again is a really good idea, because storage allows for more flexibility. But I think having seen what happened in places like the UK where they did this capacity mechanism and other places, it will only act as a hand breaked innovation on the good side, the future side of the ledger and get in the way. I think there are other things that we should all be considering doing, which is Europe at the moment is very heavily focused, as an example, on shaving the peak demands of the electricity system, so stopping or incentivising people not to be using things at peak times so that the total amount of electricity required at those times is less.

I’ve long advocated for a market for what we call demand response, which is having people or companies turn things on or off when the price or the network stability’s not there, and you pay them to do that. Other countries like New Zealand have signalled a three-year pathway to having demand response as a market. In Europe, it’s quite widespread. New South Wales government’s introduced a peak reduction scheme, which is basically a version of the same thing. It’s incentivising people to change their electricity consumption away from peak times. So, I think managing demand and balancing supply and demand more strategically, which is really what Evergen does, what we are trying to do for electrons is balance when they’re generated, stored and used to make the most valuable. It’s a bit like what Uber did for the taxi services by computerising the demand and supply economics and optimising the travel time for everyone. You just get a better outcome. You don’t need more electricity. You can get away with less. But it’s very complicated, you’re right.

Katja Ignatieva: From my research, it’s actually interesting that you mentioned about shifting electricity consumption to off peak times. I’m looking at also energy demand related to the human activity cycle, and clearly we are observing that, for example, in winter the demand peaks are in the early morning and late afternoon or evening where people get ready to work or come back from work, right? So, it’s a little bit difficult to shift your consumption from these peak demand times to low demand times when pretty much no one is at home. So, I’m not entirely convinced that simply shifting the demand to off peak is feasible and doable, because there is a really very strong relationship between energy demand and the human activity cycle.

Ben Hutt: Sure, but you can use batteries. From the electricity systems point of view, the demand is shifted, you just use the battery. I’m not necessarily suggesting that households across Australia change their human activity schedules. That’s not going to be possible. But if you give everyone solar and a battery in their house that’s able to manage peak house load, then effectively those homes are self-sufficient and completely zero bill efficient. That’s what we do. But having storage there is absolutely critical.

Michele Roberts: Katja, Ben gave us a few examples of incentives that he’s seeing have some impact in Europe. Are you aware of any incentives that you think can be used here? Are you seeing any likely policy instruments that we might experience here in Australia? What impact will they have for Australian organisations if they’re introduced?

Katja Ignatieva: Well, I think people are currently being more aware of green options, and where possible they can switch to green energy, so use power generated from renewable sources. Clearly we can see some high demand for installing solar panels on the roofs over the last year or half a year, and clearly that’s the most efficient way to save energy and reduce the energy bill. Also, perhaps switching off appliances, choosing some energy-efficient appliances and switching LED lights, right? It could also be considered as some ways to reduce the power bill.

Ben Hutt: Yeah. I’ll give you a few examples. Networks and retailers in Australia, obviously there’s two separate businesses. They’re all experimenting with and changing the tariffs the different types of energy consumers face. As an example, if you’re a business, typically you have an energy tariff that charges you for your peak usage within a month and then applies that charge across the month. That’s driving those users to shave the peak, as we call it, which is basically reduce your peak consumption, which they can either do by turning things off or by using storage to supplement their grid-supplied energy. That’s a real thing. Again, none of these things matter. Whether the electrons are coming from a solar farmer or wind farm doesn’t make any difference. They’re just electrons in the system.

From a residential point of view, the similar incentive is like a disincentive where the 3 million homes who all have solar systems, they’ve all been benefiting for years from what’s called a feed in tariff, so they get paid usually a fixed amount for any electrons they sell to the grid. This hurts the retailers selling them electricity massively. It’s basically they might be paying 10 cents or 11 cents, I think in some cases it’s a state regulated minimum 10 cents for those electrons that in the wholesale market at that time electricity might be free, or even they might be paying for that electricity.

One of the things again that the Evergen does is we work with the retailers involved in those loss making solar customers, and we use batteries to reduce the cost to serve, or effectively you’re altering their hedging position by being able to move when they use energy from the grid around and when they sell energy to the grid. I think we all acknowledge that the mandated feed in tariff is going away over time because the retailers can’t afford to pay it, and the system doesn’t need electricity from rooftops at lunchtime because it kills the voltage, it makes it very difficult to keep the lights on, creates all sorts of problems.

So, I think with innovations for the networks, things like community batteries are an important potential solution. No one’s quite made them work yet, but theoretically they’re a solution to this problem. But really having lots and lots of batteries, it could be a mobile battery like an EV, but having batteries behind the meter in homes or charging up in businesses during day, that’s going to be really, really powerful, because it’s sucking those cheap and somewhat unwanted electrons at lunchtime into storage so they can be used later, either used for transport or used for lighting or heating or whatever it might be.

I think elsewhere in the world we see lots of EV adoption, much more EV adoption in Europe than we see in Australia because of policy interventions. But in the UK, you basically get free charging if you plug it in at certain times of the day. We’ll do the same thing here for no doubt. We’re working on a number of things like that. It’s all just about moving around when generated energy is either used, sold or stored. That’s basically all it comes down to, trying to balance the grid and the frequency and the voltage in and amongst all that.

Michele Roberts: One thing it would be helpful to understand more, you’ve both talked about an increase in volatility in disruption to energy supply chain in the recent months, obviously the big one being the impact of war – invasion of Ukraine. How have you seen those incidents having an impact here in Australia, and are we likely to see more of these impacts, and how will organisations experience them?

Katja Ignatieva: I think actually Russia Ukraine war is actually not the only source of instability. Of course, it did generate some significant supply shock when the majority of European countries have rejected oil and gas supply from Russia, and it was exacerbated by the reluctancy of OPEC to increase its oil production. But there were other events that has led to this as well. Australia is actually exporting most of its fossil fuels, including coal and gas, and because the prices are obviously increasing worldwide and also transportation costs are going up, this has also resulted in an increase in energy prices.

In principle, we could have sustained our own needs because we are extracting sufficient coal and gas, but unfortunately, we are exporting most of it and we are linked to these supply agreements which cannot be simply revoked or significantly reduced in the short term. There is also instability that was a result of some recent price spikes linked to supply chain disruption resulting from outages at major coal plants, and also significant increase in demand, which is related to extreme weather. Also, during the pandemic, the operation of the large number of businesses has been significantly reduced or put on hold. When we started recovering from the pandemic, energy demand started to rise.

All these factors have actually generated this massive increase in the power prices and resulted in extreme price fluctuations. I think until we are able to come up with a reliable short term in the first place strategy to stabilise the energy prices, there will be some delay between the decline in the wholesale prices and the reduction of the energy bill for the household. It’s really hard to achieve low prices in the short term, but hopefully in the medium to long term.

Michele Roberts: And in terms of pricing, I know that this is an area of your expertise, Katja. What should we expect as consumers and as leaders for our organisation? What should we expect for energy pricing over the next three to five years?

Katja Ignatieva: Well, I think unfortunately in the short term the prices will continue to rise, it will probably take time to set up significant infrastructure for renewables. But at the same time, generating capacity and putting on hold or switching off major coal power plants results in basically extreme demand conditions. Unfortunately, in the short term, we will likely to observe further increase in energy prices and extreme volatilities. But hopefully once we reach this sufficient threshold for the renewables infrastructure, we start observing some relief, and the energy bill will start being reduced for the consumers.

Ben Hutt: I think there is a chance of ideally a positive outcome in Ukraine. It seems to me that strategically there should be a negotiated outcome to that conflict, and I think that’ll unlock a lot of the fossil fuel travelling between Russia and Europe, which will take the pressure off our coal prices, which brings them back into the market for Australia and should lower the cost of base load power in the short term. But I think Katja is right, we need to build renewables as fast as possible.

There’s a major bottleneck in there at the moment which actually is getting things connected to the grid. It’s not getting them built. I know people that own lots of solar farms that are either running at 40per cent capacity because of network constraints or not even connected. There’s lots of them sitting out there. So, I think we need greater grid connections, investment in bringing this capacity online quickly. We need more storage to allow things like voltage and frequency to be maintained at these two-way grids, and ideally we just need to continue policy clarity, and now we’ve set ourselves up for some targets, we need to stick to them and implement the plan.

Katja Ignatieva: Ben, I hope so too in a quick resolution of the Russia Ukraine war, but from the other side, from the other point of view, I think the Australian government should perhaps also think of the short term strategy to ensure system stability and the stability of the sector, guaranteeing uninterrupted energy supply. We should perhaps also look at strategies until this sufficient setup of the renewable infrastructure is set, what would be the most viable short term solution for our country to operate providing uninterrupted energy supply to our customers? Potentially it could include investment in the dispatchable generation, so that perhaps could be looked at in parallel.

Ben Hutt: Sure. I’m supportive of system reliability and 100per cent availability. In our history recently, lots of blackouts have actually been averted by renewable infrastructure that’s in place. As an example, when Callide the power station went offline unexpectedly, the thousands of household batteries came to the rescue, kept the lights on, kept the grid floating, avoided the Queensland grid for having to be restarted. Similarly in South Australia this last two weeks when they’ve been islanded from Victoria, there’s been enough energy, and the energy price has actually been flat. It hasn’t gone up at all. But what’s been interesting is that the FCAS market, so the frequency stabilisation market has obviously increased in value because they’re using distributed energy resources to balance the grid and they’re willing to pay for that.

I think AEMO’s done a great job of keeping the lights on. In pretty much every recent market disruption the lights have stayed on, even when coal generators refuse to honour their contracts.

I do think electricity is one of those things. It’s a fundamental human need where there should be access to it all the time for everyone. Whether you’re rich or poor or it doesn’t matter where you’re located, you should have electricity whenever you need it. So, I would like to think that that shouldn’t necessarily be a government mandated thing. I think we should be able to build a decentralised system that’s flexible enough and has enough surplus that everyone has it when they need it and it’s ideally cheap.

I still believe that if we have adequate renewable energy generation assets and storage, electricity should end up being free. If we built out... I don’t know if you’ve seen a map of Australia with the planned Northern Territory solar farm model that’s designed to export Singapore power, if you do a map of Australia, you can barely see that when it’s built out. We have so much land we could be building massive generation sites on. Australia should be exporting not just electricity, we should be exporting hydrogen. There’s lots of things we should be doing. We just need to build more stuff and make it work and inter operate together.

Michele Roberts: You’ve touched on a just transition and this issue of energy for all. How do you both think about the ethical issues in energy supply chains, both traditional energy, coal, obviously, but also new energy has obviously got a lot of ethical issues as well. What do you think about them? What do you think Australian leaders should be thinking about in their planning for new energy and the ethical issues there?

Ben Hutt: Yeah. Let me just pick up the ESG ethical considerations around things like critical minerals. I completely believe in circular economies and being able to track and trace minerals and materials throughout their life.

Ben Hutt: I’m actually involved in some projects around that tracking and tracing of supply chains and aware of legislation that’ll be coming to make manufacturers of equipment responsible for their treatment at the end of life. We really are starting to see innovation in circularity around supply chains. It’s not just around critical minerals, but obviously there’s lots of critical minerals in batteries and in solar, so they’re really important, and those minerals are very high value.

Ben Hutt: I think one of the things there about any type of ESG compliance, whether it be carbon credits or anything else, it’s around proving that it’s actually good, not just having a tick that says it’s good. And in terms of communities involved in mining fossil fuels and critical minerals. There are lots of things that can be mined in place of fossil fuels. All those infrastructure, all those jobs, all those machines, they can just be redeployed on different minerals as and when. Certainly we’re seeing, I live in Newcastle, the Newcastle Port’s now started to invest in infrastructure for handling containers instead of just coal. Currently it’s the world’s biggest coal port.

So, it’s not turning things off, it’s changing them from what they do currently to doing something else. I think for lots of the remote communities that often get singled out as being dependent on coal mining as an example, the numbers of jobs at stake are actually relatively small. It takes about 500 people as the full-time employee base of a big coal fire power station. It’s not a lot of people. On the flip side of it, if we really accelerated this renewable transition, we can create hundreds of thousands of highly skilled, well paid jobs.

Ben Hutt: So, it’s not that things get taken away, things get stopped and opportunities get created to do new things, and I think that’s just life and that’s just change.

Katja Ignatieva: But how can we make this transition stage smooth? That’s the question. Clearly long term renewables is the solution. Short term, we should probably stick to the coal and gas power stations, but how can we make this transition? Also, people losing their jobs and providing the stability of energy generation for all Australians. I think that’s really a difficult task to do. Clearly, Australian government, while focusing on reduction of emissions and boosting renewable generation should continue going on and accelerating this transition. I think it’s fairly difficult to make this transition very smooth for all. It’s a complex issue.

Ben Hutt: I totally agree. I think one of the things that makes this more complex in Australia is that we have separation of duties between state governments and federal governments. I’m British by birth, and I was very proud of Britain several years ago when they agreed across bench. It was a bipartisan agreement that said, “Look, whichever one of us is in power, we both agree that we’re going to do this, that and the other,” and it’s things like no more fossil fuel cars from 2030. They made some bold goals that they agreed. I’d like to see Australia do the same thing, and I’d also like to see the state governments do the same thing. We’ve got state governments in Australia who have a habit of doing their own version of what they think the answer is. It makes the whole transition incredibly confusing for consumers.

Different subsidies are available in different places, different policies. It’s just a nightmare. Electricity is so complicated. I think we should say that this transition is a human issue. It needs to be managed justly. Everyone needs to be treated fairly and there needs to be equal opportunities for everyone. I think there needs to be a body of the federal government or ideally outside of the federal government that is appointed to manage this transition for the 10 years that’s required, irrespective of who’s in power. That’s the group that I would like to see appointed to implement AEMO’s integrated system plan and make sure that not only the lights stay on, but the power prices come down, they can be predictable and reliable, and that everyone prospers along the way.

Michele Roberts: Fantastic.

Katja Ignatieva: I absolutely agree with that.

Michele Roberts: And I guess, if you can just summarise for us, how should boards be thinking about this and leadership teams? In terms of moving through the transition, what can they do? What steps can they take to build more resilience into their energy supply chain?

Ben Hutt: So boards of companies outside the electricity sector, let’s do that, you really need to understand what your exposure looks like not just now and next year, but over the next three to five years. You need to understand where your electricity’s coming from. Is it coming from a renewable source or is it coming from a fossil fuel source, and how can you ensure that? I think you need a backup plan. I think you need to accept that things will go wrong and there will be volatility, and you need to have a plan in place for what to do if there is an energy market dislocation, like will you have backup power? Will you have batteries? What will you do?

Or will you engage and take a price signal to turn things off? You need to see your operation not just as requiring electricity, but you need to see it as a participant in the electricity system that can be beneficial or painful depending on how you structure it. But it definitely need more focus and more thought than it did two years ago.

Katja Ignatieva: So I think Australian government and AEMO and market participants, they are focusing on the right thing, trying to boost the renewable energy and reducing emissions. But I think it’s also imperative to set up a short term strategy to ensure that we basically don’t run out of power, and perhaps government should provide some kind of form of relief or strategic reasons until renewables can handle our demand. Governments could look into some kind of form of relief to coal powered plants or incentives to continue to operate just as a backup plan until we reach this sufficient share of renewables that can handle our needs.

Ben Hutt: And I’ll just say, just to be clear, I don’t agree with that. I think it’ll get in the way of the much-needed transition. I think what we need to focus on is forcing the networks to allow renewable assets to get connected as quickly as they’re built rather than leaving them on the sidelines outside of the system.

Michele Roberts: And I guess a final question, I get to see a lot of MBA students who are looking at the next stage of their career, and indeed I was in the Hunter Valley speaking with people who are working there, and there’s a lot of interest in how do I get involved? I know that all of the money, the great fortunes of our time are being built in the transition to clean energy. How do I get involved? What kind of skills? Where do you see the opportunities for people to build new businesses or transition and pivot their career? Any thoughts on that? I think, Ben, particularly for you in the market, what advice would you give to someone who wants to get involved?

Ben Hutt: I think we’re at an inflexion point globally for this being the single greatest economic opportunity that humanity has ever seen. The transition is not optional, it’s essential. We talk quite often, and very smart people like Bill Gates and others, we can’t just get to net zero, we need to get to net negative, because we’re not going to get to zero quick enough. So, whatever it is you’re interested in, there’s areas that you can get involved. All types of work all around the world. If you want to get involved, you can. You’ve just got to look at all of the hundreds and thousands of people all around the world trying to innovate and do new things to make the transition either go faster or be less risky or be more beneficial. There’s so much opportunity. It really is very exciting. It’s difficult and it’s complicated, but it is inevitable and it should be tremendously beneficial for humanity when we go through it.

Katja Ignatieva: As a researcher, I would probably encourage and engage young people to explore energy market data analyst positions that are really very exciting, allowing you to model these dynamics of energy and volatility markets in Australia and also worldwide, which is clearly very beneficial for the markets, but also for research, for future research in the energy markets.

Michele Roberts: Fantastic. Thank you, Ben, Katja, for giving us your time and sharing your insights on the contributions being made by industry and by universities, and what leaders can expect for disruption in their supply chains as we move through the energy transition.

Ben Hutt: Thanks, for having me.

Katja Ignatieva: Thanks Michele.

Narration: Thank you for joining us for AGSM’s The Business of Supply: Burning Up: What will we do when the energy runs out.

If you liked today’s episode and want more, check out past episodes in our back catalogue like The Business of Climate Change.

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<h1>Burning up: what will we do when the energy runs out?</h1>

<figure><img src="?w=1320" /><figcaption></figcaption></figure>
 Guests:
<ul>
 <li>Ben Hutt, CEO & Managing Director at Evergen and AGSM MBA alumnus </li>
 <li><a href="http://* https://www.unsw.edu.au/staff/katja-ignatieva" data-new-window="true" target="_blank" rel="noopener noreferrer">Katja Ignatieva</a>, Associate Professor, School of Risk and Actuarial Studies, UNSW Business School</li>
 <li><a href="https://www.unsw.edu.au/staff/michele-roberts" data-new-window="true" target="_blank" rel="noopener noreferrer">Michele Roberts</a>, Associate Professor, AGSM Academic Director and Associate Dean Post-Experience at UNSW Business School (podcast host) </li>
</ul>
Find out more about Associate Professor Katja Ignatieva’s research below:
<ul>
 <li><a href="https://www.unsw.edu.au/staff/katja-ignatieva" data-new-window="true" target="_blank" rel="noopener noreferrer">https://www.unsw.edu.au/staff/katja-ignatieva</a></li>
 <li><a href="https://www.linkedin.com/in/katja-ignatieva-564066b/?originalSubdomain=au">https://www.linkedin.com/in/katja-ignatieva-564066b</a></li>
 <li>Read now: <a href="https://www.businessthink.unsw.edu.au/articles/energy-crisis-electricity-prices-rise" data-new-window="true" target="_blank" rel="noopener noreferrer">Energy crisis: why are electricity prices set to rise?</a></li>
 <li>Read now: <a href="https://www.businessthink.unsw.edu.au/articles/how-a-sector-volatility-spills-into-related-markets" data-new-window="true" target="_blank" rel="noopener noreferrer">Credit default swaps: how sector volatility spills into related markets</a></li>
 <li>Read now: <a href="https://www.businessthink.unsw.edu.au/articles/When-power-prices-spike-and-a-whole-state-blacks-out" data-new-window="true" target="_blank" rel="noopener noreferrer">When power prices spike and a whole state blacks out</a></li>
</ul>
Transcript:
Narration: If you’ve opened your energy bill with a sense of dread in the last 12 months, you’re not alone. With energy prices soaring around the world, individuals and organisations alike have been left asking: how long can it go on like this.
These dramatic price surges – caused in part by recent destabilising events – have underlined the importance of maintaining reliable supplies of energy.
But having reliable access to affordable, sustainable energy is by no means a new concern. Whether its future-proofing against energy supply risks or calculating the impact of human-driven climate change, access to affordable and sustainable energy has been a major issue for decades.
So how best can today’s leaders make sure they and other organisations have access to reliable energy? To plan for the secure future of their industry and work towards a cleaner planet?
In this episode of the Business of Leadership podcast, AGSM’s Associate Professor Michele Roberts is joined by industry and academic guests, to discuss and debate the best ways Australia and other countries can move forward when it comes to the future of energy supply.
Ben Hutt, CEO & Managing Director at Evergen and AGSM MBA alumnus joins us, to share what role he believes renewables, decentralised systems and energy access equality has to play in the future of energy supply.
We’re also joined by Katja Ignatieva, Associate Professor at UNSW Business School. Her research focuses on the dynamics and volatilities of the energy markets and considers what steps can be taken towards smooth energy transitions while retaining cost stability.
Michele Roberts: Welcome back to the AGSM Business of Leadership podcast.
I’m Dr. Michele Roberts. I’m Associate Professor and the Academic Director of AGSM, and the Associate Dean of Post Experience Programs at UNSW Business School.
We are taking a deep dive into the business of supply, and in this episode we are looking at energy. We’ll be looking into what every leader needs to understand about the future of energy and the energy transition and what it will mean for businesses.
Michele Roberts: I’m joined by two experts from the UNSW community.
Our alumni expert today is Ben Hutt, CEO and managing director at Evergen. Ben’s a graduate of the AGSM full-time MBA class of 2006. Evergen has a laser focus on the eradication of coal fired power stations, and the mission is to combat climate change and address energy access by facilitating the transition to a resilient, renewable decentralised energy system of the future. Our academic expert is Katja Ignatieva, associate professor at UNSW Business School. Katja is an expert on dynamics and volatilities of energy markets. Ben and Katja, welcome.
Katja Ignatieva: Thanks, Michele.
Ben Hutt: Thanks for having me.
Michele Roberts: Ben, let’s start with you, tell us a little bit about your work relating to energy supply chains. How did you get into this and what have you been working on and why do you think it’s such an important issue?
Ben Hutt: Thanks for having me, Michele. I’ve spent most of the last 10 years building disruptive software businesses and helping entrepreneurs and investors build companies around the future. Four years ago I began my journey at Evergen with a clear vision that software enabled really by this era of the internet of things where pretty much every device is connected to the internet, the vision was that you could use software to balance and coordinate devices as part of a decentralised energy system. I guess that’s the core premise for me, is that I’m father to three children of my own and three of my wife’s children, we’ve got six daughters collectively, so legacy in thinking about de carbonisation and climate change is something that is super important to me. 
 I think as we’ve seen this year, transition can be volatile. It doesn’t take much to break a fragile system. So, I think Evergen’s whole business is really around reducing fragility, improving the way assets behave as part of an overall system. This involves things like tens of thousands of homes with solar and storage as a decentralised power plant, but also things like solar farms, solar farms with batteries and solar farms with hydrogen generation and storage on them. There’s lots of different types of decentralised energy participants, but our focus is on coordinating them and controlling them for lots of the different stakeholders and ultimately improving people’s return on investment in renewable technologies so people invest more in them. That’s the whole thing about destroying coal by improving and accelerating the adoption of these new renewable technologies. 
 
Michele Roberts: Thanks, Ben. And Katja?
Katja Ignatieva: My background is actually in mathematical or quantitative finance. I hold PhD in quantum finance, and my research is predominantly in financial econometrics. Basically, I’m trying to come up with mathematical models that allow us to describe the dynamics of energy markets and volatilities. So, for example, I’m looking at the markets from the retailers point of view. Retailers, they have to buy electricity from the wholesale market and sell it to businesses and households, so they face a very challenging task of managing their risks of extremely highly volatile prices. When the energy price spikes and the retailers have to pay this high price on the spot market to purchase the power, but then they have to deliver this power to our consumers, to us and customers at a more or less fixed price. 
 
So, obviously they would be interested in how to effectively mitigate these risks of extreme price fluctuations, and this will eventually help us to stabilise price in the energy markets. My research is focusing on coming up with comprehensive mathematical models that describe the dynamics of the energy markets and its volatilities and trying to provide recommendation to market participants like retailers in the first place, but also policy makers and generators on how to effectively mitigate the risks of extreme price fluctuations. Clearly, while doing this quite mathematical research, I have to gather a lot of information, a lot of background on the operation of the markets, including introduction of renewable generation and leaving the coal power plants domain. Basically, I’m trying to think of how to effectively capture the dynamics of the markets, keeping in mind the transition from the coal and gas plans to more renewable generation.
Michele Roberts: Just to put this conversation in context, I’m going to ask Ben to do something that’s pretty much impossible. Just for those who are not yet across this issue of a transition to clean energy, what will the energy transition look like? As Australian leaders, what might we expect to see happen over the next three to five years or right through till 2050? What will it look like for us?
Ben Hutt: I will try and do the simple version of this, because electricity is fiendishly complicated. What most industry expects is what AEMO described as a step change transition, which really is a rapid adoption of renewables, rapid building of transmission to allow greater resilience, and more interconnected smaller systems as part of the bigger energy system. What we’re seeing now that the federal government has made those commitments is there’s lots of investment occurring in things like offshore wind, onshore wind, solar at scale, lots of storage on solar. Evergen is involved in lots of storage projects, including hydrogen on solar farms. So, we’re seeing this deployment of renewables, but there’s lots of little obstacles in the way of it going as fast as any of us would like. I think part of that is on the supply side. It’s things like unexpected breakages cause volatility, which in some cases cause bad outcomes for the system or bad outcomes for half of the market. So, we need more resilience, which means we just need things to go faster.
Katja Ignatieva: Can I add to this? I agree that we need to increase the share of renewables at a very fast pace, but I’m not sure how realistic we are about the timeframe. I think finding an optimal tradeoff between shutting down all major coal fire generation and then trying to reduce gas emissions at a very fast pace is wonderful, but what happens if we shut down too many qualified generation power plants prior to reaching a sufficient infrastructure or target for renewables? Don’t we risk to fall short of demand within the next couple of years? Then clearly if we wait until this share of renewable energy generation has reached, the prices will also continue to rise.
So, from my perspective, also from a modelling perspective, I agree that in the medium to long term we should accelerate moving to renewables in order to reduce the energy prices, but during the transition stage, aren’t we supposed also to look into alternative short-term strategies to ensure the sustainability and also stability of the sector guaranteeing the uninterrupted power supply to customers? And perhaps from that perspective we should also include investment in old dispatchable generations. That’s probably my academic question to Ben, how does he see that?
Ben Hutt: Well, I think you’re absolutely right. I think this year some of the disruptions in the energy market proved that this is actually a very complex multiplayer game of game theory where people act rationally to maximise their own outcomes. So, if I’m someone who owns lots of coal fired power stations, my objective is to run them for as long as possible, and ideally to get the highest price possible I can for electricity generated by those assets. What we saw this year, and there’s been lots of causes of dislocation in the energy markets, not just in Australia but globally this year, but we saw a period in time where the Australian energy market wasn’t functioning as a market anymore, and it required the market operator to basically tell people what to do and change the rules of the game in order to keep the lights on, which is fundamentally their job.
One of the issues I have in this whole transition is that whilst AEMO has put forward the best version of the plan, which is the integrated systems plan, they don’t have authority to implement it. No one does. No one can sit there and tell, let’s say, AGL, Origin and EA when to retire which plant and balance that with new capacities and new generation or new storage. Coming online to deal with it catches issue of the volatility. We definitely can’t be retiring things early, otherwise the lights go out or power prices get really high. This is the need for an orderly managed transition, and it’s extremely challenging. We saw dislocation in the market this year. It actually, I think, set Australia’s energy market back a couple of years because lots of the small retailers died, and they died because they were inappropriately hedged, for the most part, to deal with a black swan kind of dislocation in the market, and that ended up in them giving all their customers back to the big three.
So, if we were writing a fairytale and it was a battle between old and new or good and evil or fossil and not fossil or some version of that, we took two steps forward and then one step back this year. Now, I’m personally delighted by the pace at which Origin and AGL and others, EA as well, are starting to move and focus on innovation for the solution. But volatility, things not quite always being right, or we had a thing where the wind blew a transmission tower down in South Australia, which led to the whole state being completely disconnected from the national energy market. These things happen, and volatility is generally bad for most people, good for a small number of people.
I think we should expect in this transition more volatility, which is one of the reasons why I’m a massive advocate for storage, so battery storage or lots of different types of energy storage that provide backup power in some extent in the event of volatility, whether it’s at a household level or at a system level. I think that’s super important. But definitely the race is on, and I would love to have someone accountable in this country for execution of that plan rather than just description of it. But currently that’s not something that anyone’s able to do over and above the federal government setting signposts out.
Katja Ignatieva: But unfortunately the setting up of the infrastructure for renewable generation is taking time, as you’re saying, right? So, while we are setting up all these necessary infrastructure, the energy prices will continue to rise. This is happening now in a very turbulent period of time when Australia’s electricity prices are affected by the world prices, which is basically driven by a combination of multiple short, long term, economic, political and whatever weather related events, right? So, we will continue to observe the increase in the energy prices and even more extreme volatilities in the future unless we accelerate the setup of the renewable energy.
But because it’s not that simple, it takes still years, one, two, three years on average to set up a wind station or solar. Shouldn’t we be looking into other short term ways to ensure that the energy supply is uninterrupted to our customers? So, you’re saying clearly we should be putting the coal power plants on hold at some point in time, but currently what’s happening is, for example with Eraring power station at Lake Macquarie, they’re retiring ahead of schedule because their renewable energy is simply impacting their profitability, so they cannot survive in these market conditions.
So, from that point of view, from the government perspective perhaps there should be some strategic decisions in place until renewables can handle most of our needs that guarantee that coal power stations survive until that moment and provide sufficient power for Australian population, and perhaps providing some kind of relief to coal power plans, so incentives to continue to operate until this sufficient share of renewables is reached would be the best short term decision. Then of course in the medium to long term, no doubt the renewable energy generation is the most viable solution, but I think we should be realistic about the timeframe.
Ben Hutt: I agree. Nothing goes fast enough in any way, but it is at least starting to go faster now we have political clarity around what the goals are. I have grave concerns about a capacity mechanism, which is what I think you’re referring to in your notion of can we support coal to keep them alive longer than they should be, because they remove price signals and investability around large-scale renewables, so they actually slow everything down even further. It’s creating an artificial market for something that should just not be there unless it includes some sort of measure of carbon efficiency or a cost of carbon to continue to incentivise renewable electrons over fossil fuel-driven electrons.
People have talked about having a renewable energy storage target, which again is a really good idea, because storage allows for more flexibility. But I think having seen what happened in places like the UK where they did this capacity mechanism and other places, it will only act as a hand breaked innovation on the good side, the future side of the ledger and get in the way. I think there are other things that we should all be considering doing, which is Europe at the moment is very heavily focused, as an example, on shaving the peak demands of the electricity system, so stopping or incentivising people not to be using things at peak times so that the total amount of electricity required at those times is less.
I’ve long advocated for a market for what we call demand response, which is having people or companies turn things on or off when the price or the network stability’s not there, and you pay them to do that. Other countries like New Zealand have signalled a three-year pathway to having demand response as a market. In Europe, it’s quite widespread. New South Wales government’s introduced a peak reduction scheme, which is basically a version of the same thing. It’s incentivising people to change their electricity consumption away from peak times. So, I think managing demand and balancing supply and demand more strategically, which is really what Evergen does, what we are trying to do for electrons is balance when they’re generated, stored and used to make the most valuable. It’s a bit like what Uber did for the taxi services by computerising the demand and supply economics and optimising the travel time for everyone. You just get a better outcome. You don’t need more electricity. You can get away with less. But it’s very complicated, you’re right.
Katja Ignatieva: From my research, it’s actually interesting that you mentioned about shifting electricity consumption to off peak times. I’m looking at also energy demand related to the human activity cycle, and clearly we are observing that, for example, in winter the demand peaks are in the early morning and late afternoon or evening where people get ready to work or come back from work, right? So, it’s a little bit difficult to shift your consumption from these peak demand times to low demand times when pretty much no one is at home. So, I’m not entirely convinced that simply shifting the demand to off peak is feasible and doable, because there is a really very strong relationship between energy demand and the human activity cycle.
Ben Hutt: Sure, but you can use batteries. From the electricity systems point of view, the demand is shifted, you just use the battery. I’m not necessarily suggesting that households across Australia change their human activity schedules. That’s not going to be possible. But if you give everyone solar and a battery in their house that’s able to manage peak house load, then effectively those homes are self-sufficient and completely zero bill efficient. That’s what we do. But having storage there is absolutely critical.
Michele Roberts: Katja, Ben gave us a few examples of incentives that he’s seeing have some impact in Europe. Are you aware of any incentives that you think can be used here? Are you seeing any likely policy instruments that we might experience here in Australia? What impact will they have for Australian organisations if they’re introduced?
Katja Ignatieva: Well, I think people are currently being more aware of green options, and where possible they can switch to green energy, so use power generated from renewable sources. Clearly we can see some high demand for installing solar panels on the roofs over the last year or half a year, and clearly that’s the most efficient way to save energy and reduce the energy bill. Also, perhaps switching off appliances, choosing some energy-efficient appliances and switching LED lights, right? It could also be considered as some ways to reduce the power bill.
Ben Hutt: Yeah. I’ll give you a few examples. Networks and retailers in Australia, obviously there’s two separate businesses. They’re all experimenting with and changing the tariffs the different types of energy consumers face. As an example, if you’re a business, typically you have an energy tariff that charges you for your peak usage within a month and then applies that charge across the month. That’s driving those users to shave the peak, as we call it, which is basically reduce your peak consumption, which they can either do by turning things off or by using storage to supplement their grid-supplied energy. That’s a real thing. Again, none of these things matter. Whether the electrons are coming from a solar farmer or wind farm doesn’t make any difference. They’re just electrons in the system.
From a residential point of view, the similar incentive is like a disincentive where the 3 million homes who all have solar systems, they’ve all been benefiting for years from what’s called a feed in tariff, so they get paid usually a fixed amount for any electrons they sell to the grid. This hurts the retailers selling them electricity massively. It’s basically they might be paying 10 cents or 11 cents, I think in some cases it’s a state regulated minimum 10 cents for those electrons that in the wholesale market at that time electricity might be free, or even they might be paying for that electricity.
One of the things again that the Evergen does is we work with the retailers involved in those loss making solar customers, and we use batteries to reduce the cost to serve, or effectively you’re altering their hedging position by being able to move when they use energy from the grid around and when they sell energy to the grid. I think we all acknowledge that the mandated feed in tariff is going away over time because the retailers can’t afford to pay it, and the system doesn’t need electricity from rooftops at lunchtime because it kills the voltage, it makes it very difficult to keep the lights on, creates all sorts of problems.
So, I think with innovations for the networks, things like community batteries are an important potential solution. No one’s quite made them work yet, but theoretically they’re a solution to this problem. But really having lots and lots of batteries, it could be a mobile battery like an EV, but having batteries behind the meter in homes or charging up in businesses during day, that’s going to be really, really powerful, because it’s sucking those cheap and somewhat unwanted electrons at lunchtime into storage so they can be used later, either used for transport or used for lighting or heating or whatever it might be.
I think elsewhere in the world we see lots of EV adoption, much more EV adoption in Europe than we see in Australia because of policy interventions. But in the UK, you basically get free charging if you plug it in at certain times of the day. We’ll do the same thing here for no doubt. We’re working on a number of things like that. It’s all just about moving around when generated energy is either used, sold or stored. That’s basically all it comes down to, trying to balance the grid and the frequency and the voltage in and amongst all that.
Michele Roberts: One thing it would be helpful to understand more, you’ve both talked about an increase in volatility in disruption to energy supply chain in the recent months, obviously the big one being the impact of war – invasion of Ukraine. How have you seen those incidents having an impact here in Australia, and are we likely to see more of these impacts, and how will organisations experience them?
Katja Ignatieva: I think actually Russia Ukraine war is actually not the only source of instability. Of course, it did generate some significant supply shock when the majority of European countries have rejected oil and gas supply from Russia, and it was exacerbated by the reluctancy of OPEC to increase its oil production. But there were other events that has led to this as well. Australia is actually exporting most of its fossil fuels, including coal and gas, and because the prices are obviously increasing worldwide and also transportation costs are going up, this has also resulted in an increase in energy prices.
In principle, we could have sustained our own needs because we are extracting sufficient coal and gas, but unfortunately, we are exporting most of it and we are linked to these supply agreements which cannot be simply revoked or significantly reduced in the short term. There is also instability that was a result of some recent price spikes linked to supply chain disruption resulting from outages at major coal plants, and also significant increase in demand, which is related to extreme weather. Also, during the pandemic, the operation of the large number of businesses has been significantly reduced or put on hold. When we started recovering from the pandemic, energy demand started to rise.
All these factors have actually generated this massive increase in the power prices and resulted in extreme price fluctuations. I think until we are able to come up with a reliable short term in the first place strategy to stabilise the energy prices, there will be some delay between the decline in the wholesale prices and the reduction of the energy bill for the household. It’s really hard to achieve low prices in the short term, but hopefully in the medium to long term.
Michele Roberts: And in terms of pricing, I know that this is an area of your expertise, Katja. What should we expect as consumers and as leaders for our organisation? What should we expect for energy pricing over the next three to five years?
Katja Ignatieva: Well, I think unfortunately in the short term the prices will continue to rise, it will probably take time to set up significant infrastructure for renewables. But at the same time, generating capacity and putting on hold or switching off major coal power plants results in basically extreme demand conditions. Unfortunately, in the short term, we will likely to observe further increase in energy prices and extreme volatilities. But hopefully once we reach this sufficient threshold for the renewables infrastructure, we start observing some relief, and the energy bill will start being reduced for the consumers.
Ben Hutt: I think there is a chance of ideally a positive outcome in Ukraine. It seems to me that strategically there should be a negotiated outcome to that conflict, and I think that’ll unlock a lot of the fossil fuel travelling between Russia and Europe, which will take the pressure off our coal prices, which brings them back into the market for Australia and should lower the cost of base load power in the short term. But I think Katja is right, we need to build renewables as fast as possible.
There’s a major bottleneck in there at the moment which actually is getting things connected to the grid. It’s not getting them built. I know people that own lots of solar farms that are either running at 40per cent capacity because of network constraints or not even connected. There’s lots of them sitting out there. So, I think we need greater grid connections, investment in bringing this capacity online quickly. We need more storage to allow things like voltage and frequency to be maintained at these two-way grids, and ideally we just need to continue policy clarity, and now we’ve set ourselves up for some targets, we need to stick to them and implement the plan.
Katja Ignatieva: Ben, I hope so too in a quick resolution of the Russia Ukraine war, but from the other side, from the other point of view, I think the Australian government should perhaps also think of the short term strategy to ensure system stability and the stability of the sector, guaranteeing uninterrupted energy supply. We should perhaps also look at strategies until this sufficient setup of the renewable infrastructure is set, what would be the most viable short term solution for our country to operate providing uninterrupted energy supply to our customers? Potentially it could include investment in the dispatchable generation, so that perhaps could be looked at in parallel.
Ben Hutt: Sure. I’m supportive of system reliability and 100per cent availability. In our history recently, lots of blackouts have actually been averted by renewable infrastructure that’s in place. As an example, when Callide the power station went offline unexpectedly, the thousands of household batteries came to the rescue, kept the lights on, kept the grid floating, avoided the Queensland grid for having to be restarted. Similarly in South Australia this last two weeks when they’ve been islanded from Victoria, there’s been enough energy, and the energy price has actually been flat. It hasn’t gone up at all. But what’s been interesting is that the FCAS market, so the frequency stabilisation market has obviously increased in value because they’re using distributed energy resources to balance the grid and they’re willing to pay for that.
I think AEMO’s done a great job of keeping the lights on. In pretty much every recent market disruption the lights have stayed on, even when coal generators refuse to honour their contracts.
I do think electricity is one of those things. It’s a fundamental human need where there should be access to it all the time for everyone. Whether you’re rich or poor or it doesn’t matter where you’re located, you should have electricity whenever you need it. So, I would like to think that that shouldn’t necessarily be a government mandated thing. I think we should be able to build a decentralised system that’s flexible enough and has enough surplus that everyone has it when they need it and it’s ideally cheap.
I still believe that if we have adequate renewable energy generation assets and storage, electricity should end up being free. If we built out... I don’t know if you’ve seen a map of Australia with the planned Northern Territory solar farm model that’s designed to export Singapore power, if you do a map of Australia, you can barely see that when it’s built out. We have so much land we could be building massive generation sites on. Australia should be exporting not just electricity, we should be exporting hydrogen. There’s lots of things we should be doing. We just need to build more stuff and make it work and inter operate together.
Michele Roberts: You’ve touched on a just transition and this issue of energy for all. How do you both think about the ethical issues in energy supply chains, both traditional energy, coal, obviously, but also new energy has obviously got a lot of ethical issues as well. What do you think about them? What do you think Australian leaders should be thinking about in their planning for new energy and the ethical issues there?
Ben Hutt: Yeah. Let me just pick up the ESG ethical considerations around things like critical minerals. I completely believe in circular economies and being able to track and trace minerals and materials throughout their life.
Ben Hutt: I’m actually involved in some projects around that tracking and tracing of supply chains and aware of legislation that’ll be coming to make manufacturers of equipment responsible for their treatment at the end of life. We really are starting to see innovation in circularity around supply chains. It’s not just around critical minerals, but obviously there’s lots of critical minerals in batteries and in solar, so they’re really important, and those minerals are very high value.
Ben Hutt: I think one of the things there about any type of ESG compliance, whether it be carbon credits or anything else, it’s around proving that it’s actually good, not just having a tick that says it’s good. And in terms of communities involved in mining fossil fuels and critical minerals. There are lots of things that can be mined in place of fossil fuels. All those infrastructure, all those jobs, all those machines, they can just be redeployed on different minerals as and when. Certainly we’re seeing, I live in Newcastle, the Newcastle Port’s now started to invest in infrastructure for handling containers instead of just coal. Currently it’s the world’s biggest coal port.
So, it’s not turning things off, it’s changing them from what they do currently to doing something else. I think for lots of the remote communities that often get singled out as being dependent on coal mining as an example, the numbers of jobs at stake are actually relatively small. It takes about 500 people as the full-time employee base of a big coal fire power station. It’s not a lot of people. On the flip side of it, if we really accelerated this renewable transition, we can create hundreds of thousands of highly skilled, well paid jobs.
Ben Hutt: So, it’s not that things get taken away, things get stopped and opportunities get created to do new things, and I think that’s just life and that’s just change.
Katja Ignatieva: But how can we make this transition stage smooth? That’s the question. Clearly long term renewables is the solution. Short term, we should probably stick to the coal and gas power stations, but how can we make this transition? Also, people losing their jobs and providing the stability of energy generation for all Australians. I think that’s really a difficult task to do. Clearly, Australian government, while focusing on reduction of emissions and boosting renewable generation should continue going on and accelerating this transition. I think it’s fairly difficult to make this transition very smooth for all. It’s a complex issue.
Ben Hutt: I totally agree. I think one of the things that makes this more complex in Australia is that we have separation of duties between state governments and federal governments. I’m British by birth, and I was very proud of Britain several years ago when they agreed across bench. It was a bipartisan agreement that said, “Look, whichever one of us is in power, we both agree that we’re going to do this, that and the other,” and it’s things like no more fossil fuel cars from 2030. They made some bold goals that they agreed. I’d like to see Australia do the same thing, and I’d also like to see the state governments do the same thing. We’ve got state governments in Australia who have a habit of doing their own version of what they think the answer is. It makes the whole transition incredibly confusing for consumers.
Different subsidies are available in different places, different policies. It’s just a nightmare. Electricity is so complicated. I think we should say that this transition is a human issue. It needs to be managed justly. Everyone needs to be treated fairly and there needs to be equal opportunities for everyone. I think there needs to be a body of the federal government or ideally outside of the federal government that is appointed to manage this transition for the 10 years that’s required, irrespective of who’s in power. That’s the group that I would like to see appointed to implement AEMO’s integrated system plan and make sure that not only the lights stay on, but the power prices come down, they can be predictable and reliable, and that everyone prospers along the way.
Michele Roberts: Fantastic.
Katja Ignatieva: I absolutely agree with that.
Michele Roberts: And I guess, if you can just summarise for us, how should boards be thinking about this and leadership teams? In terms of moving through the transition, what can they do? What steps can they take to build more resilience into their energy supply chain?
Ben Hutt: So boards of companies outside the electricity sector, let’s do that, you really need to understand what your exposure looks like not just now and next year, but over the next three to five years. You need to understand where your electricity’s coming from. Is it coming from a renewable source or is it coming from a fossil fuel source, and how can you ensure that? I think you need a backup plan. I think you need to accept that things will go wrong and there will be volatility, and you need to have a plan in place for what to do if there is an energy market dislocation, like will you have backup power? Will you have batteries? What will you do?
Or will you engage and take a price signal to turn things off? You need to see your operation not just as requiring electricity, but you need to see it as a participant in the electricity system that can be beneficial or painful depending on how you structure it. But it definitely need more focus and more thought than it did two years ago.
Katja Ignatieva: So I think Australian government and AEMO and market participants, they are focusing on the right thing, trying to boost the renewable energy and reducing emissions. But I think it’s also imperative to set up a short term strategy to ensure that we basically don’t run out of power, and perhaps government should provide some kind of form of relief or strategic reasons until renewables can handle our demand. Governments could look into some kind of form of relief to coal powered plants or incentives to continue to operate just as a backup plan until we reach this sufficient share of renewables that can handle our needs.
Ben Hutt: And I’ll just say, just to be clear, I don’t agree with that. I think it’ll get in the way of the much-needed transition. I think what we need to focus on is forcing the networks to allow renewable assets to get connected as quickly as they’re built rather than leaving them on the sidelines outside of the system.
Michele Roberts: And I guess a final question, I get to see a lot of MBA students who are looking at the next stage of their career, and indeed I was in the Hunter Valley speaking with people who are working there, and there’s a lot of interest in how do I get involved? I know that all of the money, the great fortunes of our time are being built in the transition to clean energy. How do I get involved? What kind of skills? Where do you see the opportunities for people to build new businesses or transition and pivot their career? Any thoughts on that? I think, Ben, particularly for you in the market, what advice would you give to someone who wants to get involved?
Ben Hutt: I think we’re at an inflexion point globally for this being the single greatest economic opportunity that humanity has ever seen. The transition is not optional, it’s essential. We talk quite often, and very smart people like Bill Gates and others, we can’t just get to net zero, we need to get to net negative, because we’re not going to get to zero quick enough. So, whatever it is you’re interested in, there’s areas that you can get involved. All types of work all around the world. If you want to get involved, you can. You’ve just got to look at all of the hundreds and thousands of people all around the world trying to innovate and do new things to make the transition either go faster or be less risky or be more beneficial. There’s so much opportunity. It really is very exciting. It’s difficult and it’s complicated, but it is inevitable and it should be tremendously beneficial for humanity when we go through it.
Katja Ignatieva: As a researcher, I would probably encourage and engage young people to explore energy market data analyst positions that are really very exciting, allowing you to model these dynamics of energy and volatility markets in Australia and also worldwide, which is clearly very beneficial for the markets, but also for research, for future research in the energy markets.
Michele Roberts: Fantastic. Thank you, Ben, Katja, for giving us your time and sharing your insights on the contributions being made by industry and by universities, and what leaders can expect for disruption in their supply chains as we move through the energy transition. 
 
Ben Hutt: Thanks, for having me.
Katja Ignatieva: Thanks Michele.
Narration: Thank you for joining us for AGSM’s The Business of Supply: Burning Up: What will we do when the energy runs out.
If you liked today’s episode and want more, check out past episodes in our back catalogue like <a href="https://www.businessthink.unsw.edu.au/articles/business-climate-change" data-new-window="true" target="_blank" rel="noopener noreferrer">The Business of Climate Change</a>.
Alternatively, you can find out more about this area in the show notes on our website. Just search the-business-of-leadership-podcast online or check out the podcast bio on the platform where you get your podcasts.
Have you got something you want to say about the subject? We’d love for you to drop us a line at <a href="mailto:brand@agsm.edu.au">brand@agsm.edu.au</a>.
From conversations about how to lead a business with purpose, to how organisations and governments could better implement AI, there is plenty more to listen to in the AGSM Business of Leadership back catalogue.
Please share, rate and review and subscribe to AGSM’s leadership podcast on your favourite podcast platform and look out for future episodes.
In the meantime, follow AGSM at UNSW Business School on LinkedIn and Facebook for more industry insights for an accelerating world or find us at <a href="http://agsm.edu.au/">agsm.edu.au</a>.

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