WEBVTT - Rooftop Solar Boom Turns Australian Power Prices Red 0:00:00.320 --> 0:00:02.960 This is Dana Perkins and you're listening to Switched on 0:00:03.240 --> 0:00:06.720 the BNAF podcast. Each week we bring on a different 0:00:06.840 --> 0:00:09.000 B and EF analyst to the show and we talk 0:00:09.039 --> 0:00:11.479 to them about a piece of research that they've written. 0:00:11.720 --> 0:00:13.800 And really, if you're anything like me, I hope this 0:00:13.880 --> 0:00:16.360 research helps you think about the things that might be 0:00:16.520 --> 0:00:19.000 in your peripheral vision, the stuff that you're not working 0:00:19.040 --> 0:00:21.079 on day to day, but to stay up to date 0:00:21.160 --> 0:00:23.440 on all of the different things that are happening in 0:00:23.480 --> 0:00:26.360 the transition now. It can be hard sometimes given that 0:00:26.400 --> 0:00:29.640 there's so much going on within different sectors and different 0:00:29.680 --> 0:00:31.560 parts of the world. And today we're going to dig 0:00:31.560 --> 0:00:34.040 a little bit deeper on a specific country. We're going 0:00:34.120 --> 0:00:37.120 to talk about Australia. The reason I'm really excited to 0:00:37.120 --> 0:00:40.400 talk about Australia is because oftentimes people think about it 0:00:40.440 --> 0:00:43.280 as a sandbox due to the size of the country 0:00:43.320 --> 0:00:46.120 and the nimbleness of the government. When they do something, 0:00:46.400 --> 0:00:48.400 they can move a little bit faster and the rest 0:00:48.440 --> 0:00:50.800 of the world can really learn from it. We also 0:00:50.840 --> 0:00:52.800 go to think about Australia and the role that they 0:00:52.800 --> 0:00:57.200 have historically played as a hydrocarbon exporting nation for things 0:00:57.240 --> 0:01:01.360 like coal, and increasingly now natural gas. But let's really 0:01:01.400 --> 0:01:04.720 think about the role that Australia can play as that sandbox, 0:01:04.800 --> 0:01:07.880 and let's think about the energy transition. They've announced that 0:01:07.920 --> 0:01:11.520 they intend to double renewable energy capacity by twenty thirty 0:01:11.680 --> 0:01:14.759 and the federal government has really underlined this aim by 0:01:14.760 --> 0:01:17.560 handing the clean energy sector the equivalent of one point 0:01:17.640 --> 0:01:20.880 two billion US dollars as a part of their federal budget. 0:01:20.920 --> 0:01:22.840 One of the things we're going to drill into in 0:01:23.080 --> 0:01:26.480 more detail will be solar because Australia's really been an 0:01:26.560 --> 0:01:30.240 adopter of this, both at the utility and residential level, 0:01:30.560 --> 0:01:33.400 and that has actually led to some negative power prices. 0:01:33.600 --> 0:01:35.880 So what does that do to the economics? Now. To 0:01:35.920 --> 0:01:38.920 tell us more about Australia and what's happening there is 0:01:38.959 --> 0:01:42.160 Bonif's head of Australia Research, Leonard Kwang. He's based out 0:01:42.160 --> 0:01:44.680 of our Sydney office and certainly knows a thing or 0:01:44.680 --> 0:01:47.200 two as he lives and breathes this. He's going to 0:01:47.280 --> 0:01:49.640 use a recent report that he wrote, which is about 0:01:49.640 --> 0:01:51.760 the first half of twenty twenty four and what is 0:01:51.800 --> 0:01:54.520 called our Australia Market Outlook. If you want to take 0:01:54.560 --> 0:01:57.240 a closer look at that market outlook and read the report. 0:01:57.320 --> 0:01:59.600 BNEF subscribers are going to be able to find it 0:01:59.680 --> 0:02:02.440 at bu go on the Bloomberg terminal or at BNF 0:02:02.520 --> 0:02:05.040 dot com. Make sure to subscribe to switched on wherever 0:02:05.120 --> 0:02:07.160 you get your podcasts, and give us a review to 0:02:07.200 --> 0:02:10.000 help other people discover the show. But right now, let's 0:02:10.040 --> 0:02:22.959 talk to Lenny about our outlook for Australia. Lenny, great 0:02:23.000 --> 0:02:25.080 to have you here today and thanks for joining the show. 0:02:25.480 --> 0:02:28.880 Dang, long time listener, first time call up, overall, big 0:02:28.919 --> 0:02:30.680 fan of your work and it's a pleasure to be here. 0:02:31.200 --> 0:02:34.799 And you're joining us from our Sydney office and we're 0:02:34.840 --> 0:02:38.520 here to talk about Australia and what is really a 0:02:38.720 --> 0:02:41.880 true energy transition story. I mean one where a country 0:02:41.880 --> 0:02:44.800 that has a lot of natural resources and is largely 0:02:45.240 --> 0:02:48.480 known as one of the world's exporters of things like 0:02:48.560 --> 0:02:51.160 coal is going through the transition as other parts of 0:02:51.200 --> 0:02:54.120 the world are, but actually in some respects at a 0:02:54.160 --> 0:02:56.639 faster pace depending upon the industry that we're looking at. 0:02:56.680 --> 0:02:58.320 So we're going to get into that today and talk 0:02:58.320 --> 0:03:01.280 about what that transition looks like in Australia. But can 0:03:01.360 --> 0:03:04.480 you set the baseline how should the world be thinking 0:03:04.520 --> 0:03:08.520 about Australia and well, essentially in their place where they're 0:03:08.560 --> 0:03:09.800 at in this transition. 0:03:10.200 --> 0:03:13.040 Absolutely so, I think it's important to give context to 0:03:13.120 --> 0:03:15.679 listeners who might be familiar with the idea of Australia 0:03:15.680 --> 0:03:18.160 but not with the country itself. We recognize we're a 0:03:18.200 --> 0:03:20.880 long way away from the rest of the world now. 0:03:20.919 --> 0:03:24.840 By some of the numbers, Australia has a relatively wealthy population, 0:03:25.120 --> 0:03:28.400 but an incredibly low number of people compared to its 0:03:28.480 --> 0:03:31.720 land mass. To give some relative figures, it is thirty 0:03:31.760 --> 0:03:34.960 seven times larger than the United Kingdom, but it has 0:03:34.960 --> 0:03:38.520 only about forty percent of its population. For our US listeners, 0:03:38.560 --> 0:03:40.840 Australia is about eighty percent of the land masks of 0:03:40.880 --> 0:03:44.200 the US, but only the population of Texas. So it 0:03:44.240 --> 0:03:47.440 has a lot of land that's sparsely populated, but it 0:03:47.480 --> 0:03:49.480 does have a lot of stuff in it. It has 0:03:49.640 --> 0:03:51.600 a lot of animals that can kill you, which I 0:03:51.640 --> 0:03:53.560 think a lot of people think about when they think 0:03:53.560 --> 0:03:56.520 of Australia, unless like the late Great Stevia, when there's 0:03:56.600 --> 0:03:58.880 not much you can do with dead animals to drive 0:03:59.040 --> 0:04:00.720 economic growth in a country. 0:04:00.840 --> 0:04:03.160 It also has a lot of very high quality. 0:04:02.840 --> 0:04:05.560 Wind and solar resources some of the best in the world, 0:04:05.600 --> 0:04:07.320 and as a result it can produce some of the 0:04:07.440 --> 0:04:10.960 least cost wind and solar generation. And while that is 0:04:11.280 --> 0:04:13.960 likely to play a role in its economic prosperity in 0:04:14.040 --> 0:04:18.159 the years ahead, today it has very little role in 0:04:18.200 --> 0:04:21.039 the domestic energy system and the economic story. But what 0:04:21.120 --> 0:04:26.719 Australia also has is an enormous bounty of natural resources. Really, 0:04:26.800 --> 0:04:29.719 any mineral or resource you can think of, Australia probably 0:04:29.760 --> 0:04:33.279 has somewhere in its borders. It has precious and rare 0:04:33.279 --> 0:04:36.799 earth metals, has a large amount of industrial metals exports 0:04:37.160 --> 0:04:40.039 copper and bulk side. It's the world's largest exporter of 0:04:40.080 --> 0:04:42.560 iron or It also has an enormous amount of battery 0:04:42.600 --> 0:04:47.160 and transition metals, an enormous amount of hydrocarbons like gas 0:04:47.440 --> 0:04:49.719 where it's vye with the US and guitar to be 0:04:49.760 --> 0:04:52.839 the world's largest exporter of LNG, and an enormous amount 0:04:52.880 --> 0:04:53.360 of coal. 0:04:53.440 --> 0:04:56.080 And it is the world's largest exporter of coal. 0:04:56.200 --> 0:04:59.200 Now, if you put some numbers about production to exports, 0:04:59.360 --> 0:05:02.800 about ninety one percent of all the black coal produced 0:05:02.839 --> 0:05:05.120 in Australia were sent off shore, and about the same 0:05:05.120 --> 0:05:07.880 time about seventy five percent of its natural gas extraction 0:05:08.120 --> 0:05:11.720 was destined Velini exports, and this was to countries like China, Japan, 0:05:12.080 --> 0:05:13.960 South Korea and other countries. 0:05:13.560 --> 0:05:15.839 Across the Asia Pacific region as well. 0:05:16.000 --> 0:05:19.880 And so as you might expect, these export industries, these extractions, 0:05:19.920 --> 0:05:23.400 these mining industries have played a very significant role in 0:05:23.440 --> 0:05:26.640 the country's economic story and have formed a very important 0:05:26.680 --> 0:05:29.760 part of the Australian sense of national identity and of 0:05:29.800 --> 0:05:33.520 its national politics. And of all these extraction industries, historically, 0:05:33.680 --> 0:05:36.200 at least in many parts of the country, coal was keen. 0:05:36.480 --> 0:05:39.440 To give you a particularly shining example of this, former 0:05:39.440 --> 0:05:42.640 Prime Minister Scott Morrison once got up in Federal Parliament 0:05:42.760 --> 0:05:45.000 holding a lump of coal in an attempt to scare 0:05:45.080 --> 0:05:47.040 the opposition. Now this sounds like it might be an 0:05:47.040 --> 0:05:49.640 anecdote for many decades ago, but this happened just back 0:05:49.760 --> 0:05:53.480 in twenty and seventeen, and this is a real example 0:05:53.640 --> 0:05:56.880 of the dynamics, the complicated politics and the relationships with 0:05:56.960 --> 0:06:00.479 coal and extraction industries that Australia has faced. Because of 0:06:00.480 --> 0:06:03.359 these challenges, for much of the past twenty years, Australia 0:06:03.400 --> 0:06:09.000 has struggled with its decarbonization trajectory, often flip flopping on policies, ambitions, 0:06:09.040 --> 0:06:11.440 and targets. Being famously the first country in the world 0:06:11.480 --> 0:06:14.479 to both introduce and remove a price on carbon, it 0:06:14.520 --> 0:06:17.839 has increased and decreased and removed and increased again renewable 0:06:17.960 --> 0:06:21.600 energy targets and aspirations. And while over recent years it 0:06:21.760 --> 0:06:25.480 feels like Australia is turning a corner on its decarbonization 0:06:25.800 --> 0:06:29.640 plans and becoming more paras aligned to the years ahead, 0:06:29.800 --> 0:06:33.200 it's expected that extraction industries and things like coal and 0:06:33.279 --> 0:06:35.800 gas will continue to play an important role in the 0:06:35.839 --> 0:06:38.200 economy of Australia for the foreseeable future. 0:06:38.600 --> 0:06:43.279 That was an incredible amount of information around numerous industries 0:06:43.320 --> 0:06:45.520 that Australia is in and why don't we start with 0:06:46.040 --> 0:06:48.680 the exporting part of the market, because really, when we 0:06:48.760 --> 0:06:52.320 talk about hydrocarbons, that is the starting point for a 0:06:52.400 --> 0:06:55.200 transition and the baseline with which we can really have 0:06:55.279 --> 0:06:57.760 that discussion about what is changing. And one of the 0:06:57.800 --> 0:07:00.400 things that Australia has actually had is headline in the 0:07:00.400 --> 0:07:03.039 news more recently has been around really a commitment to 0:07:03.120 --> 0:07:06.279 natural gas in saying that they intend to continue with 0:07:06.400 --> 0:07:08.839 natural gas through twenty fifty and I'd really like to 0:07:08.839 --> 0:07:12.360 better understand from your perspective where you think that really 0:07:12.400 --> 0:07:16.280 originates from, given that the transition is certainly happening. Is 0:07:16.280 --> 0:07:19.400 it more around the export revenues or the role that 0:07:19.600 --> 0:07:22.240 natural gas can play is an important source of flexible 0:07:22.240 --> 0:07:24.760 capacity for knowables or is there something else that maybe 0:07:24.800 --> 0:07:28.040 I'm not understanding regarding the commitment to natural gas in 0:07:28.080 --> 0:07:28.880 the long term. 0:07:29.400 --> 0:07:30.440 It's a great question. 0:07:30.760 --> 0:07:33.160 And let me give you some context of natural gas 0:07:33.240 --> 0:07:36.040 as an extraction and export industry for Australia to put 0:07:36.080 --> 0:07:39.520 it in some context. Now, amongst this stable of export 0:07:39.560 --> 0:07:43.200 commodities that Australia has through mining an extraction, natural gas 0:07:43.280 --> 0:07:45.600 is one of the most recent additions that has really 0:07:45.720 --> 0:07:48.679 just scaled up over the past decade really from about 0:07:48.680 --> 0:07:51.800 twenty and sixteen, so really quickly, Australia went from a 0:07:51.880 --> 0:07:55.280 very closed off self supplying market for all its gas demand, 0:07:55.480 --> 0:07:58.960 began to rapidly scale up its extraction, particularly of coal 0:07:59.000 --> 0:08:02.920 seam gas throughout many different states Queensland, Western Australia and 0:08:02.920 --> 0:08:05.560 now the Northern Territory as well, to become a global 0:08:05.600 --> 0:08:08.960 player in this export commodity. And due to that rapid 0:08:09.120 --> 0:08:12.600 change of pace, Australia has struggled to keep up with 0:08:12.640 --> 0:08:16.240 its longer term vision around what natural gas and other 0:08:16.320 --> 0:08:20.680 hydrocarbons might mean for its economic story, either domestically or 0:08:20.680 --> 0:08:24.440 from an export's perspective, and this becomes increasingly important when 0:08:24.440 --> 0:08:28.239 we've established valuable trading relationships with other nations both around 0:08:28.280 --> 0:08:31.640 the Asia Pacific region from China, Japan, South Korea, Taiwan 0:08:31.720 --> 0:08:34.040 and many others, as well as our visions of what 0:08:34.120 --> 0:08:37.560 Australia might transition to over the longer term in terms 0:08:37.559 --> 0:08:39.880 of exports as the world transitions to. 0:08:39.840 --> 0:08:41.840 A lower carbon future as well. 0:08:42.000 --> 0:08:44.720 And so I think right now, particularly within political circles 0:08:44.760 --> 0:08:47.480 across the country, they're not at the time they're looking 0:08:47.520 --> 0:08:48.240 to make enemies. 0:08:48.280 --> 0:08:51.320 They're not willing or looking to rule anything out. Even 0:08:51.360 --> 0:08:51.880 if we look. 0:08:51.800 --> 0:08:56.040 At commodities like thermal coal use for power generation far 0:08:56.080 --> 0:08:58.680 more carbon intensive in terms of its scope three impact 0:08:58.760 --> 0:09:01.520 on the world, we're sending it primarily to countries who 0:09:01.559 --> 0:09:04.680 have targeted low or no carbon ambitions of their own 0:09:04.760 --> 0:09:07.520 by twenty fifty or by twenty sixty, and that tells 0:09:07.559 --> 0:09:11.160 Australia its investment and export communities that we are at 0:09:11.200 --> 0:09:14.080 some point going to have to transition away from the 0:09:14.120 --> 0:09:17.120 status quo. There is some hope that we might find 0:09:17.240 --> 0:09:22.400 other economies to export these hydrocarbons to, particularly emerging economies. 0:09:22.480 --> 0:09:26.440 They're rapidly growing appetite for energy, although that comes hard 0:09:26.559 --> 0:09:29.120 up against the need for the world to decrease its 0:09:29.120 --> 0:09:32.320 carbon emissions in line with the net zero future, to 0:09:32.360 --> 0:09:35.040 stay in a well below two degrees scenario. And so 0:09:35.160 --> 0:09:38.480 the government, who is in charge of directing policy, signaling 0:09:38.520 --> 0:09:42.679 to investors, signaling to industry what the future might hold 0:09:43.000 --> 0:09:45.720 is as of yet really welcoming all comers, and so 0:09:45.880 --> 0:09:48.560 we might hold views that the future role of gas 0:09:48.720 --> 0:09:52.360 isn't quite as rosy as the Australian government is currently suggesting, 0:09:52.520 --> 0:09:55.400 and some of the newer industries it's looking at, like 0:09:55.520 --> 0:10:00.360 transition metals, potentially hydrogen and hydrogen drived clean products play 0:10:00.480 --> 0:10:04.160 a more important role, although this transition from traditional to 0:10:04.320 --> 0:10:07.000 new has to be managed and might not be as 0:10:07.040 --> 0:10:08.480 smooth as the government is hoping. 0:10:08.800 --> 0:10:11.520 So there's certainly a pivot there for Australia in terms 0:10:11.520 --> 0:10:14.040 of the fact that there just really are an abundance 0:10:14.120 --> 0:10:17.240 of natural resources to call upon. So you're even saying, 0:10:17.240 --> 0:10:19.839 you know, natural gas has a future, but it may 0:10:19.840 --> 0:10:22.280 not be quite as long as predicted at this point 0:10:22.320 --> 0:10:25.120 in time. But then there are these transition metals that 0:10:25.160 --> 0:10:27.280 we see or battery metals that we see as a 0:10:27.320 --> 0:10:30.280 part of you know, the electric vehicle and stationary storage 0:10:30.280 --> 0:10:32.600 supply chain. But then how about the thing that they 0:10:32.600 --> 0:10:36.200 are known for being the largest exporter of coal. Now 0:10:36.240 --> 0:10:39.160 that is actually huge because you see coal retirements happening 0:10:39.280 --> 0:10:41.800 in developed countries all over the world, saying that we 0:10:41.840 --> 0:10:44.400 are committed to bringing these down as a really kind 0:10:44.440 --> 0:10:47.720 of quick way to reduce emissions from the power sector. 0:10:47.920 --> 0:10:49.800 When it comes to coal, what is the state of 0:10:49.800 --> 0:10:52.880 play for Australia. Are they seeing fewer exports? Is that declining? 0:10:52.920 --> 0:10:55.640 Have we reached peak demand? And then after we talk 0:10:55.679 --> 0:10:57.520 about the exporting element, I then want to come to 0:10:57.880 --> 0:11:01.080 domestically are they using it? Is it largely exported but 0:11:01.280 --> 0:11:05.800 internally being used only sparingly in that transition to renewables 0:11:05.880 --> 0:11:07.599 is happening. Can you talk a little bit about the 0:11:07.679 --> 0:11:09.560 role of coal both out of the country and in 0:11:09.600 --> 0:11:10.079 the country. 0:11:10.200 --> 0:11:12.400 So I think it's important to break coal out into 0:11:12.400 --> 0:11:15.440 two major classes, if you will. Thermal coal which is 0:11:15.520 --> 0:11:18.760 used for power generation, and that's for the production of electricity, 0:11:18.760 --> 0:11:21.320 which you're talking about in terms of major uses, being 0:11:21.320 --> 0:11:25.120 carbon intensive but important for electricity supply in global markets. 0:11:25.280 --> 0:11:28.720 The other is metallurgical coal coal which is often used 0:11:28.800 --> 0:11:31.840 in metal processes, particularly for steel manufacturing. 0:11:31.960 --> 0:11:34.160 Now we've seen some very interesting trade. 0:11:33.960 --> 0:11:37.920 Dynamics unfold for Australia over recent years, particularly more volatile 0:11:38.000 --> 0:11:39.880 on the end of thermal coal. It was only a 0:11:39.920 --> 0:11:42.480 couple of years ago where famously China banned or thermal 0:11:42.520 --> 0:11:44.920 coal imports for the country, although at the same time 0:11:44.960 --> 0:11:47.920 they did continue to allow metallurgical coal. And we've seen 0:11:48.040 --> 0:11:51.760 very volatile global markets for coal prices, in part driven 0:11:51.800 --> 0:11:54.560 by the energy crisis as much as invasion of Ukraine, 0:11:54.800 --> 0:11:57.880 in part due to waxing and waning supply and demand 0:11:58.000 --> 0:12:01.000 dynamics across the region. Now, if we look into the future, 0:12:01.320 --> 0:12:04.199 what we see in our longer term analysis here at 0:12:04.240 --> 0:12:07.200 BNF is that the world is going to have to 0:12:07.440 --> 0:12:11.360 dramatically reduce its reliance on thermal coal, in particular in 0:12:11.480 --> 0:12:14.839 order to stay on a low carbon trajectory to stay 0:12:14.880 --> 0:12:18.360 within the Paris targets. If we look within the Australian market, 0:12:18.400 --> 0:12:22.079 the story is similar, if slightly more advanced. Now, given 0:12:22.080 --> 0:12:24.200 what I've said and what we've talked about the role 0:12:24.240 --> 0:12:27.560 of coal being a superpower of economic force in Australia 0:12:27.559 --> 0:12:30.040 in years gone by, it probably wouldn't surprise you to 0:12:30.080 --> 0:12:33.080 hear that coal generation made up the backbone of power 0:12:33.120 --> 0:12:37.120 supply in the country's electricity system. But now Australia's once 0:12:37.240 --> 0:12:41.360 mighty coal fleet is facing structural decline, and the question 0:12:41.520 --> 0:12:46.040 is increasingly when, not if it will exit the market completely. Now, 0:12:46.120 --> 0:12:49.240 to put some numbers to that, about fifteen years ago 0:12:49.720 --> 0:12:53.560 coal accounted for about seventy five percent of Australia's electricity generation, 0:12:53.760 --> 0:12:57.320 and today it accounts for roughly forty seven percent. Now, 0:12:57.440 --> 0:13:00.719 coal generators are a bit like old car. As they 0:13:00.720 --> 0:13:02.840 get older, it can get a little bit less efficient. 0:13:02.960 --> 0:13:05.880 It might have a harder time speeding up and slowing down, 0:13:06.040 --> 0:13:08.560 and they might start to break down more often, becoming 0:13:08.640 --> 0:13:12.280 less reliable and more costly to repair, maintain, and retrofit 0:13:12.320 --> 0:13:14.319 to keep them running efficiently. And when you take into 0:13:14.400 --> 0:13:17.920 account that many of Australia's coal assets were never built 0:13:17.960 --> 0:13:21.320 to be particularly flexible or efficient to begin with, you 0:13:21.320 --> 0:13:23.440 can begin to see some of the challenges that Australia 0:13:23.520 --> 0:13:26.880 might face when you realize that Australia hasn't built a 0:13:26.920 --> 0:13:30.040 new coal generator in its domestic market for over ten 0:13:30.120 --> 0:13:32.680 years now, but we continue to send coal offshore to 0:13:33.000 --> 0:13:35.920 supply others who are building you coal generation. But the 0:13:35.960 --> 0:13:39.800 domestic fleet is of now about thirty one years old 0:13:40.000 --> 0:13:42.360 on average, and most coal plants around the world are 0:13:42.360 --> 0:13:45.240 built with an expected operational life of between forty to 0:13:45.240 --> 0:13:47.240 fifty years, and so if you run the numbers on 0:13:47.280 --> 0:13:49.880 the age of these assets, by twenty thirty, you would 0:13:49.880 --> 0:13:52.360 expect about twenty three percent of the fleet twiggs of 0:13:52.400 --> 0:13:54.520 the market just due to aging out, and by twenty 0:13:54.559 --> 0:13:56.480 forty this would be about fifty two percent of the 0:13:56.520 --> 0:13:57.360 remaining assets. 0:13:57.559 --> 0:13:57.760 Now. 0:13:57.840 --> 0:14:02.080 Over the past decade, Australia has seen a rapid rise 0:14:02.120 --> 0:14:06.040 in investment and supply coming from variable newbal energy sources 0:14:06.120 --> 0:14:08.320 and this has had a pretty big impact on the 0:14:08.400 --> 0:14:11.040 coal fleet. Again, going back fifteen years to two thousand 0:14:11.080 --> 0:14:14.480 and nine, Australia had about twenty nine gigawatts of operating 0:14:14.559 --> 0:14:17.400 coal capacity. This was running with a capacity factor a 0:14:17.480 --> 0:14:21.600 utilization of about seventy three percent. Today, coal capacities down 0:14:21.640 --> 0:14:24.160 to about twenty three gigawatts and it's operating with the 0:14:24.240 --> 0:14:27.360 utilization rate closer to sixty percent, and it is really 0:14:27.400 --> 0:14:30.640 not ideal for capacity designed to operate as a base 0:14:30.680 --> 0:14:35.040 load where you want higher utilization to disperse your returns. 0:14:34.520 --> 0:14:36.360 Over higher capex and running costs. 0:14:36.480 --> 0:14:38.880 So we can see coal is beginning to be squeezed 0:14:38.920 --> 0:14:42.600 out now. Following the last federal election in twenty twenty two, 0:14:42.840 --> 0:14:45.720 the newly elected Labor government came in with a raft 0:14:45.760 --> 0:14:49.200 of new commitments to decarbonization, including a commitment to reach 0:14:49.240 --> 0:14:51.880 a forty three percent missions reduction on two thousand and 0:14:51.920 --> 0:14:54.800 five levels by twenty thirty, as well as reaching eighty 0:14:55.080 --> 0:14:58.600 two percent renewable energy supply in the domestic market over 0:14:58.600 --> 0:15:01.840 the next six years. Some other commitments like reaching eighty 0:15:01.920 --> 0:15:04.880 nine percent of all new light duty vehicles being electrified 0:15:04.880 --> 0:15:07.160 by the year twenty thirty as well. And overall you 0:15:07.200 --> 0:15:10.240 can see that these policy ambitions and increasingly the policy 0:15:10.280 --> 0:15:13.160 mechanisms that support them, are likely to have a dramatic 0:15:13.280 --> 0:15:14.840 impact on the remaining. 0:15:14.440 --> 0:15:15.880 Coll asets in the country. Now. 0:15:16.000 --> 0:15:18.360 Last year we did a piece of work looking asset 0:15:18.440 --> 0:15:21.720 by asset at both the policy drivers, the underlying economics 0:15:21.800 --> 0:15:25.080 the assets life and operational health, along with various corporate, 0:15:25.320 --> 0:15:28.160 government and owner commitments for closure, and we found that 0:15:28.200 --> 0:15:32.200 by twenty thirty five, about eighty three percent of Australia's 0:15:32.240 --> 0:15:35.160 remaining coal assets are likely to exit the market, which 0:15:35.240 --> 0:15:37.760 is a very dramatic fall from both where we are 0:15:37.760 --> 0:15:40.560 today and certainly from where we were just a decade ago. 0:15:40.960 --> 0:15:43.840 So, Lenny, you just mentioned how coal is getting squeezed 0:15:43.840 --> 0:15:46.680 out by renewable So let's then do that pivot to 0:15:46.760 --> 0:15:49.520 this part of the transition. What's happening. How large of 0:15:49.520 --> 0:15:53.640 a role do renewables play in the national electricity market 0:15:53.640 --> 0:15:55.600 in Australia's mix, So the. 0:15:55.640 --> 0:15:58.720 Role of renewables is rapidly increasing, and thank you for 0:15:58.800 --> 0:16:02.320 mentioning the national tricity market. That the initiation should probably 0:16:02.320 --> 0:16:05.880 give you a very quick geography lesson. So Australia's almost 0:16:05.920 --> 0:16:08.480 land masks can be broken up into several different grids. 0:16:08.720 --> 0:16:12.040 By far, the largest, representing about eighty five percent of 0:16:12.040 --> 0:16:15.360 electricity demand, sits on the east to southeast coast of 0:16:15.400 --> 0:16:18.359 the country and covers most of the major cities and townships. 0:16:18.400 --> 0:16:20.600 There are a series of smaller grids throughout the rest 0:16:20.640 --> 0:16:23.040 of the countries and are being for the larger towns 0:16:23.040 --> 0:16:25.400 and are being for mining sides, but really a lot 0:16:25.440 --> 0:16:27.720 of the action in the country does happen within the 0:16:27.800 --> 0:16:30.280 national electricity market. But if you zoom out and look 0:16:30.320 --> 0:16:33.240 at what role of what impact renewables are having across 0:16:33.240 --> 0:16:35.320 the country, it can be useful to put some numbers 0:16:35.360 --> 0:16:37.240 to that as well. Back in two thousand and nine, 0:16:37.400 --> 0:16:41.040 renewable energy accounted for about eight percent of total electricity 0:16:41.040 --> 0:16:44.880 generation in Australia. Today this is closer to thirty four 0:16:44.920 --> 0:16:47.800 percent of the market. Now, this is a pretty significant 0:16:47.840 --> 0:16:50.120 amount of growth, even if it's over quite an extended 0:16:50.160 --> 0:16:52.760 period of time. But this is an annual figure and 0:16:52.800 --> 0:16:54.800 if we drill into it, we can see some pretty 0:16:54.880 --> 0:16:58.920 extraordinary incidences within the market being caused by renewable energy. 0:16:58.960 --> 0:16:59.600 If you look at the. 0:16:59.680 --> 0:17:02.800 Fourth quarter of last year, across that East Coast market, 0:17:02.960 --> 0:17:05.320 on average in the middle of the day, wind and 0:17:05.359 --> 0:17:10.280 solar combined accounted for about sixty three percent of electricity generation. 0:17:10.520 --> 0:17:12.840 And again if we drill and even further, there were 0:17:12.880 --> 0:17:16.560 particular days in certain hours where wind and solar accounted 0:17:16.560 --> 0:17:20.399 for over one hundred percent of electricity demand in certain 0:17:20.480 --> 0:17:23.119 regions of the grid, in this case in South Australia, 0:17:23.200 --> 0:17:26.000 and there were even still hours of the day when 0:17:26.119 --> 0:17:31.520 behind the meter solar capacity alone was supplying more demand 0:17:31.760 --> 0:17:34.000 than the state had at that point in time. So 0:17:34.080 --> 0:17:37.120 to spell that out, consumers in South Australia have been 0:17:37.160 --> 0:17:41.040 producing more power at certain hours of the year than 0:17:41.280 --> 0:17:44.160 the whole state is consuming in terms of electricity. It's 0:17:44.280 --> 0:17:47.320 pretty remarkable. Now, other firms of generation were operating at 0:17:47.320 --> 0:17:50.800 that same time, the interconnectors to other states were able 0:17:50.840 --> 0:17:53.960 to move that excess supply into other regions. But just 0:17:54.000 --> 0:17:56.520 from those figures alone, you can see that the impact 0:17:56.520 --> 0:17:59.760 that wind and particularly solar is having on the market. 0:18:00.200 --> 0:18:02.200 The question what is it doing to prices? 0:18:02.480 --> 0:18:05.560 So this is really where we're seeing Australia becoming an 0:18:05.640 --> 0:18:08.680 interesting case study in the impact of high amounts of 0:18:08.720 --> 0:18:11.840 renewable energy generation. So, on one hand, as I mentioned, 0:18:11.920 --> 0:18:15.600 we have this immovable object, a fleet of baseload coal 0:18:15.880 --> 0:18:19.320 assets which were inflexible and getting more inflexible as they 0:18:19.320 --> 0:18:22.680 get older. They don't or can't ramp down when renewable 0:18:22.760 --> 0:18:25.199 energy generation are ramping up, and so they might be 0:18:25.240 --> 0:18:28.199 tempted to bid into the market negative pricing, that is, 0:18:28.359 --> 0:18:31.359 paying to stay online in order to not further damage 0:18:31.359 --> 0:18:34.119 their assets or to be available when prices might increase 0:18:34.200 --> 0:18:34.600 later on. 0:18:34.720 --> 0:18:37.520 And on the other side, we have this unstoppable force. 0:18:37.320 --> 0:18:41.199 This wave, a tsunami of renewable energy generation, particularly in 0:18:41.280 --> 0:18:43.280 the middle of the day and with rooftop solar and 0:18:43.400 --> 0:18:46.000 not responding to price signals from the wholesale market. 0:18:46.160 --> 0:18:48.359 These two forces are colliding now. 0:18:48.440 --> 0:18:53.080 These renewable energy resources are hollowing out this midday demand period. 0:18:53.359 --> 0:18:55.280 We've talked about a duck curve. This is beyond that. 0:18:55.320 --> 0:18:57.720 It's beyond a swan curve. It's into a Bronzsaurus curve 0:18:57.800 --> 0:19:00.000 or any other form of long neck dinosaur that might 0:19:00.160 --> 0:19:03.639 be your favorite. And the impact on electricity prices is remarkable. 0:19:03.800 --> 0:19:06.520 Across all of last year, in that East Coast system, 0:19:06.680 --> 0:19:10.520 prices and the spot market were below zero fourteen percent 0:19:10.600 --> 0:19:12.959 of the time. This is a seventy four percent increase 0:19:12.960 --> 0:19:15.200 from the year prior. In the fourth court of last year, 0:19:15.200 --> 0:19:18.440 in South Australia, spot price and electricity market were below 0:19:18.560 --> 0:19:21.840 zero thirty two percent of the time. And this is 0:19:21.880 --> 0:19:23.879 of course having a massive impact on the value of 0:19:23.920 --> 0:19:27.600 the rest of the generation fleet, in particular self cannibalizing 0:19:27.640 --> 0:19:30.600 effect on other forms of renewable energy generation there have 0:19:30.680 --> 0:19:34.480 been multiple months now across the country where the value 0:19:34.680 --> 0:19:38.480 of large scale solar generation is below zero. To give 0:19:38.520 --> 0:19:41.359 you a more clear example, in December of twenty twenty two, 0:19:41.480 --> 0:19:45.919 in South Australia, utility solar generators paid an average of 0:19:45.960 --> 0:19:49.119 twelve Australian dollars per mega what hour for the privilege 0:19:49.119 --> 0:19:52.560 of generating. That's how low and how frequently below zero 0:19:52.720 --> 0:19:55.280 wholesale prices were. And if we look to the future 0:19:55.359 --> 0:19:59.080 as the government races towards its ambitious renewable energy targets 0:19:59.080 --> 0:20:02.480 in years twenty three, if we can't see this bulk 0:20:02.520 --> 0:20:05.280 of coal capacity getting out of the way fast enough, 0:20:05.359 --> 0:20:07.880 and if we can't manage to shift demand either through 0:20:07.960 --> 0:20:11.320