Energy costs will rise during shift to renewable sources: Alinta Energy CEO

Australians already feeling the pinch of higher living costs will be the ones hurt if the country doesn’t get its transition to renewable energy sources right, Jeff Dimery, CEO of Alinta Energy, has warned.

It was part of a candid message Mr Dimery delivered about the future of energy in an address to the National Press Club on April 10, in which he hit back at claims energy companies made excessive returns and cautioned that Australia hadn’t resolved some of the big issues raised by the move to renewable energy sources.

“You came here for truths and straight talking about the transition, so here’s a doozy,” he said. “Australians will have to pay more for energy in the future.”

Higher energy costs for consumers will come in multiple forms, he added, including via higher taxes to pay for energy infrastructure, the upfront costs associated with purchasing electric vehicles (EVs) and installing solar panels and batteries, or higher charges for electricity from the grid.

Despite the anticipated increase in electricity costs, the Alinta CEO pointed out the possibility of savings in other areas.

“Electricity might cost more, but your petrol bill might disappear,” he said, adding that consumers were encouraged to adjust their energy usage habits so they had more control over their electricity bills.

Challenges to renewable energy transition

Mr Dimery emphasised the challenging shift necessary for Australia to replace coal-fired power with renewables.

“By 2035, the National Electricity Market (NEM) is forecast to need 82GW [gigawatts] of utility-scale solar and wind, which is four times the current capacity,” Mr Dimery said, citing the Australian Energy Market Operator’s 2024 Integrated System Plan. “By 2050, we need to hit 126GW. That means we need to develop more than seven times the current NEM capacity of 19GW to phase out coal by 2050. That’s close to a doubling every decade!”

At the same time, institutional investment in renewable energy sources was falling, as investors were scared off by the rising cost of developing and owning renewable energy assets and the uncertainty of recovering those costs. As an example, the Alinta boss said that in 2017 the company built Australia’s first big battery for $1.5 million per megawatt, but was now building another one that will cost $1.7M per megawatt.

“In 2020, it cost around $850,000 to insure a gas-fired power plant,” he explained. “Today, it’s around $1.175 million. That’s up 40%.”

And energy companies couldn’t afford to invest more in renewable energy sources while the price they were paid for wholesale energy was depressed, he said, by ample fossil fuel-sourced power that was topped up by power from existing large-scale renewable energy sources plus what was at times of the day a glut of solar power from residential solar systems.

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‘Higher energy prices don’t equal profits’

Meanwhile, Mr Dimery told the National Press Club that it “isn’t the reality” that higher energy prices have delivered super-profits for companies such as Alinta. He likened the margin companies such as his made on the average residential household’s annual electricity bill to the price of a Red Rooster family meal.

“The average annual household electricity bill is $1,500,” he said. “The average annual retail margin for electricity is $34. That retail margin accounts for about two per cent of that average $1,500 bill. The biggest costs are network fees and charges, which represent around 45 per cent, then wholesale electricity at 33 per cent, followed by retail and other costs, and environmental costs – both at 10 per cent.

“That two per cent average retail margin per residential customer – the $34 per year – that’s a little bit less than a family meal at my local Red Rooster.”

Time for tough talks on renewable transition

With profits on energy generation and trading less than imagined and hesitancy over investment in the area of renewable energy, Mr Dimery said that all players in the energy market needed to work together to solve the “bigger issues” , such as finding workable storage for the daytime glut of residential solar power that was causing companies to switch off their own large-scale renewable energy production. Another big issue to be addressed was how to allow everyday Australians to invest in large-scale renewable projects, he added.

Meanwhile, governments needed to maintain clear public policy on energy “and not get distracted with new ideas without a firm social mandate”.

“The greatest challenge will be achieving our shared goal [of renewable energy] while ensuring efficiently priced and reliable supply is maintained,” Mr Dimery concluded. “It can’t be an all or nothing game – the risks are too great. So, let’s be straight up with each other about the transition.”

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