Alinta CEO Warns of Increasing Energy Demand Outpacing Renewable Energy Expansion
Alinta CEO Jeff Dimery stated that developers were pulling back on commitments to build large-scale renewables due to a lack of storage.
The head of a major electricity generator and retailer in Australia has warned about the significant challenges facing the renewable transition and offered a bleak outlook for consumers from rising energy prices.
During his speech at the Australian National Press Club on April 10, Alinta managing director and CEO Jeff Dimery mentioned that the energy transition to net zero emissions was becoming “harder, not easier,” despite government support and significant investments in renewable projects in recent years.
Dimery stressed the urgent need to expand the country’s renewable generation capacity to meet the increasing electricity demand in the coming decades.
“By 2050, we need to hit 126 gigawatts. That means we need to develop more than seven times the current NEM capacity of 19 gigawatts to phase out coal by 2050. That’s close to a doubling every decade.”
Despite this, Mr. Dimery noted that many energy retailers and wholesalers were struggling financially, which hindered their ability to invest further in renewable energy.
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“Any profits made on generating and trading wholesale energy on average across recent years have generally been in the single digits,” he said, noting that the average retail margin per residential customer of his company was around 2 percent.
“In the last five years, the top three gen-tailers (companies who are both generators and retailers) in this country have collectively written off in excess of $10 billion of shareholder funds.
“There’s a race to net zero, but it’s supposed to be for emissions not profit.”
Additionally, Mr. Dimery mentioned that the costs of developing new renewable projects had surged, making it challenging for energy companies to recoup their investments.
The CEO provided an example of the Loy Yang B coal-fired power plant acquired by his company for $1.1 billion (US$720 million).
He explained that two years ago, it cost $8 billion to replace the power station with pumped hydro and offshore wind, but now the cost would exceed $10 billion.
Mr. Dimery also noted that the cost of insuring a gas-fired power plant had risen by 40 percent in recent years.
“The industry costs have risen, and current margins and returns are relatively modest,” he said.
“Developers are pulling back on commitments to build large-scale renewables because they don’t want to lock in high prices that may not be recouped.”
Around 14 percent came from solar, while wind and hydro contributed 11 percent and 6 percent, respectively.
Too Much Solar
Mr. Dimery mentioned that the early era of renewables, where companies could easily profit, was over.
Due to a lack of planning and proper infrastructure, the grid was overwhelmed by renewable energy from new projects, leading to curtailment and decreased profitability.
“We have a surplus of daytime rooftop solar energy, while 95 percent of all large-scale renewables are curtailed—essentially turned off—during high rooftop solar days,” he explained. The lack of battery storage prevents much of the excess energy from being stored for later use.
“The percentage of all energy produced by large-scale renewables that was curtailed increased from 10 percent in the last quarter of 2022 to 13 percent in the last quarter of 2023.”
The increase in curtailment has caused companies and investors to reconsider expanding renewable sources.
“No one wants to lose 13 percent of their output – and no one dares think just how much more could be lost. That could be the difference between profitable and unprofitable,” Mr. Dimery said.
“Continued subsidies at one end of the market are driving higher uptake into a glut and undermining the economics of new and existing large-scale renewables.”
Bleak Outlook for Consumers
After discussing the challenges in his sector, the CEO cautioned that Australians would face higher energy costs in the future.
“We will spend more as a percentage of GDP on energy, energy services, and energy infrastructure. Capital costs more. Labour costs more. Transmission costs are rising.” he said.
“Whether we pay through the tax base, or pay the large upfront costs of an electric vehicle, or batteries and solar, or we’re paying more for electricity from the grid–we’ll all pay more in aggregate.”
“We need to be honest about that. And, I don’t think the average Australian is prepared for that reality.”
Despite the grim outlook, Mr. Dimery expressed that the energy sector, the government, and the community could collaborate to strengthen the grid and ensure energy security by leveraging renewable energy in the country.
“For governments, that means maintaining clear public policy, and not getting distracted with new ideas without a firm social mandate. We know what energy mix we need to blend together today. We just need to get on with it,” he said.
“And, for industry, we’ll partner with customers to help them store and shift their load to when energy is cheap … And, hopefully, we’ll partner with governments to bring on large duration storage to help shift the glut of solar out of the middle of the day for use during peak times.”
