Are Solar And Batteries Undermining Australia’s Grid? Deep Dive Australia 03: Marc England

Marc England

I think one of the big disappointments for me in this energy transitions narrative is that too many people have an image in their head of a detached house with solar on the roof and a garage and a driveway and unfortunately not everyone lives in that environment and I think those of us in the sector who get a bit geeky about this need to just remind ourselves every now and then. I mean Ausgrid's network, 30% of our network customers don't have a garage or a driveway and so they don't have necessarily the ability and then there's about 40% of our network are renters and so we always think about the typical homeowner. But what we can do as a network that works horizontally across the system is take surplus solar, store it in the system, distribute electrons not only over distance but also over time and sure everyone gets the benefit of that and not just those that can afford to put assets behind the metre.

Michael Liebreich 

Hello, I'm Michael Liebreich and this is Cleaning Up and we're filming here on Gadigal land. I'd like to pay my respect to the traditional custodians of the land and also to their elders past, present and emerging. We're filming at the moment in the tunnels underneath Sydney. They're owned by Ausgrid which is the distribution network service provider for the city of Sydney and for the area around it. These tunnels were built about 25 years ago when it was realised that the cables serving the city, serving the central business district, serving around a quarter of all of Australia's GDP, were not resilient and there was a major programme to build tunnels underneath the city in order to house the cables for resilience purposes. So once we're done down here in the tunnels we're going to be talking to the CEO of Ausgrid, Marc England, about not just that project but also the challenges facing a distribution network operator in Australia with all of what's going on in the transition. Lots more solar and distributed resources, different technologies, different pressures. It's going to be a fascinating conversation. 

ML

Marc, thank you so much for hosting me here at Ausgrid Central with fantastic views.

ME

Good morning Michael, good to have you here. 

ML

So let's start, as we always do, who are you and how come you've ended up with a British accent and here we are in Sydney, Australia.

ME

Well I'm Marc, I'm the CEO of Ausgrid today, I have been for a little bit over three years. My background is varied, I've worked across the UK, New Zealand, Australia in different companies, mainly in the generator retailer part of the market, the competitive market. So this is my first regulated monopoly but enjoying it and having a lot of fun. I'm partly in Australia because I'm married to an Aussie, but also in Australia because it's a wonderful place to be and there's lots going on here.

ML

Now a regulated monopoly, just to be clear, a distribution network service provider as it's called here, DISCO as it's called in places like India, a distribution company. So you're taking the electricity from the transmission grid and you know stepping it down and then distributing it out to Sydney and the surrounding area. What's your geographical area?

ME

Well in a sentence we make electricity accessible. So actually our purpose internally is to make electricity accessible for all. So there's an equity element to what we do. Everyone gets the same service from Ausgrid, whoever you are, whatever home or business you operate in. But yes we operate in most of Sydney up until a sort of city called Parramatta. We then operate up the central coast north of Sydney to a city called Newcastle and then into the Hunter region. Which makes us interesting in a way because we operate in very urban environments like we are here with underground tunnels and pits and lots of stuff you can't see. And then we also operate in suburban areas as you go north and in some parts of Sydney and then into very rural environments up in the Hunter’s far northwest to somewhere called Scone. So yeah we have very different environments and we've truly been made up over time originally owned by local councils then amalgamated and then New South Wales split us up into three different companies.

ML

All right so we've been in the tunnels and we're going to talk about your tunnels. Absolutely fascinating that underneath the central business district of Sydney this incredible ring main that you've got. But Hunter is, if I'm not wrong, very agricultural. Isn't that one of the real kind of agricultural powerhouses of New South Wales and of Australia.

ME

Well it's agricultural but it also has a lot of coal mining. So it's kind of an interesting paradox there. You've got some coal mines, we've got some big power stations, coal power stations as well up there. But then also yes very rural farming, horse studs, that kind of environment too. Some wineries as well, wonderful place to visit if you ever want to go.

ML

Fabulous. I'll put that on the list. But just so we kind of make sure that the audience is keeping up. You said that there are three distribution companies within New South Wales. If we look at the transition in Australia, how would you characterise it? What's the challenge? Why was this an interesting job when they said well you know do you want to put yourself forward and you were running a utility in New Zealand, why this?

ME

So I'll come back to that but I think you want me just to position Ausgrid a little bit. So yes we are one of three in New South Wales and we operate up to what's called in electricity terms sub-transmission, so 132 kilovolts. But there's then also a transmission business a bit more akin to a national grid in the UK that does the interstate. Imagine big towers, long distances, 500 kilovolts, that's Transgrid.

ML

Transgrid. So that's what you're connected to.

ME

Interstate and then yes the three distributors in New South Wales and there's about 13 across the whole of Australia. But the three of us in New South Wales then distribute the electricity from Transgrid down to the homes and businesses and make it accessible to everyone. You know we distribute to about four million Australians. We supply about 20% of Australia's GDP. Part of the reason for those tunnels and the infrastructure was built there in the early 2000s is Sydney's the biggest city in Australia and we've got the stock market here, we've got lots of banks here, lots of important businesses as well. So we actually have a triplex network in the CBD which the only other city I think in the world that has that is New York.

ML

CBD Central Business District, I have my acronym rule that you know about. 

ME

The city if you like. So we have a pretty resilient system sitting here underground in order to ensure the lights always stay on.

ML

And triplex is essentially going to be N+ whatever it is.

ME

N-2. We can lose two out of the three and we can still keep the lights on and the businesses running which is really important in a city like this. That's not the case as you go further outside Sydney but that's quite unique to the city.

ML

And your revenues, that's the regulated business, you also have an unregulated business which I think you're trying to sell. 

ME

We call that Plus ES. So 92% of our revenue is regulated and the way that works is every five years we go to the Australian Energy Regulator, we propose capital investments, we propose a bunch of things we want to do to the network and then they give us an allowance to spend over those five years. And then with a formulated weighted average cost of capital they give us a return on that which is then defined as the revenue for the next five years. That revenue moves up and down a little bit with some macro factors like inflation but ultimately it's fixed for five years. We recover that revenue through tariffs that get distributed to retailers who then pass it on to their customers. Very similar to the UK

ML

So there's a line on the bill that says...

ME

Well actually it doesn't get split out in the bill here. Unfortunately we think it probably should do because we're feeling very strong about the need to keep our costs down and be able to demonstrate that actually the cost per customer or cost per kilowatt hour distribution is not going to go up over the next few years. But for now it's kind of blended in. There's some detail in the bill around tariff structures.

ML

So how much is it roughly per, you've got four million homes, how much of the homes electricity bill effectively comes back to you?

ME

Yeah so less than 30%. That's 29% today, so of a typical energy bill obviously it varies depending on your consumption.

ML

A few hundred dollars.

ME

Yeah so we're about a $450 cost within a $2,000 bill let's say.

ML

Okay, and that's the regulated business. And then Plus ES, now that was the smart metres and I just discovered in the tunnels that it's also the fibre. You have a telecoms business running in the same tunnels you actually use that for. Which is something that when I was on the board of Transport for London I asked them if they had a telecoms business and they looked at me like I was from Mars. This was sort of 2012, 2018 I was on the board. And I said well you know you've got access to everything. You've got these wayleaves everywhere. We've got all of the bridges, got everything, why aren't we running a telecoms business into all the you know the Goldman Sachs of the city and so on. And of course they do have one now but you do too but it's in Plus ES which you're selling.

ME

Yeah so the regulatory frameworks in Australia allow those of us that are regulated monopolies to have unregulated businesses on the side. They can operate outside of Ausgrid's geographical area and the fibre has a long legacy to it. We have fibre all over our network which we lease out to those that might want it for that last mile or that last bit of the network for them. But the metering business you mentioned was bought from a company called AGL, a generator retailer in Australia in 2017, and we've grown it. We have almost 1.9 million metres installed and Australia is on that journey to installing metres in homes, smart metres. And we've grown it and we operate in all states actually 

ML

AGL you're allowed to say because it's the name of a company and I don't know what it stands for. It's not an acronym, it's a company name.

ME

I worked there years ago but it is one of the very first. It was originally the Australian Gas Light Company. I don't want to promote AGL too much but there's a street here in Sydney which originally has some of the first gas lights on the streetscape but it's now called AGL.

ML

And it's a generator retailer. I think it's a brilliant word for it, only found in Australia. But you're selling, just touch on why are you selling Plus ES? Why sell it? As I travel around the world a lot of regulated utilities are really excited about the unregulated bit because they're allowed to do stuff and you're also sort of looking at doing more things which we're going to talk about, why not do them under Plus ES and hang on to it?

ME

Well there'll be a new version of Plus ES. We're selling Plus ES but we're actually not selling everything in it. We're selling the smart metering business. So the name might go, might not go but we'll still have an unregulated business and the reason for doing so is we've scaled it up reasonably well to 1.9 million metres. It probably presents a new investor a different opportunity to take it to the next level, do different things with it that we may not want to do and release the capital and recycle that capital back into other things that we want to do.

ML

And you are a coated company with a market capitalisation of?

ME

No we're not listed. We're privately held so we're 49.6% owned by the New South Wales state government and then we have three infrastructure investors. In Australian terms they're super funds, pension funds. We've got Australian Super, IFM which are very well known here in Australia and then we also have a Dutch one called APG. So we're not listed. 

ML

Massive research fail by me because I thought you were.

ME

I thought you're trying to trick me into telling you what we think we're worth.

ML

It was my segue into that. I was going to say well let's move the market by asking you how is the sale going?

ME

We're just in transition between phase one and phase two of the process so I won't talk about it more than that but it's going well.

ML

So let's move to the tunnels. Let's actually show the tunnels because it's a good way of illustrating what we've talked about because you literally have got the 132 kilovolts coming in but then it gets divided into the 11 kilovolt distribution circuits that go around the city. So that's the first piece of your business process if you like or if you follow the value chain. So let's go and have a look at that and then we'll talk about some of the questions that I have, having been down in those tunnels.

ML

John, explain where we are?

John Walker

We're currently in the City South cable tunnel which is one of Ausgrid's three tunnels under the city with a ring or network of cables feeding each of our zone substations approximately 40 metres below ground.

ML

So if we go straight up we get to CBD, Central Business District, right? And these cables are what voltage have you got?

JW

132,000 volts, five sets of cables here, another two over that way, ring main between the zone substations throughout the city.

ML

So when you say ring main so this goes these tunnels go all the way around the city, the CBD, the central part of the city. And 132 is mid-voltage right because it's not 400 or 600, it's not high voltage cable but it's also not what you'd see up at you know when you get to the up at street level it's going to be what 11 or something like that?

JW

For Ausgrid this is essentially our highest level of voltage within the city but then that'll step down to 11 kV in the zone substations and then from there down to 415, 240 volts to the customer.

ML

And just to be clear that's because Ausgrid you say the highest is 132 that's because it's a distribution 

JW

Yes

ML

It's a distribution company, this is not a transmission grid I guess is where I'm going.

JW

Yeah so we get the power from Transgrid and then distribute that to the customer.

ML

Absolutely fantastic and Marc please thank your team for showing us around and also for you know thank you for giving us access it's a real privilege. I love visiting, I love getting a hard hat on and going visiting infrastructure because it's so easy in the world of energy to be to sort of exist in the powerpoint zone and just go from one office to another and one minister and one regulator and one investor and one company and so on, and you never actually realise that there is physical kit that has to be installed and maintained and made resilient and so on so it's it's a privilege to see it. 

ME

Well I'm glad you appreciate it I mean a lot of people don't know what goes into making electricity accessible, there's a lot of infrastructure behind it there's a lot of people behind it Ausgrid has over 3,300 people who every day are out there maintaining the network ensuring that the electricity continues to flow and we often get described as poles and wires businesses but of course we're much more than poles and wires when you add up the sub transmission network, the substations, the transformers there's a lot of kit that ensures this electricity keeps flowing to the four million Australians that we serve, so glad you appreciated it and we spend most of our time and most of our effort most of our capital ensuring it remains integral to the economy.

ML

I want to talk about resilience. That's one of the themes for Cleaning Up I say for this year but I made it a strategic sort of focus for us but it is very top of mind. In a way we're coming from an era where it was climate climate climate, oh, and please make it resilient, and it's now resilient resilient resilient, oh, and please let's do climate. You have got a big network and the tunnels the origins of the tunnels we heard about in that clip was was in order to serve the city and make it resilient because when they were at street level or just buried there was real resilience problems, but you've got you're on the forefront also of climate adaptation, you've got wildfires I think you had some pretty bad floods in 2025, I'm not sure if you were-

ME

They were more in Endeavour's network but yes we do get affected by floods every now and then.

ML

So what are you doing and how much are you spending on, can you separate out the climate resilience piece from your normal daily activities?

ME

We have a particular category in our reg allowance that is about resilience itself, we have tried to make the case that it's important particularly when you get out of the Sydney area and you go further north on the central coast which is very susceptible to east coast lows coming in, that the people who live on that central coast need more investment in resilience in the network. And that resilience can be anything from undergrounding little bits of network which of course is very expensive, to just putting in community support mechanisms for when there is a storm and there's an outage how people charge their phones and get back up and running. Working with others like telecoms companies and the fire service and the SES here which is an emergency service, to ensure that when those things happen we've all invested in the capability and framework to help get people back up and running quickly.

So resilience for us is quite broad but of course just the basics of what we do every day and ensuring our network is integral is also partly about resilience. But if you look at the stats it's really interesting, if you live in the Sydney area your average outage time in an unplanned sense per year is minuscule, sort of single digit minutes. 

ML

Triplex will help with that. 

ME

Right exactly so that's been built for that reason partly too, but when you go up and you get into further outer reaches of our network you can have an hour or two hours a year of outage because of a storm and so it's a bit unfair. And we you know we talk a lot about equity in Ausgrid and we talk about making electricity accessible for all but not everyone's getting exactly the same service partly because if your electricity is distributed with overhead lines and a storm comes through and a tree falls on the line you're going to have an outage. And so we need to invest in that, we need to invest in that responsibly by ensuring that bills don't go up too much too and we need to be thinking about those. 

The interesting thing around climate change is it's quite easy to see if you look out into the 10, 20, 30 year future where there may be more floods, where there might be more fires very hard to see where the wind's going to blow and we do a lot of modelling around that and the modelling is challenging because it can be challenged to know exactly where the wind's going to blow hardest and when. But we are expecting more storms on these coasts so something we'll continue to talk to the regulator about, talk to our customers about and try and understand where do we get the best cost benefit analysis for that.

ML

And you talk to the regulator because you try and persuade the regulator that you are going to need to invest a few hundred million more and they then have to say okay then you can do that and you can put it on people's bills. 

ME

That's right because we're a monopoly, we're a natural monopoly, the regulator is in effect our only competitor and so every five years we try and make the case we do detailed analysis around why, how and where and they challenge us on that and we don't always win all the arguments. 

ML

And they're presumably also regulating how many minutes of outages you know they're monitoring that as well, so they're monitoring the outcome but they're also deciding what the input is so that's kind of that's that's the summary of your sort of day.

ME

And they give us, we have little incentive schemes that allow us to, if we can improve on that or we can demonstrate that we've affected a positive outcome, we get a bit of it.

ML

That is a question that I think a lot of people have is isn't your incentive really just to persuade the regulator to allow you to invest more, because you get your what I think it's six and a half percent on all the money that they let you spend, and therefore your main business challenge is none of the above, it's just persuade the regulator to let you invest more.

ME

So that is a common perception and I accept that, but having come in from competitive markets I find that a bit alien and I came in in 2023 and I was I was pleasantly surprised how much time Ausgrid people were spending with customers, with people out there who are actually receiving electricity from us, trying to understand what mattered to them so that we can keep bills down. So we believe social licence is really important. We're thinking long term here and we are arguing for some investments in some areas that some people might go, well all you want to do is build your regulated asset base, Ausgrid that's your goal, but we want to do that responsibly. 

And actually I summarise our biggest challenge in the next 10 years is enabling this energy transition to happen at the lowest possible cost and a lot of what we're arguing for we're able to point to, if we do it this way and perhaps in that example and Ausgrid might have a slightly bigger role to play than we have historically, it is cheaper than the the next alternative and we're trying to demonstrate that with facts and figures and evidence because we all know this energy transition is costing us but we need to do the lowest possible way, the lowest cost way.

ML

Let me come back to your grand master plan to be allowed to do more to expand that value chain out into different things like batteries, community batteries and so on, I want to come back down and we'll come back to that so that's your plan to be able to invest more. But I want to just poke on this idea of your expanding your regulatory asset base and what are the incentives. As an example I've come across an absolutely fantastic company that builds digital twins of grid assets, both transmission grid distribution and also some of the big grids that sit behind the metre so ports or factory campuses and so on, and they build the digital twins. So it's not just dynamic line ratings, it's not just saying well we can help you squeeze a bit more power through your assets, but really looking at if you switch this bit off what happens here and do we get frequency problems and voltage problems and and and so on. 

It can also make building grids much much more efficient and just taking out you know even a few percent of a big grid expansion project you know is enormously valuable, but you have really no incentive to use that sort of technology because what it might do is it might say well you were planning to invest AU$100 million on some upgrade now you can do it for AU$80 million because of the insight from this digital twin, don't tell anybody don't use it, because it's going to just reduce the asset base.

ME

That's not how we see it, I mean there are some misaligned incentives that we're arguing might need to change to get the right outcome there and I can talk about totex versus just capex, nopex, we are unfortunately incentivised to invest capex. 

ML

Totex being cost of ownership 

ME

Having an incentive where we could have an operating cost incentive to a third party to do something on our network that reduces the cost for customers, as opposed to today we're largely incentivised to build capital and capital investments which you just described. But I come back to this point what do we exist for and think about an organisation like Ausgrid is a bunch of employees who all have consciences and they have views on where this transition is going and they are all customers too, and one of the wonderful things about a network like us we operate in about 25 different locations across 22,000 square kilometres. But our employees work in the communities that they live in, we're really diversely spread and so that is a balancer, that is a social control in the sense that we all get out there in the community we want to do the right thing. 

So in the example you just gave we have to do the right thing from a cost benefit analysis we have to demonstrate that to the regulator too so they don't just say, here's your capital for five years off you go, there's reviews afterwards they've got to check that we've done the right thing we've made the best cost benefit choice. But then we got the social licence aspect to this too where our employees, our people, even our investors want to make sure we're sustainably growing and not doing things in a way that has got bad outcomes for customers. 

ML

It sounds, your answer is it's very it's very…

ME

“But he would say that wouldn't he!”

ML

It’s very polished is how I was going to put it, yes “he would say that wouldn't he” as they say, is the great quote from Christine Keeler. But there is a tension because when you say you know we're in the community and we serve and what are we here for, well but from the investors perspective you are here to make your regulated asset base the money invested as big as possible because it earns 6.5%. And it's a question of also just priority, what do you have your people do? Do they look under every stone for ways that AI can quickly come and help you to reduce the need for investment or do you say, well actually you know what let's have them maintain the system as it is let's not innovate, because if innovation is going to push down your regulated asset base then you're for your investors, that is a bad thing right?

ME

So the point I think missing there is that we have an allowance, we have an amount we can invest over a five-year period, we're just like every other company we're facing inflationary pressures on that. If we spend more than we've been given by the regulated spend because we're inefficient or lacking in productivity then we get penalised. So that's not a good outcome for us, so we have incentives to minimise our spend and make sure that we're doing it responsibly. And possibly if you went back 10 years ago and there were concerns that you know electricity demand might have been in decline perhaps because of solar and rooftops we might come to that, you'd go well we were trying to fight against the pressure of that. 

But actually it's the opposite we've got a problem where we got we see demand growing over the next 10 years, we've got data centres that want to connect, we've got EV chargers we want to connect, we've got to grow sustainably in a controlled and effective manner that is efficient as possible as we do it. So most of our incentives are to make sure we can find efficiencies and find products with improvements as we grow, we're not worried about whether we're going to grow or not, which is perhaps a luxury, it's more about how do we grow sustainably and responsibly.

ML

So there's a mechanism in the UK, I can't remember what it's called, which remunerates innovation and do you have something similar?

ME

We have similar things. 

ML

And if you have a line upgrade or something you need to do and the regulator has said okay we agree that's going to be you know that's going to be AU$250 million or whatever if you can bring it in under that cost…

ME

We have an incentive

ML

You have an incentive to do that

ME

We have an incentive to bring it in under and we have a disincentive to be over

ML

So you get part of the savings

ME

So that keeps us honest if you like as well as as well as every five years we've got to go back to the regulator they review what we did the last 5 years and they look at what we want to do in the next five years, so it's pretty it's a pretty transparent and very auditable framework. 

ML

Okay so I've given you a bit of a hard time on that one as I had to, but I want to move on to this question of you've got a transition, you've got incredible dynamism in the technologies, the solar roofs we know that Australia is the world leader in distributed solar, you've also got now grid connected batteries becoming much much cheaper in the last couple of years it's kind of 50% reduction, and as a distribution network service provider, DNSP in Australia, distribution company, there are certain things that you're just simply not allowed to do and you're pushing the boundaries, you want to do more. Can you talk us through that, explain what are you being stopped from doing and what would you like to do?

ME

So it's fascinating Michael because there's many transitions going on within what everyone calls the energy transition, you've got the decarbonising going on upstream replacing coal with wind and solar up in the wholesale market.

ML

Big projects.

ME

Big projects, there's a transition downstream behind customers' homes around demand and demands electrifying, people taking on electric vehicles and also electrifying their hobs and so on and hot water, so that's going on too which is a different dynamic again. And then I think we've got this really interesting thing that's becoming a bit more nuanced which is that demand is becoming much less predictable because you can't determine when someone plugs their car in, and supply is becoming much less controllable. So in the middle of all that you've got a much less, a much more volatile system and we sit right in the middle of it as a distributor. We say we're the missing middle in this debate because not enough attention so far has been given to where can we offer some of the solutions, not all of them, to de-risk and reduce the cost of the transition as a whole.

And certainly in Australia and I think it's true in many countries too, most of the debates happening in the upstream wholesale markets large generation side of things and then everyone assumes everything else will be done behind the metre by a customer, and we're saying look in the middle of this network, in the middle of this system is a distribution network it was built as a rigid system where supply was controllable and demand was predictable, and as as it turns the other way and it's less predictable and it's less controllable we could provide a buffer and that buffer is somewhat around storage, so one of the big topics for us is if you had more battery storage in the distribution network we could take out some of that volatility and we could also make this energy transition lower cost for customers.

ML

Because historically you were a one-way system, you would take electricity from the transmission grid, you the distribution company, take from the transmission grid and then divvy it up and get it to companies, factories, homes,communities, sports centres whatever, and it was all one way, and now of course it's very much trending towards two-way. So you've got everything from the home that's injecting and then but you've got an oddity in Australia where you've done very well at solar roofs on homes, you've done actually quite badly at factories, retailers, and C&I Commercial and Industrial, you've actually got a sort of a missing middle there in the supply. 

ME

Absolutely.

ML

But it's all coming through your grid which is now bi-directional.

ME

Bi-directional, another way to look at it is, the last mile has become the first mile. So sometimes in the day the generation is all coming from homes and businesses back upstream so it's quite an interesting dynamic to deal with. 

ML

I forgot to say there's another rule apart from the acronyms is never to use the word prosumer because I absolutely hate it. 

ME

You said it, I didn't.

ME

It's an awful franken word.

ME

But the whole system's been turned on its head for certain hours of the day on a sunny day in Australia, so we're dealing with that. Actually what's amazing is the positive side of that, I think networks are very resilient to that, you can flow electricity two ways. The only challenge is through the substation network it’s kind of like a cascade of transformers a bit like a waterfall, you can go the other way unlike a waterfall. The only challenge is if the capacity in a particular part of the network for receiving that power going the other way is less than the power that is flowing from homes and businesses and then we have issues we have to deal with that. 

But that's where storage could play a massive role because if you had storage you can keep the power local, so you don't need to use as much network, you don't need to use as much infrastructure. So you've mentioned warehouse roofs which I find fascinating, there's sort of two misaligned incentives, we talk a lot about one of them is that that if you own a warehouse roof it might be able to take two or three megawatts of solar but you are the landlord you're not the tenant, often the tenants in warehouses don't have high demand or consumption so you suddenly see warehouses near here, near Sydney airport where you'll see a strip of solar, it might sort of be a sort of 50 kilowatt solar system but it could take three megawatts on that roof but the incentives are not there for landlord to build three megawatts because they don't get a return for that. 

ML

It's more complicated even than that because the roof might not even belong to the landlord, you've even got companies because the big roof providers, I'm not going to name any companies because I'll get their names wrong but they'll actually own and maintain the roof. 

ME

I hadn't heard that yeah it's fascinating but I mean someone owns the roof, so what we what we as a network that works horizontally across the system can offer is a solution where you you can incentivise them to overbuild and to pump that back into the system, and if the power could be stored locally it could be distributed to everyone in the community, even those in social housing or in rental apartments or those that don't have their own roof. And I think one of the big disappoints to me in this energy transition's narrative is that too many people have an image in their head of a detached house with solar on the roof and a garage in the driveway and unfortunately not everyone lives in that environment and I think those of us in the sector who get a bit geeky about this need to just remind ourselves every now and then, I mean Ausgrid's network 30% of our network customers don't have a garage or a driveway, and so then don't have necessarily the ability. 

And then there's about 40% of our network are renters and so we always think about the typical homeowner but what we can do as a network that works horizontally across the system is take surplus solar, store it in the system distribute the electrons not only over distance but also over time, and sure everyone gets the benefit of that and not just those that can afford to put assets behind the metre, buy a battery or buy a solar system. So we're really motivated by that because we see a misaligned incentives that we could help solve, so when we say we want to do more, it's not out of a sort of desire to just grow our regulated asset base it's out of a desire we can see a problem we can solve and we're just trying to get attention on that. If the problem could be solved some other way we'd be fine with it.

ML

Why could you not solve that through your unregulated business, could you not just say you know gosh it would be great if there was a battery here so Plus ES or Plus ES 2.0 the bit that you keep once you've sold the smart metres, why don't you and others bid to build the battery we'll you know we'll integrate it, we'll wire it up

ME

You couldn't have asked me a better question and I didn't even tee that up for you, because that is the challenge. We today are installing community batteries in our network providing free value pool services. We toll the batteries for 10 years to a generator retailer, who then trades the batteries in the wholesale market because we're not allowed to do that. We have a little bit of that battery providing network support services, and then all the customers connected to that battery in the network, physically connected, can get storage as a service and we give them a lower network cost. You save about AU$200 on their annual bill which is meaningful in an Australian context. So in that example Ausgrid group is making unregulated returns on those batteries because it's an unregulated asset that we're not allowed to put on our regulated asset base, and so we're arguing we should be allowed to put on our asset base and make a lower return but it's taking a long time to get through on that and so actually what's happening is we're doing it in an unregulated sense but the best outcome for customers is to do it in a regulated model, so that's a great example. 

ML

Because the cost of capital is higher for the unregulated business, you're doing that but you're having to earn 15% and not 6.5% that it would be if you moved it over? 

ME

Exactly and so this is the irony in the whole debate, we're saying we want to do more but we're actually saying we want to do more in a regulated sense in a lower cost of capital sense because customers will be better off. But it's amazing how hard it is to get heard on. 

ML

But you do have a sandbox, in other words there's one one location where you're allowed to do that and you've actually built the thing and you're working on it.

ME

Yes so the regulator, the AR to their credit have put out this sandbox mechanism which has attracted lots of interest across the sector where you can apply and just like it sounds, it allows you to go and play in the sandbox or sandpit and break some of the rules that currently stop you from doing things. So we put a proposal together a year and a half ago it's been approved by the AR and we're getting going on it now. And in that sandbox we're going into two suburbs of our network and we're instructing others to say, the competitive market, please build solar on these warehouse roofs and we'll buy that surplus solar power off you and it'll be an auction so we'll take the lowest price solar possible, we'll put a whole lot of batteries in the network in that area. And not just big batteries next to substations like the community ones I mentioned, but sometimes small batteries down feeders in a very precise way so we can optimise the network as well as possible and demonstrate to the regulator over the long term if we do that we can reduce investment in other parts of our network. 

So we're saying it's a sort of swap between storage and maybe putting a transformer in to create more capacity in the future. The contentious part of it is those batteries will be charging and discharging in the wholesale market but the value in the arbitrage will go to all the customers in that area. So social housing will get as much benefit as a detached house with solar on their roof and so it's an experiment, it's a pilot, we've got three hypotheses we're testing - one is that we can create a lower cost to deliver electricity, two is that we'll get a faster pace of decarbonisation, and three is that we can create more equity. Because that's one of the biggest challenges we've got in this transition in Australia, we've got the haves and have-nots, we've got those that can afford a battery even with a government subsidy have to fork out thousands dollars of capital and getting a benefit, whereas others aren't 

ML

Cleaning Up is proud to be supported by its leadership circle. The members are Actis, Alcazar Energy, Arup, Copenhagen Infrastructure Partners, Cygnum Capital, Davidson Kempner, EcoPragma Capital, EDP, Eurelectric, the Gilardini Foundation, KKR, Mitsubishi Heavy Industries, National Grid, Octopus Energy, Quadrature Climate Foundation, Schneider Electric, SDCL, and Wärtsilä. For more information on the Leadership Circle, please visit cleaningup.live.  

To keep up with all that's going on in the Cleaning Up universe, make sure you subscribe to our newsletter. Written and edited by my longtime New Energy Finance and BloombergNEF colleague, Angus McCrone, it comes out every second Monday. Angus provides the latest on the episodes we're recording, the events we're hosting, stories we're watching and what Bryony Worthington and I are up to. To sign up for the Cleaning Up newsletter, visit cleaningup.live.

ML

You've got now 41% across Australia, I don't know what it is in New South Wales, of homes that have got solar. I don't know if you're above or below the Australian average.

ME

We're below the average because of Sydney because it's harder to do in a city.

ML

But you're also getting now across Australia, again it's a national figure, 400,000 batteries. I think it's 10 gigawatt hours of batteries within a year of the battery support programme being initiated. So your system is going to be flooded with or is already flooded with solar but it's going to be with batteries as well, even within Sydney because batteries are probably easier to install than solar even in a city, and certainly when you go up to the Hunter Valley you're going to get lots and lots of that. Doesn't that create an enormous challenge because aren't you seeing bigger and bigger chunks of the day when more and more of the market doesn't actually need your service at all? 

ME

I think it's early days. I mean there's been the federal government policy to subsidise home batteries, that's probably moved battery penetration from roughly 5-10% of homes with solar so there's a long way to go. But a little stat on solar for you that I find interesting, the City of Sydney which is a sort of a lobby group within this urban area, did a study last year and it said that 70% of all of Sydney's demands could be met with this warehouse roof solar we're talking about here. 

ML

Current demand?

ME

Current demand.

ML

So electrified transport and electrified heating? The 88%of the people who are not in Australia watching this probably think Australia is just kind of sunny and hot all the time. And they need to know that it's actually quite cold today and it's been raining so you do have a heating load.

ME

Yes, absolutely. We have a heating load in winter and some of that is made up by gas now in Sydney. Victoria has much more gas heating but a lot of it is electricity in Sydney. So yes there is a challenge in those days or weeks of the year when you don't have enough sun etc so that's another discussion around how we back up the market or how the market is backed up.

ML

Isn't there a risk though that you overinvest? Because those tunnels, they were designed and built in 2005 and the expectation and I remember the numbers across Australia because I was coming down here when I was launching and building New Energy Finance, and AEMO, the Australian Energy Market Operator, 

ME

Energy Market Operator, yes. Called NESO In the UK.

ML

I have to follow my own rules of enunciating the acronyms, but the big transmission operator had these wonderful lines for the growth of electricity demand in Australia and they were constantly off to the stars, off to the stars, off to the stars and it never happened. In fact, demand has been dropping and so you know the tunnels, you're lucky because you've now got over capacity in the tunnels for Sydney. But isn't there a worry that in all of what we're talking about there's so much grid defection, there's so many people will be doing so much solar themselves, you know 70% of Sydney of current demand but you know even as demand grows, huge amounts of electricity self-generated or generated and not using lots of your assets, does that not worry you?

ME

It doesn't worry us but I've been in this utility part of the sector for 20 years now and we've always had these hockey stick forecasts for demand growth and they've never materialised because efficiency has outweighed population growth. Solar has had some impact but don't forget solar only works when it's sunny, and at the end of the day in winter when everyone's heating their homes there is no sun so batteries will make a bit of a difference to that. But what we've seen in terms of hollowing out of demand is really an energy supply hollowing out, not a capacity. The actual max capacity in Ausgrid's network over the last 20 years has only fallen by about 0.6%, the minimum has fallen by about 2%. So it's quite interesting compound annual growth rate. So it is falling, the peak demand has fallen.

But when we look ahead and I'm saying this having spent 20 years watching those hockey sticks not materialise, demand is going to grow and we're pretty confident of that because of two big macro trends, one is electric vehicle adoption which will be a slow trickle over time from a demand perspective, but also data centres. And one of the many transitionings happening at the moment I think is the data centre boom. We're a 5.5 gigawatt max demand network at the hottest day of the year in Sydney and we've got a confident level of at least 2 gigawatts of data centre demand coming in over the next few years so that's a material shift.

ML

How distributed will that demand be because is that going to be one massive great data centre of 2 gigawatts or is that going to be a number of inference data centres dotted around the network?

ME

I think it's more the latter in Australia, we fear that we're going to see, what some people fear, we're going to see what happened in the US with AI data centres and gigawatt data centres. I think there may be occasionally one of those but most of what we'll see is cloud data centres and inference data centres, we're directing them into the Hunter where we've actually got spare capacity in our network.

ML

And that's because you used to have all those coal-fired power stations so you've got fabulous infrastructure.

ME

And also some of the coal mines are slowing down as well and there's other reasons for it but where we see capacity we're directing them to go there. And what the benefit of that Michael is that if we can get these data centres connected, every gigawatt we connect in our network is a $50 reduction for every home. Yes because they're soaking up capacity and they're absorbing our network costs and we don't necessarily need to build more network for them to connect.

ML

This is really an important point for our European audience, that volume drives costs down. There's this idea that the more we electrify, the more the costs will go up and once half of your costs are network, volume is your friend, demand is your friend.

ME

Absolutely as long as your peak demand doesn't go up too much.

ML

Which is about flexibility and digitisation.

ME

We've got a great example right now on the highway between here and Newcastle where we're working with Ampol which is a large fuel retailer to put in some very big EV charges in that location. The network wouldn't be able to sustain those EV charges on the hottest day of the year in Sydney or in the area, but we're creating a dynamic connection where they'll be able to downrate those charges on those particularly hot days. So we can get those charges installed early, they can soak up capacity in the trough if you like most days of the year and most days of the day, hours of the day, and spread existing infrastructure costs across more kilowatt hours.

ML

You also said something very interesting which I have to get my head around, that the sun doesn't shine at night but also that there can be longer outages. I think the longer outages is where I want to go. What do you do? So you do a magnificent job and 70% of Sydney is then powered by solar.

ME

Solar and batteries.

ML

Solar and batteries yes, so it's lots of solar lots of batteries, but what do you do when there is a longer period of bad weather and those batteries empty? How do you keep the lights on?

ME

Yeah so you're going to see much more long duration storage. We've got a slightly controversial hydro scheme called Snowy Hydro 2.0 being built south of here which is going to come in around 2030.

ML

And the laws of physics of Snowy 2 are that it costs double every two years right?

ME

Yeah well I won't go there that's not my remit, but in terms of batteries the government is incentivising 8 hour and 10 hour battery durations which we'll see more of I suspect particularly as the lithium ion battery technology gets cheaper and then it's not part of Ausgrid's role but we will need a capacity market for gas backup. And I think there's consensus going now that gas will play a role in the future and that there will be a way to incentivise that that ensures that gas can kick in when it's really needed.

ML

Right now there's no capacity mechanism in-

ME

It’s an energy only market.

ML

An energy only market.

ME

There are some mechanisms around wind and others that have created a pseudo capacity mechanism. There's a thing called the CIS, Capacity Investment Scheme, which is incentivising wind right now but I think in the end my own view for my old role is that we're going to need some kind of capacity mechanism for gas which allows a gas plant to be there on standby and only used a few days of the year.

ML

One of the things with wind is that it strikes me that we're not building enough of it because in a comparison of wind versus solar, solar always wins on cost. The problem is then you've got only solar and it all correlates, so how do we incentivise different forms of generation? Frankly you know in the UK nuclear and everything is all a bit ad hoc. There isn't a real systematic approach but are you building enough? Is New South Wales building enough wind for your liking?

ME

So again Ausgrid is sort of neutral to what generation capacity is built but obviously we have a vested interest in this energy transition going well and lowest possible costs I mentioned earlier.

ML

Diversification helps that.

ME

Absolutely so last year the three networks in New South Wales got together and created a distribution systems plan. It's quite interesting because it's the first techno-economic model of a distribution network, certainly in Australia we believe, looking at what would be required from a technology perspective in order to get the lowest possible cost outcome and de-risk this transition. We concluded collectively and we've submitted this to policy makers and government and they're taking it quite seriously that you could save about AU$4.3 billion in this transition across New South Wales, that it would reduce New South Wales dependency on Queensland and Victoria for energy too because we are an interconnected national electricity market. 

And it would also reduce the amount of gas by about five terawatt hours over four years that would be required in those gas-fired power stations, and the key and you're mentioning it is that we need uncorrelated wind. We need wind in different geographies as well as the solar. So there's never and this has always been the case in this sector there's never a panacea, there's never one silver bullet from a generation perspective. I think we're seeing ups and downs of wind development in Australia. There's a problem right now where we're not enough for getting through final investment decision but that'll be corrected in time and I think we'll see enough wind come in, in due force. 

I mean we're also pushing by the way one of the one of the things we can do is push the idea of a sub-transmission renewable energy zone. So Ausgrid and others are pushing that, we're doing one right now in the Hunter Valley and we're pushing it because it's a much cheaper way to connect wind into the system. So the current paradigm has been or the prevalent paradigm has been build large wind farms a long way from where the power is used because that's where coal used to be a long way from where the power is used, and we're saying bring it a little bit closer, sub-transmission network 132 kilovolts is cheaper to connect to. We can also augment lines that already exist so we can build more capacity in brownfield locations. We don't need to take out new tracts of land across farms, we don't need to upset local communities as much and so we can compartmentalise a little bit more and get a much lower cost. For us it's about a we think it's about a third of the cost per gigawatt to get new renewables into the system in that mid-tier sub-transmission level. So that's one of the solutions too that the distribution systems plan pointed to.

ML

So I want to just finish by coming back to this question about resilience because the topics we've covered so far are very much transition related. In other words you've got climate transition, you've got technology transition, digitisation transition. I do worry that we focus on that to the exclusion of other forms of resilience that we need to be thinking about. You've got hailstorms here not because of climate but just because there've always been hailstorms here. You become very dependent on solar, you become then very exposed to a really really bad hailstorm do you not, what actually happens, have you modelled what happens if there's a, it doesn't have to become all the climate folk are always saying all that what was once a century will become once every 10 years. It's like okay even if it's once a century if it takes out a sufficient chunk of the generation, haven't we got a really bad problem?

ME

So I think there's several things in what you're saying Michael, but I mean I think in 1999 I might get the date wrong, there was a pretty big hailstorm in the Sydney area and they do happen from time to time here amazingly but they're very geographically isolated. You don't get hail over the whole of New South Wales in one go.

ML

But if 70% of the electricity in Sydney comes from solar and the hailstorm hits Sydney that's pretty bad no?

ME

That's pretty bad but I've not seen a hailstorm hit Sydney as a whole. 

ML

You've only been here about two years!

ME

But that's the benefit network you said earlier, well people come off the network or you kind of insinuated there's a death spiral because of demand and people wanting to produce their power locally or behind the metre if you like, but being networked is going to be key here. So it's networked in a community, networked across the state, networked interstate will create some of that resilience that you're talking about to make sure that if localised issues do occur then we'll all be okay because we'll be able to reroute the power.

ML

There was also the other thing that keeps me up at night which is not climate related, is geomagnetic solar storms and there was one in I think in Victoria that took out 8,000 homes in January this year. And I was reminded of this when I saw your transformers because that's one of the things that apparently solar storms will take out transformers and they look pretty big and slow to replace. So do you have a plan if there's a really bad solar storm to get everything back up and running or not to let it?

ME

We certainly don't have a plan to replace our whole network in one go that would be almost impossible. But we have resilience in terms of spare parts and componentry. It depends on where it hits, depends on the size of the transformer, depends on the lead time for the supply chain. But remember a network is a network for a reason it's not a single line. So there are some examples where you have single feeders going out into remote areas but we are rerouting the electricity all the time in communities. We might have an outage over here, could be a planned outage for a bit of maintenance, we could have an unplanned outage because a tree falls in the line. In most cases we operate in an N-1 so you can reroute the electricity to make sure the lights stay on, that's part of our job. So an isolated incident we could handle, an incident across the whole of our network in one go is almost too..

ML

That's what a solar storm does and in fact I mean by the way it's not a trick question, it's something that genuinely worries me.

ME

Has it happened anywhere in the world?

ML

Well there was the Carrington Event, so 1859 there was a massive solar storm in the northern hemisphere but it took out the telegraph system and all the communications at the time. The interesting thing is what would it do if it hit now and it would be absolutely catastrophic, absolutely catastrophic. And countries have got, most countries have got plans. Australia as far as I can see has no real national sort of disaster plan for an occurrence of that magnitude. 

ME

It's a great challenge.

ML

And it worries me because if it can happen in 1859 my assumption is it can happen in 2026. It's not, the world hasn't changed so much in planetary geophysics.

ME

Well it's interesting, around the same time there was a massive La Nina or El Nino event. There's a lot of media at the moment going around Australia that we could be heading towards one of the largest El Nino events of about 150 years. But the last one, millions of people died and we're more resilient than we were then hopefully but we have to think about these things.

ML

Can I say that because of an El Nino or La Nina everybody's attuned to that because that's kind of like that goes with the narrative of climate and there's lots of resources and think tanks and so that will get attention. 

ME

And your point is that the solar storm isn't well understood. 

ML

But the solar storms get almost no attention and could be absolutely dramatically catastrophically bad.

ME

I think it's a good one for me to take away from our Risk Matrix and have a look at what that means.

ML

I hope our paths cross again very soon because we'll be able to check back in with you and you'll have somewhere in your drawer you'll have a solar storm plan and you'll be able to answer that question and feel very comfortable.

ME

I look forward to it.

ML

Very good. Thank you very, very much for your time today. It's been absolutely fascinating visiting your tunnels and also talking to you. Marc, thank you so much. 

ME

Thank you Michael, pleasure.

ML

So that was Marc England the CEO of Ausgrid, the distribution network service provider for Sydney and some of the surrounding areas here in New South Wales. As always we'll put links in the show notes to some resources that you might find useful. So in particular there's two episodes with CEOs of transmission grid operators and that is John Pettigrew of National Grid in the UK and Tim Meyerjürgens of Tenet Germany.

And with that I'd like to thank our cameraman for this leg of the Australia minI series that's Rob Moorman but also particularly Joe Jagger and Kendall Smith our head of operations for organising this incredibly complex tour. Our producer Oscar Boyd, our video editor Jamie Oliver, the rest of the team behind the scenes and the leadership circle without whom none of this would be possible. And of course I want to thank you, the audience for spending some time with us here today on our Australia mini series. Please make sure that you've subscribed to cleaninguppod.substack.com. That's the newsletter that will tell you when the next episode of this Australia mini series comes out and also keeps you up to date with all our normal episodes of Cleaning Up. 

Cleaning Up is proud to be supported by its Leadership Circle. The members are Actis, Alcazar Energy, Arup, Copenhagen Infrastructure Partners, Cygnum Capital, Davidson Kempner, EcoPragma Capital, EDP, Eurelectric, the Gilardini Foundation, KKR, Mitsubishi Heavy Industries, National Grid, Octopus Energy, Quadrature Climate Foundation, Schneider Electric, SDCL, and Wärtsilä

For more information on the Leadership Circle, please visit cleaningup.live. If you're enjoying this episode, please hit like, leave a comment, and also recommend it to friends, family, colleagues, and absolutely everyone. To browse our archive of around 250 past episodes and to subscribe to our free newsletter, visit cleaningup.live.