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Prime time for helping smooth the flow

Executive Tea - JonStretch -

ERM Power CEO Jon Stretch makes no attempt to hide his frustration with the latest failed attempt to get a national energy policy up and running, even though it means plenty of opportunity for his business to grow.

“It’s just beyond belief that at five minutes to midnight, when there has been an incredible amount of consultation with industry, with industry groups, with consumers, with competition groups et cetera, that we just saw politics of the worst kind make the whole thing melt down,” he says.

In early September, new Prime Minister Scott Morrison pronounced the National Energy Guarantee (NEG) dead.

Whoever is to blame, it was a devastating outcome for electricity consumers after high hopes had been held for a new policy framework, with input from such a wide range of experts and interested parties, Stretch says.

“Of course not everybody’s going to be 100 per cent happy, but stakeholders were able to say This is something we can fall in behind’. And sadly it disappeared.”

But while a national energy and emissions policy seems as far out of reach as ever, ERM Power’s commercial and industrial business customers still face not only a policy void, but also the bumpy and uncharted technological path toward an inevitable low-carbon future.

“Customers have figured out their bills have doubled and they’ve woken up to the fact that electricity is a volatile commodity, and that volatility is going to be here to stay regardless of the NEG,” Stretch says.

“We have almost one in four large industrial and commercial users as our customers and we help them manage their risk, not only of their supply but also manage their demand.”

While Australia is blessed with an abundance of solar and wind resources, Stretch warns that it’s also an island continent hobbled by a sparse and narrow distribution network and lacking the interconnectedness of the North American and European economies.

Its reserves of natural gas have been locked out by policy decisions on exports and exploration, and planned hydroelectric storage capacity will be both expensive and a long time coming.

And then there are some aggressive state government targets for renewables.

“That’s going to fundamentally change the way the network operates,” Stretch says.

“We’re going to have huge, huge, huge amounts of cheap electricity when it’s sunny and windy, and then it’s going to be super expensive when it’s not.”

He is optimistic about the potential for ongoing improvements in network management and technology, particularly storage, to help iron out the problem.

“Then it’ll be brilliant.

Then we will have all of that cheap energy that we can shift. It’ll be reliable, low emissions. It’ll be cheap. It’ll be absolutely perfect.”

But Stretch says it won’t happen right away. “Maybe in 15 years’ time they’ll solve it,” he says. “Storage will save us, but it’s about four election cycles away.”

In the meantime, managers face high prices, uncertainty, volatility, and complexity, and it’s had an effect on how they see their jobs.

“CFOs and treasurers who think about things like volatile commodities and currencies and so forth, how they impact their operations and how they shield themselves from fluctuations, are now adding electricity to their list,” Stretch says.

That’s not to say managers have suddenly become experts on all things energy-related, but they have, in Stretch’s words, become “consciously incompetent”.

They are now aware of the gaps in their skill sets and realise they need expert help.

This is where Stretch sees ERM Power playing a bigger role.

“This is what ERM Power does best – it responds and supports customers, can make decisions quickly, can solve problems quickly,” he says. “So while we hate the fact that there’s a lack of an enduring national policy, we think this is a great time for us to be helping our customers.”

Stretch boasts consistently high ratings for customer satisfaction, not just overall but for all key measures driving ERM Power’s high approval ratings.

“When you think about what drives that customer satisfaction, it’s billing accuracy, billing timeliness, account management, advice and guidance on energy efficiency, flexibility in terms, ability to solve my problems,” he says.

‘They’re all things where we are just miles ahead of our competitors.

“We don’t have the large, coal-fired baseload generation that our competitors have that means they forever want to keep increasing consumption so they can get better revenues for their wholesale energy.”

ERM Power invests in peaking gas-fired generation as well as solar and wind, and also has investments in storage, mostly battery.

More recently it has branched out into energy market derivatives to enable solar generators to “firm up” their supply to customers, Stretch says.

“We work with customers to help them get the best price for their energy consumption, and reduce their consumption at the same time,” he says.

“And that makes us No.l in customer satisfaction by such a long way: it’s really easy for us to align ourselves with our customers.”

“When you think about what drives that customer satisfaction, it’s billing accuracy, billing timeliness, account management, advice and guidance on energy efficiency, flexibility in terms, ability to solve problems.”

 

Original article appeared in The Australian Financial Review, 16 October, 2018. Reproduced with permission.