Is the Energy Sector ready for this big change?

Team Veye | 18-Feb-2019 Energy Sector asx


With the global inclination to shift towards a lower carbon and clean fuel in future, the use of Renewable energy is growing at a rapid pace and is expected to become the world’s main source of power in the next 20 years. BP has stated in its latest annual Energy Outlook report that the penetration of renewable energy in the global energy system has been at an exceptional fast speed than for any fuel in history.  It further added that wind and solar energy will play an increasing role in keeping the lights on in majority of the scenarios, however, oil and gas will remain major sources for the energy sector with consumption peaking in the next 10 years before its start declining.

The report highlighted that the world of energy was changing with renewables and natural gas together accounting for the great majority of growth in primary energy and in this transition scenario, 85% of new energy was low carbon. On the domestic front, renewable power accounted for a fifth of all energy generated today. The latest green Energy Markets Report stated that coal still accounted for more than 70% of Australian power, leading to high carbon emissions from the energy sector. 

On a Global level, the Coal future was under threat with Chancellor Angela Merkel telling students in Tokyo that Germany would exit coal power by 2038. In parallel, a New South Wales court knocked back an application for a new coal mine on the basis that it would increase greenhouse gas emissions at a time when they need to be cut. The decisions largely reflected the changes in policy and legislation that were hitting the coal sector.

Another notable change that was taking effect in the Energy sector on the domestic front was the new energy charter in which Australia's biggest electricity companies were vowing to put customers and affordability back at the centre of their thinking. With the sector coming under intense scrutiny in recent years amid soaring power prices, with the new charter, the 17 signatories (including electricity retail giants AGL, EnergyAustralia and Origin Energy, as well as transmission providers Ausgrid and TransGrid) hope to recognise the community expectations for them to do more on energy affordability and to deliver better customer service.  

A new accountability panel led by current Climate Change Authority chair Wendy Craik had been set up that would include national customer advocate Energy Consumers Australia, and it will report each year on how the sector was going.

Our analysts reckon that the sector is likely to witness some short and long term reforms and whether they will have a positive or negative impact on the companies involved in the sector would only be visible with time.



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