Australia’s economic transformation Part 1: Energy customers of the future
Between now and 2050, Australia’s population and economy are likely to change. Together with evolving technology, community expectations and a need to reduce greenhouse gas emissions, energy companies of the future are likely to be different to those of today. While reliable and affordable energy supplies will continue to underpin the prosperity of our communities, the sources of energy, and the business models that supply it, will evolve to reflect changes to society.
To supplement the 2016 AGL Sustainability Report, we have released the Australia’s Economic Transformation report, which explores the challenges and opportunities for AGL and the broader energy industry in meeting the changing needs of Australian energy consumers, industries and communities into the future. In this three part blog series I will summarise some of the report’s key themes and findings. Part 1 considers energy customers of the future.
Population and demographics
Between now and 2050 Australia’s population is forecast to grow by more than 50% to 37.6 million, and will undergo a marked generational change. By 2050, over three quarters of the population aged over 20 – and therefore likely to be making household purchasing decisions, for example relating to energy supply – will be millennials or younger (and over half will have been born after the year 2000). In an increasingly connected world, these customers may be most comfortable accessing products and services, making purchases and accessing information via digital platforms.
As the population grows, Australia’s infrastructure, including its energy systems, will need to serve a much larger number of homes and businesses. Ensuring that infrastructure is used as efficiently as possible will be essential to keeping energy costs for all customers as low as possible. Policy makers and the energy industry may need to focus on reducing peak energy consumption, as peaks drive the heavy fixed costs of the industry. Shifting tariff designs to focus on capacity, rather than energy, will be an important evolution to facilitate this.
Australia’s population in 2016 and 2050
Australia’s population is also becoming more culturally diverse. Today, 28% of Australian residents are overseas born, and projections by the Australian Bureau of Statistics suggest that migration will continue to drive Australian population growth to 2050, outpacing natural increases. By 2050, one in three Australians could be overseas born. In 2011, 46% of Australians had at least one overseas born parent. In an increasingly connected global economy, Australia has the advantage of one of the most culturally diverse workforces in the OECD, reflecting the underlying diversity of the population. In future, companies like AGL will need to leverage the diversity of its workforce to develop and deliver products and services for a more diverse customer base – it is therefore critical to drive improvements in cultural and gender workplace diversity.
The majority of Australia’s population growth to 2050 is likely to be in capital cities. Today, 67% of Australia’s population resides in the greater metropolitan areas of capital cities; by 2050 this may increase to 72%. Capital cities of the future may therefore be larger and have much higher population densities than they do today. By 2050, this growing population could mean that an additional 4.4 million households will need to be accommodated within Australia’s capital cities, up from 6.0 million in 2016. While a mix of new homes of different sizes and types will be required to accommodate different households, it is likely that more high- and medium-density housing will be needed, and that new home construction will be more modern, connected and energy efficient. Strict building standards are now in place for new homes and home upgrades, and energy appliances are also likely to continue the trend of becoming more energy efficient over time.
Changing population demographics and lifestyle preferences suggest that the makeup of households is also likely to change over the coming decades. In particular, as the population ages, there will be an increasing proportion of lone person and couple households, as children grow up and leave home, and parents become ‘empty nesters’.
Employment and living standards
On average, future Australians are projected to be wealthier and enjoy a higher living standard than today. The Australian Government has forecast that real Gross National Income (GNI) per person (i.e. the purchasing power of Australian incomes) will increase in real terms from $66,400 in 2015 to $117,300 by 2055 (although growth over the next 40 years may be slower than in the past 40 years).
As populations grow wealthier, the proportion of consumer spending on services and experiences (as opposed to products) is expected to rise. CSIRO predicts that in the future, consumers will increasingly expect personalised services that meet their unique needs, while still being delivered to the population en masse. Consumers may also increasingly seek ethical and other ‘feel good’ outcomes from their purchases. These forecasts may be equally true for energy customers, with suppliers of energy products and services needing to provide a personalised offering, combining different technological options to suit individual circumstances, and to provide environmentally sustainable options. Organising and analysing data to better understand the needs of customers, and using these insights to develop innovative products, will be key to maintaining a competitive advantage.
With Australians living longer and healthier lives than in the past, retaining and harnessing the skills and knowledge of the older population within the workforce and community represents a significant opportunity. Projections from Treasury suggest that participation rates for older workers will increase and participation rates for women in every age bracket are projected to be higher in 2050 than today (although still generally lower than for men). As the population ages, the average number of hours worked is projected to fall slightly, as a greater proportion of workers are likely to be employed part-time.
The very nature of work undertaken by Australians may also change over the coming decades as a result of technological and economic changes. Some commentators predict that workplaces will become more flexible, and that businesses may rely more on outsourcing to specialist workers who may have a ‘portfolio career’, with multiple jobs and employers at the same time. The trend towards tele-working may also continue, with up to one in four people working at least partially from home by 2050. It has also been estimated that as many as 40% of current Australian jobs face a high probability of being replaced by automation in the next ten to 15 years, with jobs that involve low levels of social interaction, creativity, mobility or dexterity most at risk.
On the other hand, by 2050 many thousands of Australians may be employed in new jobs and industries that have not yet been created. It is likely that employment in this ‘new economy’ will become increasingly service-driven and knowledge-based. To be successful, workers will need to be equipped with new kinds of transferable skills that allow them to navigate complex careers across a range of industries and professions.
New Energy Technologies
New technologies will no doubt play a central role in the way that Australians produce and consume energy into the future. By making use of modern technologies and the insights that they provide, electricity supply can be more efficient, safe, reliable, affordable and environmentally sustainable than it is today.
AGL has established its New Energy division to test and commercialise business models that make use of new distributed energy technologies. While it is impossible to predict which technologies are likely to be widely used in 2050, AGL is developing its capability to understand the technological horizon, rapidly develop and trial new products and services, and to create ‘energy ecosystems’ for customers which empower them to monitor, control and automate their energy choices.
Potential new technologies include:
- Distributed generation: Australia already has some of the highest penetration levels of solar PV globally, and in some states, as many as one in four households generate their own solar power. The uptake of rooftop PV is expected to continue to grow over the coming decades, and as technology costs decline further, solar will become financially attractive for many more households and businesses. Bloomberg New Energy Finance predicts that by 2040 Australia’s rooftop solar PV installations could increase to 37 GW, an eight-fold increase on today’s capacity. By 2050, solar penetration could be approaching 100% of suitable rooftops.
- Energy storage: Energy storage technologies, such as lithium-ion batteries can help to resolve the intermittency of some renewable technologies (such as solar or wind, which are only produced when the sun is shining or the wind is blowing), by enabling energy production to be stored until it is needed later. Home energy battery storage is not considered to be economically viable for most customers at current technology prices, however, costs have been falling rapidly and are expected to continue to do so as production volumes increase – with projections showing the technology may become economically viable during the 2020s. From this time, battery storage is expected to grow quickly, including in Australia where it can be paired with high solar penetration rates.
- Electric vehicles: The falling technology costs of battery storage are also expected to reduce the costs of electric vehicles, making them cost-competitive with conventional petroleum-fuelled vehicles, and leading to accelerated uptake. Energeia estimates that by 2035 Australia could have four million electric vehicles, representing 22% of the passenger vehicle fleet.
- Home energy management and local energy trading: Distributed energy technologies and the integration of information and communication technologies are opening up new possibilities in home energy monitoring and management, and are facilitating new opportunities for local communities to share and trade energy. In future, energy markets may become multi-directional, with customers making choices about how and when they produce, use, store and trade energy with each other based on dynamic market signals. Within local ‘microgrids’, community solar and storage resources may be shared or traded using peer-to-peer platforms.
Implications for household energy use
Changing household demographics and technological advancements have implications for the ways customers use energy in their homes. Today, different family types use different volumes of energy, and at different times, reflecting the number of people living in the home, and their lifestyle patterns – for example, whether one or both adults in a two parent family work on weekdays. Households where one or more people are typically at home tend to have less ‘peaky’ demand patterns in the mornings and evenings, and more consistent consumption throughout the day. Households with children, on average, consume more energy than the average, while pensioners and families without children consume less.
By 2050, as the population ages, there is expected to be a greater proportion of couple and lone person households. Older workers are expected to remain in the workforce at greater numbers than today, however, they may work fewer hours, and more flexibly than the standard nine-to-five working week. Higher participation rates for women of all age groups may result in a lower proportion of households with stay-at-home parents – or greater flexibility of working hours and increased telecommuting may smooth out some of the current peakiness in energy demand, which arises from standard working hours. Work and lifestyle patterns and energy efficiency may change the average demand profiles in future for families.
Potential changes to home energy use patterns for families with children
Couples and singles may be more likely to reside in apartments or other smaller homes, with less opportunity to install rooftop solar (due to size constraints). These household types may therefore access distributed generation via local community projects, or by using energy trading platforms to purchase excess generation from neighbours. Across all household types, energy efficient building construction and appliances may reduce average consumption over time, while the adoption of new appliances, particularly electric vehicles may (partially or completely) offset this effect. Home energy management tools may also be employed to spread demand across the day, to reduce demand peaks, improving the utilisation rate of generation and network infrastructure, and reducing the need for new investment in capacity.
Customers participating in AGL’s hardship program currently consume an average of 40% more electricity than average households in the broader population, leading to higher bills that are often above their ongoing capacity to pay. These households often live in poor-quality or rental housing, have older and less efficient appliances, and do not have access to new technologies (such as solar or energy storage) that can help to reduce bills. Over time, investments in capital-intensive energy technologies and housing efficiency improvements may not be evenly distributed amongst the population, and households experiencing financial hardship may not benefit to the same extent as the average population, causing them to fall further behind. As the nature of work shifts over time, with workers changing jobs more often and with some jobs potentially becoming less secure, income fluctuations may place more households at risk of energy hardship.
A shared responsibility approach to vulnerable customers is required, whereby governments, industry and the community sector work together to target the root causes and address the consequences of financial hardship. In the energy sector, reform of the energy concessions framework may be required to ensure that it is fit for purpose – with eligibility based on need, providing an adequate level of support, and be easily accessible by those who need it. For example, concessions eligibility based only on customers’ age may not be well-targeted or economically sustainable as the population ages.
Products and services that help customers better manage their energy costs may also help to reduce hardship. For example, energy monitoring tools, such as the AGL mobile app, allow customers to track their energy use and costs to reduce ‘bill shock’, and new financing arrangements for solar (such as power-purchase-agreement models) allow customers to install systems that provide cheaper energy with no upfront costs.
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