Within a few decades, Australian households and other consumers will not just be generating up to half of the country’s electricity needs, but they could be playing a key role in meeting peak demand and keeping the grid stable.

Such a scenario seems improbable in a public debate dominated by election-timed scare campaigns about the high cost of renewable energy and the perils of shutting down coal-fired generation, as occurred in South Australia last week.

But according to Bloomberg New Energy Finance senior analyst Kobad Bhavnagri, Australia’s energy system is set for radical change at a pace that may take the breath away – at least from the current crop of policy makers and regulators.

The country’s coal generators are ageing and dirty, and are rapidly becoming obsolete, Bhavnagri says. As these plants retire, new capacity will be provided by wind and solar, which will be far cheaper than fossil fuels, and without the commodity, reputational and market risk.

By 2040, he suggests, renewable energy will account for 70 per cent of all electricity demand. This reflects a global trend driven by technology and economics, with policy just a “stepping stone” along the way.

These two graphs illustrate that, as Australia makes new energy investments, wind and solar will be the cheapest options.

Bhavnagri says there is simply too much risk – to reputation, markets, and the environment – for any new coal-fired power stations to be built. And wind and solar will also be cheaper than gas, even with low oil prices.

Bhavnagri suggests that forecast solar prices will also be wound back significantly in an updated technology cost report to be released at the end of this month.

But the biggest change will occur “behind the meter”, in homes and businesses. Up to 50 per cent of all electricity will be generated behind the meter, simply because “end user” technologies will provide a cost of supply below that of the grid.

“This will provide more choice for consumers …. and will require a new array for services. Who provides these will be an evolving contest.”

And one graph Bhavnagri provided stood out. It shows that by 2040, the combined power of solar and storage could be providing the bulk of the “peak demand” needs, particularly in winter.

The purple bar represents flexible capacity – essentially end-user solar and storage that lies behind the meter – in homes and businesses of customers. This, says Bhavnagri, becomes the marginal technology of supply.

“All of that capacity that exists behind the meter has to be coordinated through some sort of mechanism or needs to be incentivised in some sort of capacity to be valuable to system.”

The alternative, he said, was to install a huge amount of redundancy in the system – such as gas peakers and centralised storage – which could be far more costly.





These are some of the issues that the networks are wrestling with, as they launch trials that will look at how using the shared capacity of homes and business can deflect and avoid network costs, and reduce the cost of peak demand, now mostly provided by expensive gas generators.

But Bhavnagri says that the massive uptake in battery storage – he predicts 33GW by 2040, along with 37GW of rooftop solar – will mean that net peak demand will nearly halve by 2040, contrary to most forecasts that suggests it will continue to grow.

“The way the grid operates will have to fundamentally change,” Bhavnagri says. “We are looking at a completely different energy market to one we are used to operating today.”