CYBER SECURITY + INTERNATIONAL MARKETS
september.2017
HACKERS , CYBER ATTACKS & MALWARE SHINING A LIGHT ON CYBER SECURITY FOR OUR COMPANIES, ENERGY ASSETS pg. 10
ANNUAL CONFERENCE REGISTRATI
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ION NOW OPEN AT TEPAUSA.ORG 12TH ANNUAL TEPA CONFERENCE DALLAS - OCTOBER 4 & 5, 2017
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PLUGGEDIN
ETHICS
EDUCATION
CONTRIBUTORS EDITORIAL Derek Nelson, Aaron Cook, Graham Leith, Mitch Anderson, Gustav Beerel, Trey Price COPY EDITORS Scott Black, Leslie Brinson, Aaron Cook, Shannon McGriff, Paul Ward LAYOUT AND DESIGN, TimePiece Public Relations & Marketing
ADVOCACY
NATIONAL TEPA BOARD PRESIDENT Andrew Barth, Executive Vice President of Sales - Incite Energy VICE PRESIDENT Huston Able, Vice President of Sales - Choice Energy Services SECRETARY Perry Ruthven, Managing Director - Priority Power Management TREASURER Marilyn Fox, Partner - Fox, Smolen & Associates TEPA DIRECTOR Shannon McGriff - Prism Energy Solutions NORTHEAST REGION TEPA BOARD PRESIDENT Jeff Lenetsky, PJM Sales Director - EnerNoc VICE PRESIDENT Craig Wall, Dir. of Supplier & Prod. Mgmt - Patriot Energy SECRETARY Bill Cannon, Dir. Northeast Markets - Legend Energy Advisors NATIONAL AT-LARGE BOARD MEMBER Scott Heath, Managing Partner - Good Energy, LLP Paul Ward, Director and General Manager - Schneider Electric NATIONAL PAST PRESIDENT David Roylance, Co-Founder - Prism Energy Solutions NORTHEAST REGION VICE-PRESIDENT Javier Barrios, Managing Partner - Good Energy, LLP NATIONAL COMMITTEE CHAIRS MEMBERSHIP EJ Davis, Senior Energy Consultant - Choice Energy Services LEGISLATIVE AND REGULATORY Paul Smolen, Partner - Fox, Smolen & Associates STANDARDS AND COMPLIANCE Jeff Shoaf, Senior Vice President - Amerex Energy Services COMMUNITY OUTREACH Jared Patterson, Director of Energy Services - Rapid Power Management EDUCATION F. Michael Lewis, Vice President of Operations - Entelrgy CONFERENCE Shana Page, Business Development Manager - Source Power & Gas NORTHEAST REGION COMMITTEE CHAIRS LEGISLATIVE AND REGULATORY Matthew Kinney, Senior Counsel - Patriot Energy Group STANDARDS AND COMPLIANCE Craig Wall (Interim) EDUCATION Ray Perry, Founder and Managing Partner - NJGEC Andrew Schecter, Regional Sales Manager - Talen Energy MEMBERSHIP Stephen King - Premiere Energy Auctions
THE ENERGY PROFESSIONALS ASSOCIATION WWW.TEPAUSA.ORG | FOLLOW @TEPA_USA Cover images by intographics, Pexels and Alex Antropov on Pixabay CONTACT info@tepausa.org
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MARKET FORECAST QUESTION Energy Leaders & Influencers
If you could identify a 2018 trend or key development for the retail energy market what would it be? 1. “Long term solar PPA pricing IS approaching parity with traditional forward markets”
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PERRY RUTHVEN PRIORITY POWER MANAGEMENT
2. “In 2018, market prices will surge higher as we abandon previous market lows for electricity. The amount of increase is largely dependent on winter weather conditions and its associated demand for natural gas and oil. We will see a convergence of energy supply and demand type programs as energy suppliers, in an already overcrowded marketplace, aggressively market these programs as a means of seeking additional revenue and market share.”
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STEVE HARDY POWER BROKERS USA
3. "A trend gaining traction in energy management and will continue to gain momentum in 2018 is the collection of data. Everyone is looking for lower energy costs and by reducing demand and consumption through measurement and management we will see real time reductions in unit price and overall costs." BILL CANNON LEGEND ENERGY ADVISORS
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4. “2018 should be a dynamic year for energy customers. Prices look to remain historically low for the next several years. Energy services will continue to provide easy and efficient ways to reduce and track consumption. It seems that capital and investment funds will be increasingly available from suppliers, customers, investors, and other third-party finance sources. In short, we expect a vibrant 2018.” MIKE PAYNE APPI ENERGY
5. “As customers gain more experience in evaluating the competitive marketplace, Retail Electricity Providers in 2018 will be under ever increasing pressure to clearly explain even the slightest differences in contract language, product, and service.” HEATH KENDALL CHAMPION ENERGY SERVICES
6. “As peak pricing times in ERCOT shift due to an onslaught of solar and wind, 2018 will see some serious adoption of solar + storage.” SCOTT WILLIAMS CYPRESS CREEK RENEWABLES
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CONTENTS
SEPTEMBER 2017
PLUGGEDIN
10 - cyber security
17- mexico
22 - australia
26 - japan
32 - europe 7
“ I know that the City of Houston and the rest of Texas will rebuild stronger and better than before, because we don’t know any other way.
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LETTER FROM THE PRESIDENT
STRONGER AND BETTER As TEPA prepares to launch our second edition of Plugged In, I have so many great industry topics that I am excited to discuss, particularly the annual TEPA conference. But today, my heart and head are in a different place... I want to take a few moments and send my thoughts, prayers and love to my hometown, Houston. For those of you that have only seen the devastation on television, I can tell you firsthand that it has not been sensationalized. The damage is as bad, if not worse, than the pictures you see and stories you read. There isn’t an individual I know in Houston who was not impacted in some way. Yet, despite the 50 inches of rain, the flooding, the 500,000 lost vehicles and countless lost homes, what Hurricane Harvey brought in excess is a level of humanity and compassion that I have never experienced. It hasn’t just been neighbors helping neighbors, but complete strangers walking in off the street to help someone clear out a flooded home.
For all the Texans stretching from Corpus Christi, to Houston, to Beaumont, on behalf of all TEPA members, our thoughts are with you. “The slogan ‘Press On’ has solved and always will solve the problems of the human race.” Calvin Coolidge 30th President of the United States
I saw people loaning generators and giving away tools. Cars from hundreds of miles away driving around on foreign streets handing out ice, water and food to anyone who was in need. I saw three young girls under the age of 10 who drove with their parents from Virginia to hand out gift cards that they had purchased with money they raised at their school. And let’s not forget the first responders and volunteers who risked their lives in their own boats and vehicles to save others. If you ask around, you’ll hear more of the same stories ... people helping people. I know that the City of Houston and the rest of Texas will rebuild stronger and better than before, because we don’t know any other way. Thanks to all of you for your thoughts, prayers, supplies, man hours and compassion.
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Andrew BARTH
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FOCUS YOUR ENERGY ON SERVICE! Join the TEPA Outreach Committee in making a difference in our communities! ANNUAL TEPA CONFERENCE COMMUNITY SERVICE PROJECT benefitting Dallas Area Habitat for Humanity Wed., Oct. 4, 2016 | Two shifts available HOUSTON LIGHT THE NIGHT WALK benefitting the Leukemia and Lymphoma Society Nov. 17th at 6:30 PM at Minute Maid Park Learn more at www.tepaUSA.org 9
WITH 90 PERCENT OF THE NATION’S ENERGY INFRASTRUCTURE PRIVATELY HELD, CYBER SECURITY HAS NEVER BEEN MORE IMPORTANT IN PROTECTING THESE ASSETS.
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SHINING a LIGHT ON cyber ATTACKS AGAINST our nation’s energy assets DEREK NELSON It’s true. I’m a conspiracy theorist. That “trait” is just as much as part of my DNA, as it is the career path I chose. Perhaps the one led to other. But, as an account exec for one of the largest network and web security companies, I have a front row seat to the torrent of cybercriminalists who continue to hold our information, data and funds hostage in exchange for encrypted digital currency. I know, cybercrime can all sound very “James Bond” – maybe just a tad bit exciting or swashbuckling. It certainly makes for great cinematic storyboards. But while those inside my circle of influence think I’m just a little paranoid, I’d rather like to think of myself as informed. I mean, even Mark Zukerberg covers his laptop camera to keep prying eyes veiled. The world we live in is simply more interconnected and intertwined than at any other time in our history – even more than it was yesterday.
THE CONVENIENCE OF BEING CONNECTED Make no mistake about it, the Internet of Things (IOT) is an amazing convenience. The technology at our disposal is something of a sci-fi spectacle. We can turn on our porch light while vacationing in Europe and connect with our refrigerator at the supermarket to see if we’re out of milk. But, like driving a car, our depth of connectivity should be approached with caution. While uber convenient, our mobile phones can track us, our flat screen TVs can listen to us and our baby monitors can be hacked by would-be criminals. And, it’s an inconvenient truth that the information we don’t give up by virtue of our connectivity, we give up of our own free will by posting, tweeting and sharing on social media. #HardTruth. We can be sure that as technology evolves, the choice between convenience and privacy will become increasingly more difficult and pit our morality against technology. For example, an April 2017 CNBC story reported a Swedish company offered to “to implant its workers and startup members with microchips the size of
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grains of rice that function as swipe cards: to open doors, operate printers, or buy smoothies with a wave of the hand.” Depending on which side of the aisle you stand, that’s either a really cool convenience, or one step closer to being a part of the collective cyborg. Dependency = Vulnerability Dependency on having our lives interwoven with the Internet is leaving each of us - and the companies we work for vulnerable to cyber-attacks. New and emerging ways of being attacked pop up every day, and the ease of which these malicious attackers gain access to our personal information is being fast tracked. Hacking no longer requires a high level of skill. In fact, hacking software has become so prevalent that anybody can download malicious software as simply as downloading iTunes or Spotify. Believe it or not, there’s even customer support lines and training sessions to accompany the software!
Once this software is downloaded, all that has to be done is give it a target and let the program run. If there is a vulnerability, then you’re hacked. There are even websites that will identify vulnerable energy and utility assets as potential targets that be hacked and remotely controlled. KEEPING THE LIGHTS ON It is easy to see the impact of cyber-attacks on our personal lives, but there’s an even greater risk to our energy infrastructure. Our nation’s security, economic prosperity and well-being depends on reliable energy. With 90 percent of the nation’s energy infrastructure privately held, cyber-security has never been more important in protecting these assets. If you missed it, the July 2017 issue of WIRED featured a cover story, “How to Switch a Country Off.” If you’re an energy professional, I highly recommend you read it. It was authored by Andy Greenberg, a tech writer with the magazine who also wrote an extensive article about Edward Snowden’s work to protect reporters from hackers.
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Without going into too much detail, the article walks us through how digital attacks by “Russian Cyberwarriors” on the Ukrainian power grid could be training exercises for a possible attack on the U.S. one. Fortunately, the FBI, Department of Energy (DOE), Department of Homeland Security and the North American Electric Reliability Corporation have been actively following what’s happening in the Ukraine. In fact, according to Greenberg’s article, in 2014 the US government was aware that the Black Energy malware had been planted on American power and water utility networks. Attacks on the power grids and utilities are certainly nothing new. In 2015, an oil and gas organization that owns and operates offshore rigs experienced a breach in their system. A hacker had remotely (through the Internet) taken control over a crane on their offshore oil rig. The attacker used the crane to pick up a generator (larger than the size of a bus) and hold it hostage over the Gulf of Mexico. The hacker demanded a $50,000 ransom, other-
wise the dangling generator would plunge into the depths of the ocean. A few years earlier, a hacker announced that he breached the network of a South Houston Texas water-treatment plant. He did it because he felt he deserved more attention (i.e. fame) from a previous attack he masterminded on a Springfield, Illinois, water plant. The Department of Homeland Security (DHS) responded to his first attack by chalking up the breach to a disgruntled employee and denied him credit for the attack. So what’s a hacker to do when he/she isn’t acknowledged for masterminding a plot against a utility? Keep hacking until they get their desired results. In the situation of the second attack on the South Houston water-treatment plant, the hacker’s primary motive was to expose the inherent vulnerabilities in the critical industrial control facilities and prove how easily it could be compromised. Embedded in the hack the attacker stated: “No damage was done to any of the machinery; I don’t like mindless vandal-
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ism,” and continued “It’s stupid and silly. On the other hand, so is connecting interfaces to your SCADA machinery to the Internet.”
nature of these attacks. Embedding security features into the products and the software they are developing will be key.
SHINING A LIGHT ON CYBER ATTACKS Other reports have also recently shed light on the growing influence an attacker can have on utilities. But all is not lost. There are several steps that can be (and are being) taken to defend against attacks on our energy infrastructure and critical assets.
The government also needs to be mindful of what’s happening in the cyber threat landscape. Continuous education for policymakers should stimulate the introduction of standards, development of regulations, and further nurture the knowledge sharing of cyber risks among companies.
First, there needs to be a collaborative effort between energy companies, utilities and cyber-security and technology professionals. The energy industry needs to adopt a mindset that cyber-attacks are a core business risk. By simply acknowledging that there is a risk of a cyber-attack, it will naturally lend itself to increased awareness and insight/knowledge into possible vulnerabilities. This level of insight can lead to stronger technical and human cyber defenses.
Finally, the insurance industry must adapt by monitoring cyber risks and focusing on newly arising and changing threats. The quality of cyber insurance plans need to increase, but this can only happen if insurers understand how their portfolios are impacted when their customers see a breach. Quantifying cyber risks into dollars and cents will be crucial in the future.
Moving forward the industry also needs to invest in technology and a management plan to identify systems that have to be protected at all costs. Technology companies are going to have to hold their own as well. They must continue to be innovative and monitor the
Derek Nelson is an Account Executive with Alert Logic, a leading cloud security provider that protects networks with intrusion detection, vulnerability assessment, web application and log management solutions. In his position, Derek oversees the company’s customer acquisition activities across Southeast Texas and Louisiana.
Derek will moderate a panel featuring top cyber security professionals, including Agent Morrison from the FBI, during this year’s Annual TEPA Conference.
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A Look at Retail Energy Markets Around the World
In this issue of Plugged we’re spotlighting some of the most intriguing retail energy markets in the world.
mexico
japan
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australia
europe
Of course, we tapped into the expertise of energy leading professionals who have, or still are, leading the charge in those markets. They each take us on an international journey filled with real-world insight and practical advise for the deregulated markets inMexico, Australia, Japan and Europe. Learning more about the international energy market has never been more insightful.
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MEXICO The fight for a country’s retail power market
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eavyweight fighter Mike Tyson once said, “Everyone has a plan, until they get punched in the mouth.”
This profound statement had implications far beyond his comments before his fight with Evander Holyfield. Maybe the punch comes from a job loss, a natural disaster, or (as the case with Mexico today) building an entirely new retail energy market from scratch.
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Contributed by Trey Price & Rebecca Bollenbach
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Mexico’s biggest opponent to an open market may be the extremely aggressive – and some might say unattainable timeline set out by the reform. This fight isn’t new though. Many of us had ringside seats as we watched round after round of deregulation unfold in other countries. Some of us were even in the ring taking punches as we fought for deregulation in those countries, including right here in our own backyard. Truth is though, it’s not the fight that defines us; it’s how we deal with it. Right now, Mexico is in thering. And yes, it’s taking some blowsas it transitions away from a state-owned, regulated market to one that fosters competition through deregulation. But every market opening has its own challenges. Right now, Mexico’s biggest opponent to an open market may be the extremely aggressive – and some might say unattainable timeline set out by the reform. But rest assured, the reform has successfully advanced without any major knockouts since the market opened in early 2016.
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THE OPENING BELL In the 1930s, the Mexican government established the Comision Federal de Electricidad (CFE). It served as the state-run, vertically integrated electric utility. By the 1990s, regulators and industrial groups were increasingly in agreement that external investment and competition were the best means of creating a globally competitive, sustainable power market in Mexico. “The first step towards deregulation was set in motion in the 1990s,” said Rebecca Bollenbach, Partner at Essentia Advisory Partners. “It allowed merchant generators to build plants that served the regulated utility and/or large industrial loads under long-term contracts. This resulted in over 20% of the country’s generation being sourced from nonCFE power plants, but returns were capped for these investors by the lack of downstream deregulation opportunities.” THE MATCHMAKERS Starting in 2013, the majority
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of the regulatory duties were largely shouldered by SENER (similar to the DOE), who is responsible for the majority of the rulemaking and market design. This dynamic began to change in 2016 with the launch of deregulated market operations by CENACE (the ISO). When SENER completes its role of initial rulemaking in 2017, the CRE (Regulatory Energy Commission, similar to the FERC) will take over the majority of the regulatory burden, along with CENACE. “One reason for the shift of market rules to the CRE is that it’s more politically autonomous than SENER,” added Bollenbach. “Consequently, it’s largely immune to the ‘reorganization’ that occurs during Mexico’s 6-year presidential election cycles.” The lead positions in SENER generally change hands following each presidential election, whereas CRE Commissioners serve 7-year terms that are not directly tied to the ruling
PLUGGEDIN presidential party. Similar to the US markets, regulators and political groups can exert pressure on market regulations, particularly in the event that they perceive that system reliability is at stake. However, as the Ley de la IndustriaEléctrica (LIE) changes are now a part of Mexico’s Constitution, it is generally agreed that even a reform-unfriendly regime will be limited in its ability to stifle competition in the new power market.
the default regulated service range from $50 to $120 USD/MWh, depending on rate class and physical location. In addition to the changes to the power market, CENAGAS and PEMEX continue to unbundle in parallel, creating dual opportunities for energy marketing to industrial and commercial customers.
ROUND 1 Mexico’s electricity law (LEI) was passed in 2013, but changes didn’t take effect August 2014. The country’s first major operational milestone was January 27, 2016, with the opening of the Day Ahead Power Market. Since then, many major milestones have been met, including two successful long-term renewable power auctions, the country’s first ex-post capacity auction and implementation of an ex-post (testing) real time power market. “The much larger scope of the current deregulation plan, which was put in place in 2014, hopes to attract, through a competitive market mechanism, over 30,000 MW of new build from private source over the next decade,” Bollenbach noted. “Mexico’s demand curve estimates a 3.5%+ annual growth curve through 2024, which is expected to drive both wholesale and retail growth in the sector.” Future milestones include the completion of the implementation of the hour-ahead and real time market, the launch of the 2017 Mid Term Auction and the first DFT (FTR) auction, which is expected to take place in Q3 of 2018. THE PRIZE Mexico’s deregulated sector is estimated to represent over 55% of the MWh consumed in Mexico, with an approximate total load of over 180 million MWh annually. Retail rates under Photo by Isaac Castillejos on Unsplash Return to Table of Contents
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But not all end users are eligible to choose their supplier under the new electricity laws. Only customers whose peak load exceeds 1 MW under a single meter, or whose combined load under a single owner can be aggregated to 1 MW, are eligible for deregulated service. Residential customers and small commercial customers under 0.25 MW in peak load will remain under regulated rates. “Another great opportunity on Mexico’s horizon will be renewable energy,” added Trey Price, Sr. Vice President at MP2 Energy. “In Texas, Renewable Energy Credits (RECs) were established by the PUC to promote and build up the state’s renewable energy capacity and give customers access to energy created through renewable sources. Similarly, the Mexican government has created Certificadosde EnergíasLimpias, or CELs, to encourage the use of clean energy. The
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short and sweet of it is, this program is going to step up much faster than the market can comply. There simply isn’t enough solar or wind structures in place to meet market requirements just a few years from now.” This will be a great opportunity for developers and integrators of renewable generation, as well as for Mexican-basedcompanies seeking to create their own on-site green energy generation. The fact that on-site renewables can many time also provide power redundancy will be especially compelling in certainparts of the country. THROWING YOUR HAT IN THE RING Despite the market’s infancy, the player roster in Mexico is already stacking up. That’s in spite of its growing pains, like the country’s physical infrastructure, or lack thereof. Unlike a facility in the States that may experience a power outage
once every couple of years, companies in Mexico may experience one every week. The grid is simply not as robust as those you find in other countries.Similarly, the infrastructure of the natural gas market is sorely underdeveloped. In fact, Mexico is seeking outside investors and companiesto help build up their pipeline network across the country. For brokers, opening up shop is not as simple as applying for a business license. Despite its proximity and relationship with the U.S., Mexico is still an “international” country – and comes with “international” challenges. “Because the market is still in its infancy, there simply isn’t the critical mass of buyers to support a large ABC network like we have in the States,” added Price. “Of course, that time is coming. But for the present, the only companies that are participating in deregula-
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PLUGGEDIN tion, or have made deals, are the larger, more sophisticated businesses. As we mentioned earlier, residential power choice is not available in Mexico and likely won’t be for a while.” “It’s also important to understand the legal aspect of setting up a business in Mexico, as well as government’s policies and regulations,” he continued. “The country’s economy and the volatility of the Peso should also be on your radar. Even translating your marketing materials and website into Spanish, can be daunting. And keep in mind that anywhere you go, be it New York or Texas, people conduct business with people they know. So finding the right partner who understands the market, like Essentia, or a Mexico-based team to help navigate you through the market should be a part of your expansion strategy.”
Of course, none of these challenges should deter a retailer or ABC from opening up a shop in Mexico. Thanks to NAFTA, Mexico is already home to a significant number of U.S.-based Fortune 500 companieswithsatellite offices or manufacturing facilities in the country. These companies are already familiar with deregulation and if a broker has a relationship with the American parent, then options are wide open. The Mexican power market looks a lot like the American deregulated markets in many ways. In fact, Mexico was largely modeled after MISO and is similar to the PJM capacity market. Having a firm understanding of how those markets operate is a clear advantage and may in the end, just give you the insights needed to run a successful retail energy business in Mexico.
Trey Price is the Sr. VP; Board of Managers at MP2 Energy and oversees the company’s sales, structuring, pricing and origination efforts on a day-to-day basis. He serves on the MP2 Energy Board of Managers, and volunteers on the Board of the Bayou Land Conservancy, the largest in Texas.
Rebecca Bollenbach serves as a Partner at Essentia Advisory Partners bringing 17 years of experience in deregulated power and gas. She leverages her extensive knowledge of ISO operations to develop strategies, process and systems for Essentia’s clients in Mexico’s emerging energy markets.
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Mitch Anderson
AUSTRALIA An Insider’s Perspective of the Land Down Under’s Energy Market
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Photo by Leio McLaren on Unsplash
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hile it may be the world’s smallest continent, Australia is not for the faint of heart. Even with its miles of breathtaking beaches, sweeping vistas and cobalt blue skies, at its core the country can be unforgiving. It’s home to some of the world’s most dangerous animals, both land and sea. And its vast sunburned soul, the uncompromising Outback, has the power to break even the strongest survivalists. Equally as impressive as its terrain, however, is the country’s vibrant culture and resilient economy. Specifically, Australia has been an enviable proving ground for building a healthy retail energy market. Australia has now recorded 103 quarters between the June 1991 and the 2017 March quarter without two straight quarters of negative economic growth, which is regarded as the longest stretch of any developed nation. This type of growth would not be possible without some sort of stable, progressive energy policy (despite the information that follows in the paragraphs below). AUSTRALIAN DEREGULATION 101 As a bit of a backgrounder, Victoria, which is the southernmost part of the mainland was the first state to make the switch. The six other states quickly followed their lead. By 2006, Tasmania (the last remaining regulated state) joined when the island was connected to generators on the mainland via an undersea cable. Victoria, as the forerunner in the deregulated market, entered into unchartered
territory when they broke up their allencompassing, state-owned, vertically integrated electricity industry into 14 companies, high voltage transmission (1), generators (3), distributors (5) and retailers (5). Those companies were eventually auctioned off to the highest bidder, includingU.S.-based companies. The other states also followed Victoria’s lead in deregulating their energy market. Today, Australia’s national grid is both a privately-held and government-owned infrastructure and the electricity trade is monitored by the Australian Energy Regulator (AER). MASSIVE SUCCESS* (WITH AN ASTERISK) Australia’s early deregulation efforts paid off in dividends. By all accounts it was a massive success and did exactly what it intended to do. It drove down energy prices. But that reduction in energy cost came with an asterisk. Australia’s revolving government party leaders each had their own agenda for the newly minted deregulated market. The Australian government, which is void of an Executive branch, is led by a Prime Minister who’s simply the party leader of the party with the majority of seats in Parliament. Those leaders can lose power quickly and often do. The benefit of such a government is that good policy changes can move much faster. The disadvantage of such a government is that bad policy changes can move much faster. During the 2000s, it was the latter of the two that seemed to be biggest threat to the retail market.
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Both sides of the political spectrum (Conservative and Labor) played to their base, igniting a longreaching energy scheme. In 2003, for instance, the conservative-party-led-government set a goal to be 20% renewable by 2020 by starting a REC scheme (the scheme was always advertisedas 20% by 2020, but the actual legislation set a hard number of 41,000 GWh. A few years later, the Labor-ledgovernment mandated a carbon tax. The original REC scheme included roof-top solar which 1) crushed the REC incentive for large scale wind and 2) along with generous state based feed-in tariffs, unfairly incentivized roof-top solar. That led to a splitting of the schemes into large and small, which basically means that Australian customers are paying a lot for green energy in their electricity prices. Because of flattening electricity demand, that original 20% goal actually started to look like 30%, which caused a run-up in REC prices from $30 to $40 level to the $80 to $90 level. These new price levels have incentivized more large scale wind that set into motion all kinds of intermittent generation issues, super low off-peak prices, which has led to multiple large scale baseload generators shutting down that in turn led to much higher energy prices in peak and super peak times. The wholesale market has tripled. There is ability to react to demand response and the market has done so, $14,000 per MWh creates sufficient incentive to shut down - and people do. If not for that, the prices would have been higher more often. The capacity market just adds cost in a different way. NIMBY! Australia has more export potential now that anybody in the world, but they can’t get enough gas to the terminals to meet the export contracts. Unfortunately, its natural gas boom just flared up
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too quickly. It was a modern day gold rush when people realized how much natural gas was under that coal. Land owners, looking to cash in on the discovery, allowed companies to set up coal seam gas wells on their property in exchange for a land fee, as the Crown owns all mineral rights below ground. But that proved to be the proverbial cart before the horse. To create a viable market for the gas since the domestic gas market is so small, (keep in mind it’s a warm country with a declining manufacturing base), an $80B LNG infrastructure was being set up in tandem with the coal seam gas wells and fracking.The problem then became how to get the gas from the ground to the export facilities. Despite significant contracts with the Japanese to buy the natural gas, Australia is struggling to fulfill these contracts because it’s now harder to find new gas because of a syndrome called NIMBY.
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“Australia has more gas export potential now than just about any other country in the world, but they can’t get enough gas to the terminals to meet the export contracts.” The NIMBY (Not In My Back Yard) sentiment basically says it might be a great idea, but it’s not a great idea to do it here. Environmental advocates and farmers created a back swell when they raised concerns about fracking’s impact on land and water supplies. Both the left and the right political parties are vested in this argument being the rural base that supports the right side of the right leaning party and the environmentalists who support the left side of the left leaning party. Those quiet realists in the middle are simply being out-shouted by those on both ends. NIMBY has killed any new exploration in both New South Wales and Victoria, the two states closest to the demand centers. The problem with South Australia is its distance to the coast of Queensland where most of the new LNG export terminals have been built, implying there is also a gas transportation issue. THE UP SIDE OF THE DOWN UNDER Alexandra Adornetto, an Australian author, wrote that “imagination and invention go hand in hand. Remember how lack of resources was never a problem in childhood games? Shift a few pieces of furniture around the living room, and you have yourself a fort.”
key points: scale and knowledge.Australia’s energy retail market is very similar to what we have in the United States. So there really shouldn’t be any surprises. The broker-to-retailer ratio, for example, is about the same as what you find here. There are four to five large broker companies that compete against a larger pool of 10 to 15 mid-size firms. The rest of the market is filled up with one or two-person operations. There are good guys, bad guys and everything in-between. By all accounts, the retail energy market in Australia parallels that of the States – and even closer to that of Texas. Deregulation framed Australia and Texas as the ‘Wild West’ of electricity markets. Both were new frontiers that attracted brokers who wanted to make short-term money at the expense of uninformed consumers and a fragile new market. The great news is that Australia, like the States, has evolved and offers rewarding opportunities for energy professionals who take time to understand the market, its history, challenges and opportunities before jumping in with both feet.
I think that really sums up the Australian attitude toward the retail energy market. Yes, the country has their challenges to work through. But they’re moving around the furniture to make things work. And it’s really a robust market. ERM Power continues to thrive and we’re continuing to grow as we navigate and adjust to the market, taking opportunity in a disrupting market. So my counsel for energy professionals seeking to gain a foothold in the market comes down to two
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Mitch is the CEO of Source Power & Gas, the next top 10 C&I retailer in the US. Source is a wholly owned subsidiary of ERM Power, the #2 C&I retailer in Australia. Mitch has been doing this a long time having started in the industry in New Zealand in 1992. Mitch was the founder and original CEO of ERM Business Energy in Australia.
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As far as deregulation rules go, the most challenging aspect of the current Japanese market is the limited choices for procuring supply. 26
Gustav H. Beerel, MBA, Ph.D Japan’s national retail electricity and natural gas deregulation is bigger than you think. As a country with over 62 million residential electric meters, that has seen over 30% increases in electric rates due to the 2011 nuclear disaster, the government has jumped into deregulation with both feet. There are nine electric utilities, each representing its own retail market. As of April, 2016 residential and small commercial electricity users can choose their supplier in all nine electric utilities. Over 300 local companies registered to become electricity suppliers, but only about a dozen are actively marketing and selling in scale. Of these dozen only seven are national and they primarily target their marketing on the customers of their core business, whether that is natural gas customers, mobile phones, cable TV, gas station visitors or train riders.
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JAPAN An international retailer’s best opportunity for renewed growth
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Much like European retail competition, electric utilities are free to also compete in this national market with “de-regulated� menus and price offerings. Within one year nearly 5% of all residences and 5% of commercial volume chose to leave the local electric utility for a competitive retailer. In addition, 4% of all residences chose to switch to a deregulated price offering made by their local utility. Switching on a national level is accelerating with nearly 240,000 resi-
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dences switching away from the local electric utility to new competitive retailers every month. The government’s dedication to continued deregulation seems steadfast. By 2020, all electric utilities must unbundle into subsidiaries of generation, transmission and distribution (with retail and all remaining customers). Also, by 2020 the government shall actively assess if regulated tariffs can be wholly abolished, much like the market in Texas.
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PLUGGEDIN A negawatt market has been established, capacity markets are expected by 2019 and the government is investigating ways to incorporate virtual power plants, battery technologies and other advanced technological solutions into its deregulation plans. As far as deregulation rules go, the most challenging aspect of the current Japanese market is the limited choices for procuring supply. There is a voluntary dayahead and real-time clearing market (the Japan Electric Power Exchange) that is rapidly growing but still represents only a small percentage of total load. An imbalance market has been established by the government that charges at the market rate. The government is dedicated to continuing to deregulate the wholesale markets, but centralized dispatch where all generation participates and an associated real-time market remain years away under current planning. For now, most retailers that do not already own generation rely on the Japan Electric Power Exchange. This has proven to date to be a successful and profitable strategy as prices have been lower than most expected, yet it is not a robust whole-
sale market as seen in the USA or Europe. Partially mitigating the limitation of a weak wholesale market is one of the uniquely Japanese aspects to the retail market. This is the use of a monthly fuel adjustment charge in all utility electric bills. This monthly energy charge changes with monthly changes in international fuel costs for coal, oil and liquefied natural gas. Most retailers offer products with this same monthly fuel adjustment charge. Not until the utilities and retailers are on the same footing with respect to the availability of supply will this market fully mature. Of course, it is the difference in costs with utilities having to bear the brunt of paying for idled nuclear plants that has made the initial opening of these retail markets such a success. HOW TO START A RETAILER So how can you get into the action? Starting a retailer in Japan is quite easy, both from a legal perspective and from a market setup perspective. There are no restrictions on foreign ownership of a Japanese retailer. All customer switching is centrally organized, much like the
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Texas market, and there are a plethora of service providers that offer SaaS or outsourced business solutions to help with switching, customer data management, billing, load forecasting, and supply management. If you prefer to bring your own software solutions, there are consulting firms that can help you localize your toolset. Five US retailers have already made the leap into this market: Xoom, Ambit, Family Energy (Columbia), Eletos (Vista) and Just Energy. The challenges to entering this newly minted market are many, the least of which is not the verbal language, the written language use of Chinese characters and the cultural differences. For most Westerners, a first visit to Japan can easily result in a sense of disorientation. Having personally visited over 20 times in the past two years, I can attest that the disorientation is quickly replaced with a sense of comfort combined with a true appreciation and respect for this society. More like European society, they care for their less fortunate and protect their citizens from abuse of power so one should expect strong
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PLUGGEDIN market surveillance and customer protections in the near future. Yet, much like all first-world societies, Japan is as capitalistic as any. Most middle class homeowners seek a good deal. The use of loyalty points and discounted deals for saving money is pervasive. Credit cards, mobile payments, and automatic withdrawals for utility payments is common. Bundled offerings of mobile phones, cable TV, internet and now electricity and/or natural gas is also common. The use of billboards, radio and TV ads, newspaper ads, telesales, door-to-door sales, agents, brokers, multi-level marketing are all common. Upper middle class seeks the latest technology and Japanese companies are technologically advanced in their offerings. When a home is switched to a new retail electric supplier it automatically receives a new Smart meter that reports usage every ½ hour. Mobile and web-based customer information and payment systems are the norm. The vast marketing experiences that USA and European retailers have garnered over the past two decades are ready to be exploited in the Japanese deregulation. Exporting retailer sales tools and techniques will prove very profitable for the international retailer that jumps into this market early. Headroom is similar to healthy USA markets and awareness is very high among consumers as compared to most other international markets.
strong political force that would rather see retail deregulation go away. They are losing customers faster than they expected and are seeing an uncertain future. Utilities have been lobbying hard over the past few years to restart their nuclear units, despite general population distrust and fear of another nuclear disaster. The government’s official position is to restart nuclear units under compliance of a new regulatory standard. Five nuclear units are in operation, seven additional units have completely met the new standards and may be started subject to local governmental approvals and thirteen others are in the review process. As nuclear units come back on-line, utilities may be free to reduce their tariff rates, eroding headroom as a method of protecting their customer base. The government is likely not ready to see its electric utilities financial positions further eroded as long as they retain the responsibility of keeping the lights on. And yet, here we are with nearly 240,000 residential customers leaving every month and an equivalent volume of commercial customers. There will likely never be a better time to enter this deregulating market.
RISKS The risks to entering this market are similar to entering any newly deregulated market. Is the government truly dedicated to the long-term benefits of deregulation? It would seem so, but the utilities remain a
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Dr. Gustav Beerel is at the forefront of deregulated retail and wholesale energy markets in the USA, Europe and Japan. He currently leads Market Development for Customized Energy Solutions in Japan. Previously, he was co-founder and CEO of EnvaPower Inc. which is now Genscape Analytics and was a founder of New Energy Ventures, Inc. which is now Constellation New Energy.
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The
EUROPEAN Power Market
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“While the EU as a whole offers varying degrees of opportunity, the United Kingdom – and England in particular – may be the best option for brokers.” Graham Leith
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or brokers in search of an international presence, the European power market offers significant opportunities. It is relatively mature and more closely aligned with how business is done in North America, and while some cultural differences may exist, they are not as pronounced as in other parts of the world. But it can be complex, and as a company with retail and business-tobusiness experience in all European countries – in both natural gas and power – ENGIE is well aware that companies seeking to enter the region should be prepared to face certain challenges. By way of background, the energy markets have been liberalized to some degree for more than two decades, when the European Union began to gradually open them to competition in 1996. Before this, the EU was divided into energy regions, a structure that helped to drive up electricity costs.
The EU has adopted a number of legislative packages over the years, most recently in 2009, to restructure the system. They have primarily focused on three areas: the decoupling of supply, generation, and networks; providing third parties access to the market; and ensuring that there was competition within both wholesale and retail markets. Thanks to this, according to the European Parliament, the region has moved away from a regulated environment that was “dominated by a few quasimonopolistic companies to one that is increasing competitive,” whose goal is “achievement of an increasingly interconnected European electricity market with convergent prices across the EU.” Those lofty objectives aside, a liberalized EU market has not yet been implemented in full. Some countries are completely deregulated, while others are at different stages of development.
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This has basically created three categories in the region: • Open and liberalized markets, but with varying degrees of progress. These tend to still be heavily dominated by powerful utilities and their affiliates, which compete aggressively in order to maintain their market share. They can be complicated and difficult to operate in. Belgium and The Netherlands are good examples. • Markets that started the liberalization process early and, as a result, are further along. Although there are affiliates in these markets, they aren’t as dominant as in other areas, making it somewhat easier for startups to enter and compete. England is probably the best illustration. • Markets that aren’t yet open or are “pseudoopen.” These countries have approved legislation and are becoming more open, but aren’t there yet. This category would include Italy and Spain. Stated differently, this means there are some good markets in Europe, some less-good markets, and some markets where caution is advised.
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While the EU as a whole offers varying degrees of opportunity, the United Kingdom – and England in particular – may be the best option for brokers. The market is bigger and more robust and, as noted above, is more open to competition beyond the so-called Big Six, which refers to the half-dozen oldest British electricity companies. Research has shown that the number of customers switching to independents has risen significantly since 2014, and by 2015 they had 13.4 percent of Britain’s household energy market supply market. Much of this growth has been attributed to a July 2015 finding by the Competition and Markets Authority that the Big Six had overcharged customers by about 1.2 billion pounds annually. Additionally, a greater commitment to renewables has also driven the increase in customers among independent suppliers. Competition is hardly new in the United Kingdom. It all started with “Thatcher”, when in England and Wales, restructuring and privatization began in the early 1990s, and the retail market began opening in phases through 1999; Scotland
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PLUGGEDIN privatized its vertically integrated energy boards in 1991; and the electricity industry is Northern Ireland was privatized between 19923 and 1993. This set the deregulation table, allowing the U.K. market to continueevolving in order to comply with relevant EU legislation. Of course, with the recent Brexit vote there are concerns over what’s ahead for Britain. At ENGIE, we have not seen a significant impact yet. The U.K. market does import some natural gas from the Continent but because the United Kingdom is a physical island, the country is somewhat isolated from the EU’s gas and power markets. So while Brexit may impact the country’s overall economy and energy markets, it likely won’t have a big impact on the U.K. retail power and gas markets. But most observers believe we’re not likely to know that with any certainty for some time. Of potentially more importance, is England’s stance on renewable energy, and possible price arbitrage with the Continent. Given the potential of the European market, an obvious question for brokers is how to enter and then realize its potential. The answer is multifaceted.
Also, it is important to establish alliances at the local levels. While cultural differences with North American business practices may not be insurmountable, companies have to communicate in the language of the locals in markets where they choose to work. That means finding local teams, local experts, and local partners. And since each country is regulated differently, it just makes good business sense to work with associates who understand the complexities and intricacies of the individual markets. In the end, it’s important to recognize that no new markets are going to open in the United States and that Europe offers a lot of possibilities in mature and evolving markets. So for brokers who are willing to make the long leap across the pond – and have the strategy, investment, contacts, and partners to back it up – the continent may well be where the retail action is. And, as the markets continue to mature, and competition remains high, customers are going to need the help of advisors to filter through growinglycomplex energy offers.
To begin with, any company looking to get a foothold should be ready to make the appropriate investment. Even in the United Kingdom, competition can be intense. Not to sound too American-centric – and understanding that “appropriate” is subjective, and different firms have different risk profiles – Europe can still mean a “go big or go home” commitment.
Graham Leith is the Vice President of Sales for ENGIE Resources. With more than two decades of experience, he is well versed in the energy markets of the United States, Canada and the United Kingdom and has worked with a number of leading energy companies in positions involving sales, marketing, risk management, and operations.
Finances aside, brokers also need to find point of entry. Coming to the market cold is an illadvised strategy. So a smart first step is to look to your contacts in the United States and see if they are willing to contact their counterparts in Europe on your behalf or connect you with them.
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