Infrastructure

How to invest in the new energy future

By Michael Cummings
Partner & Global Co-Head Asset Management Sydney, Australia

Consumers demanding cheaper energy bills and more control are fuelling innovation in the energy sector. Infrastructure expert Michael Cummings shares his learnings for investors looking to the new energy future.

The best way to understand the future is to invest in it, put skin in the game…get involved! 

That’s the way I think as an investor, and it’s certainly the way you need to be thinking as a leading innovative investment manager when you’re making bets on how energy will be generated, stored and delivered to households in the future.

I've learned in recent years that what’s most important to customers and society when it comes to energy, is how much it costs and how reliable it is, as well as the wider climate change impacts. 

Rising energy costs have become a hot political topic of late, as prices have risen and put further pressure on households already coping with high historical levels of debt.

Reliability, too, has moved into the spotlight with a blackout recently in South Australia leaving families (literally) in the dark.

Sure, solar power is getting better, and battery storage is becoming more mainstream. But what’s moving even faster than the advancements in technology in this area is the appetite from consumers for cheaper bills along with a desire to be in control and environmentally aware.

Energy infrastructure is going through a rethink and it’s more important than ever to be looking over the horizon to not only understand but also to be part of what’s happening next. 

For the last four years I’ve been involved in working on a strategic partnership AMP Capital forged with The Commonwealth Scientific and Industrial Research Organisation (CSIRO). The relationship resulted in a series of workstreams where we saw opportunities to work together to explore creating value for our customers. One of these workstreams has been focussing on disruption in the energy market and has led to a joint investment we’ve made in a start-up called Evergen, a partnership which is in fact helping us understand how energy will be developed and distributed in the future.

To be clear, at this stage, Evergen is not a portfolio investment we’ve made to generate returns for our investors, it’s a strategic partnership we’ve entered into with the CSIRO to help us be part of shaping the future of energy. Evergen designs, installs and actively manages intelligent energy systems to ensure optimal performance. 

The idea is to use the learnings from the Evergen partnership to invest smarter in existing energy infrastructure as well as work with companies we currently own to help them navigate the way forward.

I personally have been using my own Evergen system for about a year now. What it does, using unique CSIRO smart technology, is continuously analyse and optimise my home energy costs, selecting the most efficient source of energy between solar, battery and the grid every second and hour of the day – every day!

The technology learns the power consumption patterns of each customer household and forecasts solar production based on analysis of local weather to build a picture of future energy flows – and the individual user can watch and interact with this via an app on their phone. I’m hooked on the technology and I think a lot of people will be too as it becomes more mainstream.

Where this approach is taking energy production and distribution of energy for infrastructure providers is not yet clear but as it evolves the path to the future of energy is beginning to be better understood.

By 2050, research predicts that 40 per cent of Australia’s energy generation will be self-generated rather than centrally generated and then distributed via a grid as is the traditional way. To get to this kind of scenario, what we’ll end up with is a grid that supports bio-directional energy with what’s called a “peer-to-peer trading platform”.

I raised some of the challenges and opportunities ahead in a previous article where I discussed the traditional energy supply systems transition from a one way analogue distribution system to a much more digitised intelligent 2-way network, which you can read here.

Thinking about this energy future is not just thinking about the grid as a carriage of energy transfer, but actually as a platform for managing decentralised energy. This will likely play a key role in more even distribution of energy, cutting out the major capital expenditure – like the heavy investment in poles and wires – that’s required to keep the traditional systems going.

The idea behind the grid as the information centre is that you know you have a reliable amount of energy dispersed, you know exactly where that energy is, you know where loads are, and you can reduce the price of distributing that energy.

We’re taking the learnings from our involvement with Evergen we’re using in the work we’re doing with our traditional energy infrastructure portfolio companies such as Endeavour Energy, the New South Wales poles and wires company, and New Zealand’s Powerco. 

We’re now also looking at a number of investment opportunities in non-traditional energy infrastructure companies with fresh eyes and a view to how quickly they might be able to move towards the new energy future as we see it.

In my view, simply sitting on the sideline and reading about disruption, as opposed to putting money and resources into it is quite different. To really understand and be part of the changing energy landscape is what the investment in Evergen and the partnership with the CSIRO is all about.

Will peer-to-peer prevail as an energy solution in the future, or will it be a new centralised model prevail that can work alongside the peer-to-peer concept? These are questions that remain unanswered. From my personal perspective, as both a user of the customer-enabled system and someone who invests and works with traditional energy infrastructure companies, I believe we are moving quickly towards a new and more efficient energy future.

For more information on Evergen, go to www.evergen.com.au

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Important notes

While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455)  (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

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