CEO Insights 2019: Craig Dugan, Optimal Group

What key trends do you predict will have an impact on the growth of your industry in 2019?

The Australian energy consumer, both large and small, has watched successive governments struggle to provide a coherent, long-term energy policy. In recent times, while climate science denialists have shrunk in number, the scars of more than a decade of climate science debate continue to exert a disproportionate influence over government policy. There is still no obvious end in sight to the problem.

Many in the Australian industry have lost patience waiting for governments to deliver a solution to their energy problems. In 2019 we will see the industry increasingly taking matters into its own hands. We will see more behind-the-meter energy solutions to deliver certainty to the cost of operations, as well as direct power purchase agreements with new, more nimble market entrants. We have already seen this with the take-up of domestic rooftop solar and storage systems; there are now strong signs industry will also embrace these solutions in order to guarantee a reduced cost in energy.

Three biggest challenges facing your industry in 2019

The three biggest challenges facing our industry and Australia more broadly are gas, gas and gas. More specifically: affordable gas, reliable gas and local gas.

As one of the top LNG exporters, and with one of the largest natural gas deposits on the planet, it beggars belief that the East Coast of Australia has some of the highest gas prices in the developed world. Indeed, there have been times over the last 18 months where Australian gas has been less expensive in Tokyo than in Australia.

Australia urgently needs a domestic gas reservation policy. Our natural gas is a sovereign resource and it should be developed for the benefit of all Australians. Cheap gas means cheap electricity; in other words, cheap energy. Cheap energy means strong manufacturing and jobs growth. We are blessed with an abundance of natural resources, a highly skilled workforce and world-leading innovation. But we are being held back by the cost of energy.

It is worth noting that leading gas producers are also calling for a domestic gas reservation policy. It’s likely this position has been triggered by two factors. First, gas producers can see the direct correlation between gas and electricity prices. Second, if gas prices continue to rise, the domestic gas market will shrink as customers switch to alternative energy sources.

What effect is energy policy uncertainty having on your business?

Optimal was launched in 2012 and has quickly grown to where it is today: a company with a $25 million annual turnover. Over the years, erratic energy policies and rising prices have encouraged some customers to invest in their own embedded energy solutions. But many have waited and watched, hoping rising prices would eventually reach their peak and begin to fall.

In 2017, we saw the price of energy spike, particularly in natural gas. Since then, the market has awakened to government inaction and complacency from energy retailers. Under these conditions, the industry has been forced to invest in energy solutions. The rhetoric of two-year paybacks has been replaced by the need to secure the survival of their business operations by taking steps to secure long-term energy cost reductions.

How close are smart cities and how much is hype?

Electricity grids as we know them are changing and will never be the same again. Large, decentralised power stations are no longer able to operate competitively and the market is being forced to evolve.

The so-called “smart city” offers the promise of energy being generated and consumed within a large, city-wide microgrid. The benefits are enormous. Having large feeders which can flow two ways, rather than one way, defers the need for upgrades. Transmission losses will be slashed and energy efficiency will surge.

The theory is fantastic, but it is impeded by the reality of our current networks. The current business model assumes electricity runs in one direction. And there is little incentive for network owners to shift to embedded generation while they are guaranteed a return on investments in network upgrades.

Smart cities need smart networks. And smart networks need a business model that encourages embedded generation while ensuring reasonable return to the network owner.

Craig Dugan is an accomplished and experienced executive with more than 29 years of energy industry experience. A qualified chemical engineer, Craig is the co-author of multiple gas technology patents. Prior to founding Optimal Group, Craig was managing director of Process Group, a leading process engineering company.