Australia’s power networks are among the highest quality in the world.

Updated February 2018

The combination of distribution and transmission networks, together with the broad mix of generation sources have provided a reliable supply of electricity for many years.

However, the sector is undergoing rapid change, with renewable sources of energy displacing many traditional forms of generation. While renewables will undoubtedly capture a greater portion of demand over the coming years, the transition poses a challenge for the sector.

The sector is heavily impacted by regulation, with government effectively setting prices, revenue and driving investment. While the level of private ownership in the sector has increased over the past decade, public ownership remains a key feature of the sector.

For many years, generators, networks and regulators alike all forecast that Australia’s energy needs would continue to rise, much as they always have. However, over the past five years, the trend has shifted, as demand for electricity flattened, and even declined in some markets. An ongoing decline is not expected, with growth returning over the past year, although pressure remains on the sector to maintain adequate investment and maintenance while operating alongside new technologies.

Weaker energy demand across Australia has been due to a range of factors, with a number of heavy energy-consuming industries having reduced production in recent years. Some major manufacturers have rationalised their local operations while others have closed or shifted their operations abroad. Solar PV technology is also among the major contributors to lower demand for grid energy, while energy efficient appliances and higher electricity prices have contributed to the decline, as consumers and businesses sought to manage their energy consumption.

The closure of several major coal-fired generators has placed a renewed emphasis on the need for change, with new forms of energy required to meet demand. While coal will continue to contribute a large portion of the nation’s energy needs, this share is likely to decline as renewables become more cost effective. While the sector faces a number of challenges in negotiating the shifting energy mix, a high level of professional expertise will be a key factor maintaining the reliability, safety and sustainability of Australia’s electricity supply.

The past five years have signalled the beginning of a major period of change for the power sector, with regulation, supply, and demand all shifting significantly. The industry and regulators alike both entered the period expecting demand to rise, much has it has always done, and as a result, industry operators made major investments in the industry. However, demand from the network declined for the first time in history for a range of reasons, posing major challenges for the sector.

Pressure on prices provided a justification for regulators to strip investment budgets, with distribution and transmission businesses feeling the pinch. Cuts to budgets came swiftly, threatening the future of jobs, and potentially threatening the security of networks. As a result, the level of engineering work done in the electricity sector has declined markedly since its peak in 2012.

Value of engineering work in Australia – electricity generation, distribution and transmission

Source: ABS Catalogue 8762.0

The energy mix has also received significant media attention over the past year, with the closure of major coal generators and a number of high-profile blackouts in South Australia driving the need for change. Renewables have been pointed to as the cause or solution to the problems by different sides of politics, however the issues come down to management. Out of the crisis, battery storage technology emerged as the real winner, with South Australia and Victoria announcing new investment in the technology. South Australia’s battery storage facility, built by Tesla, has proven a major success, and is already working to smooth supply during periods of peak demand. This trend is expected to continue over the next five years, as storage technology improves, making renewable energy sources more feasible as a major source of the nation’s energy.

Large-scale storage

The ongoing debate around energy in Australia has focussed heavily on renewables vs fossil fuels. Particularly, critics of renewable energy have targeted a need for a steady base load, and the perceived unreliability of renewable supply. Indeed, wind and solar supply relies on favourable weather conditions, and overall supply from these sources can fluctuate significantly.

However, the current composition of the energy market was never intended to rely solely on renewables. Gas generation has long provided a supply of last resort, with gas generation able to rapidly respond to peaks in demand. Price increases in gas have highlighted some weaknesses in this strategy, with load shedding in South Australia occurring while a gas power station lay dormant.

Political bickering around appropriate energy strategies continues, despite both sides of politics coming to embrace new storage technology to some degree. The high-profile entry of Tesla founder Elon Musk into the sector has created some common ground, with South Australia, opening a large-scale battery storage facility.

In response to the mounting energy crisis, the South Australian government announced a $550 investment in energy infrastructure, including a new gas power plant and Australia’s largest battery storage facility, with a capacity of 100 Mwh. Since the completion of this facility, South Australia has announced further investments in a solar and battery system at Snowtown, to be built by Tilt Renewables, and potentially a pumped-hydro storage project in Adelaide’s north-east. These investments aim to tackle the reliability of supply in South Australia, by providing additional capacity during periods of lower renewable output. Victoria also announced an investment in energy storage technology, with $20 million to be directed to initiatives such as battery storage, pumped hydro or solar thermal technology initiatives over the next year.

The past decade saw overall energy demand decline for the first time. Energy efficiency and the closure of several major energy users pushed demand lower overall. However, since 2014 growth has returned, and demand is forecast to steady at around 2017 levels for the coming five years. However, despite stable demand, revenue cuts for industry businesses will restrict new investment to some degree, discouraging network augmentation, and limiting capacity.

The value of engineering work yet to be done – which measures the value of projects that have begun but not yet been completed – remains subdued, indicating that weaker investment in the industry may remain over the near term.

Value of engineering work in Australia – electricity generation, distribution and transmission

Source: ABS Catalogue 8762.0

While energy networks throughout much of Australia remain strong, changing mix of energy sources will provide a significant challenge, as governments and regulators weigh cost against security. Governments have placed a major emphasis delivering low-cost electricity, with power prices becoming a point of political contention. However, with the market at a point of major transition between the fossil fuels and renewables, now may not be the time for major cost cutting. If this process is to be managed effectively, governments and regulators will need to focus on smart management of infrastructure and the utilisation of skilled technical professionals to develop and prioritise new investments and innovative strategies.

Demand changes will also provide opportunities within generation businesses, with the spread of generation technologies expected to grow further. Wind generation will contribute a much larger share of the nation’s energy demand over the coming years, continuing its pattern of growth amid declining opposition.

Over the longer-term, the greatest challenge facing the electricity sector is how to manage and finance large electricity networks if consumers eventually move away from the grid. This challenge was raised by the CSIRO in a recent analysis of the future of Australia’s electricity grid[1]. Falling network utilisation would place greater strain on electricity prices as fewer consumers pay the costs of network management. Skilled engineers and technical professionals will be particularly important in developing solutions to this issue, with innovative new approaches required to manage network investment and maintenance.

[1] CSIRO (2013), Change and choice: the Future Grid Forum’s analysis of Australia’s potential electricity pathways to 2050

Employment across the sector has risen over the past five years, driven primarily by new investment in stronger networks and greater capacity. Engineers in the sector have benefited, with a high level of technical capacity required to deliver these improvements. However, while growth has been strong, the most recent revenue determinations for distribution and transmission businesses pose a significant threat to employment levels.

Distribution and transmission businesses account for over 75% of employment in the sector[2]. While all aspects of the supply chain are vital in the delivery of a secure power supply, the dispersion of Australia’s population makes distribution and transmission more complex. The large scale of these businesses means that changes in revenue determinations are likely to have a negative effect on overall sector employment in the near term. However, the need to maintain existing assets and the importance of technical capacity will limit cuts from engineering, with asset managers instead seeking to automate other roles.

While regulators are driving a contraction in the sector through revenue constraints, renewable forms of generation are providing some avenues for growth. Employment in the wind and other electricity generation industry has increased rapidly over the past decade, and while growth is likely to slow over the coming five years, employment numbers will continue their upward trend.

Energy sector employment in Australia

Career prospects for engineers are intrinsically linked to the performance and size of major engineering industries. Industries undergoing growth tend to invest to expand their operations, while major areas of employment such as electricity distribution, transmission and generation tend to maintain a large stock of engineers. Job vacancy statistics can provide key insights into the performance of the different engineering disciplines, and whether employers expect demand to expand over the short to medium term.

Engineering job vacancies by discipline and state

Source: Department of Employment – Internet Vacancies Index

According to data from the Department of Employment, the number of advertised engineering roles across Australia is continuing to rise, with relatively steady growth seeing the number of ads rise almost 80% over the past two years. Civil engineering roles accounted for the majority of engineering positions, with civil engineering skills having the broadest range of applications. While the level of work done in the power sector tends to fluctuate over the years, the overall volume necessitates a large number of engineers. The number of advertised civil engineering roles has increased over the past 12 months, as has the number of electrical engineering roles and mechanical engineering roles, providing a raft of new opportunities. This growth indicates that employment prospects for engineers are improving, and qualified candidates are likely to find suitable employment upon entering the market.

Engineering vacancies map by discipline

Source: Department of Employment – Internet Vacancies Index

[2] IBISWorld industry reports D2611, D2630, D2620, D2612, D2619

Professionals Australia’s annual Professional Engineers Employment and Remuneration Report for 2017 highlighted the level of remuneration for engineers across different industries. Overall, remuneration for engineers employed in the electricity sector was quite strong. Employers appear to have recognised the high level of skill required in order to build and maintain networks and generation infrastructure, and remuneration is accordingly high.

Engineers in the energy sector reported a median total package of $152,950, which is the highest of all groups. By comparison, the median total package across all industries was $125,925, which is significantly lower than in power.

However, while overall remuneration remains high, remuneration can differ significantly between companies and based on experience. Engineers need to keep informed to ensure that their remuneration is keeping pace with wage growth across the sector, and to ensure that their remuneration is appropriate for their level of experience.

Engineer remuneration and wage growth in the power sector – by responsibility level

Source: Professionals Australia, Professional Engineer Employment and Remuneration Report: 2017

From a growth perspective, engineers in the power sector reported modest results, with wage growth over the past year trailing the average for engineers more broadly. Growth in salaries tended to be higher among industries with lower overall pay, as employers in these industries playing catch-up from a remuneration perspective. Weaker growth has also been driven by revenue cuts at major distribution and transmission businesses, with these businesses cutting jobs and freezing wages.

Overall, engineers in the power sector reported average wage growth of 1.5% year on year. This growth represents an underperformance of the Wage Price Index (WPI), which rose at 1.9%. While growth was low, ongoing high wages indicate continued demand for engineering skill and recognition of the importance of technical expertise. Salaries also underperformed the consumer price index (CPI) over the past year, which increased by a modest 2.1%.

Wage growth was highest among respondents in the middle levels of responsibility, with most of these employees covered by agreements that support steady wage growth. Engineers at levels 1 and 5 reported stagnant wages, with no growth recorded.

Technology

Technology is likely to play a significant role in shaping the sector over the coming years. While change within the next five years will be slow, as technologies become more affordable the speed of change is expected to accelerate.

Solar PV generation has grown rapidly in recent years, with panels becoming commonplace around Australia. While the speed of adoption has slowed in recent years, the number of solar PV installations rose last year, aided by improving battery technology. While the capacity of solar panels available has increased over the past five years, traditionally the inability to store the electricity generated has left users unable to benefit during the evenings, when families are at home and electricity usage is often at its highest.

Annual small-scale installations


Source: Clean Energy Regulator

However, the development of improved battery technology is expected to have a dramatic effect on the industry, allowing users to generate their own electricity through solar panels during the day, and store unused energy in batteries for later use. With major investment in storage technology from manufacturers, capacity of battery storage is increasing, while overall size is decreasing, with the Tesla Powerwall 2 doubling capacity to 13.2 kWh of storage and halving the physical dimensions.

While the potential to impact the sector and drive the sale of solar panels is clear, the current cost of battery technologies remains a deterrent for some. However, prices are already declining, and will fall much further over the coming years as technology improves and more competition enters the market. Additionally, some early adopters have cut electricity bills by as much as 90%, suggesting that the payoff period for storage technology may be as little as five years.

Regulation

Regulation has introduced a degree of uncertainty to the industry over the past five years, impacting the way generators, transmission companies and distributors do business. The most significant recent change has come as regulators have sought to drive electricity prices lower through lower revenue determinations for industry participants.

With demand failing to meet previous forecasts, the cuts imposed across the industry are not a complete surprise to many distributors and transmission businesses, however the size and timing of the cuts are more startling. Distribution and transmission businesses throughout most states have been forced to cut capital and operating expenditure budgets, sacrificing new investment, maintenance spending, safety programs, and jobs. However, most businesses involved in the wider electricity sector have sought to diversify in recent years, limiting the impact of revenue cuts to one branch of the business to some degree. Businesses may hold operations in transmission, distribution, various forms of generation and retail.

The industry has been highly vocal in its opposition to the cuts, suggesting instead a decrease of a lower magnitude, with a gradual decline to avoid such a sharp impact on the industry. Additionally, with energy usage returning to its longer-term pattern of growth over the past two years, it remains to be seen whether the cuts will impact the reliability of networks.