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Australian network operators ready to ditch poles and wires

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Network operators in at least two Australian states are likely to ditch parts of their extensive poles and wire networks in regional areas as they realise that the costs of delivering centralised generation to remote areas is no longer economically feasible.

The decisions are likely to be a foretaste of a sweeping change across electricity markets in Australia, and overseas, as generation moves increasingly to a decentralised model – including rooftops, community and small local generation and storage – instead of the long-standing centralised, hub and spoke model.

network-150x150The falling cost of solar, and the anticipated falls in the cost of storage is making this possible. Australia is expected to be at the forefront because of the huge geographic areas covered by its networks, its sky-high electricity prices, and its excellent solar resources. The question for many is how far this new model will extend into cities and other heavily populated areas.

John Bradley, the head of the Energy Networks Association – the industry group that represents the distribution and transmission network operators across the country – says network operators in at least two states, Queensland and Western Australia, are likely to shrink their asset base to allow new competitors in the market.

“Some businesses will welcome the opportunities for other commercial players to come in and take their business off them,” he said at a conference last week. “Those businesses are looking basically to see their asset base shrink, and I am expecting that they will.”

Indeed, the two biggest operators in regional Queensland and WA have already conceded that new technologies such as solar and storage – and the emergence of mini and micro-grids – make the traditional form of delivery more or less redundant in some areas. Their services are already heavily subsidised by cash-strapped state governments, to the tune of $500 million in WA and more than $600 million in Queensland. Both governments have indicated this is unsustainable.

Last year, Ergon Energy, which covers more than 90 per cent of the state, said it was likely that its customers would find it cheaper to go offgrid – with renewables such as solar plus storage – than to remain connected to the network.

Horizon Energy, which services regional areas in WA, in March tendered for operators to supply large battery storage and solar systems for some towns as it contemplated whether centralised generation had any future in regional areas.

“Our traditional energy business may be very different and very small (in the future),” managing director Frank Tudor said last month, adding that the cost of solar plus storage was already a fraction of the cost of delivery of centralised generation through the networks to some remote towns.

Dramatic changes in the nature of electricity generation is forecast across the world. David Crane, the head of NRG, an energy giant in the US, said recently that building an electricity system in the 21st century based around millions of poles and wires is “shockingly stupid.”

The Rocky Mountain Institute recently released a report suggesting that solar plus storage could be economically viable for households in New York and Los Angeles within a decade. Investment bank Morgan Stanley said in a report earlier last month that solar plus storage would soon create a “tipping point” that causes customers to seek an off-grid approach.

It makes sense that it should happen in Australia – it’s the advanced economy with the highest retail prices, the biggest cost of dlivry (thanks to the huge geography), and the best solar resources.

As Muriel Watt, from the Australian Photovoltaic Association, pointed out in a presentation last week, stringing up poles and wires in regional areas doesn’t make a lot of sense.

As this table shows, in Ergon’s area – which accounts for more than 90 per cent of Queensland – the average customer density is just 4.3 per kilometre of wires. It’s a legacy of the “rural electrification” dream of the 1950s and 1960s, but given today’s technology choices and the offerings of mini grids and micro grids, it is actually quite absurd.

apvi grid dnsity

The question for many is how far this phenomenon – of replacing centralised generation with distributed energy – reaches into the cities. CSIRO last year suggested in its future grid report that nearly one half of generation could come from the users themselves – such as rooftop solar on households and businesses. But it also warned that one third of customers could take themselves off the grid if the utilities did not respond adequately and merely tried to shift the cost elsewhere.

This growth in self-generation, or the rise of the pro-sumer, is challenging network operators, generators and retailers like no other. A recent study published by Energy for the People and the Alternative Technology Association suggested the shift away from a centralised NEM to stand-alone community power solutions could be “quick and dramatic”, with most Australian regional towns and new housing estates expected to be able to function viably and economically off the electricity grid by as early as 2020.

Exactly how that is managed will be the big test – for consumers and for the incumbent industry. Watt accused the industry of resisting change and doing everything it could do slow down or prevent the rollout of distributed generation.

Bradley said that some form of centralised generation was essential, and the key was cost-reflective tariffs. Chris Dunstan, from the Institute for Sustainable Futures, said he was concerned that many customers would leave the grid, causing assets to become stranded and remaining customers paying more. For that reason, he said, there needed to be a much greater focus on energy efficiency and peak demand, to reduce the costs of delivery to all customers.

 

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  • Chris Fraser

    If the fixed cost of maintaining a connection is not prohibitive, it could be to most people’s benefit to have access to centralised renewables. The question then becomes “if we ditch the idea of a high capacity line to every subscriber on the existing distribution system, can we still provide a cost-effective fixed connection at a lower capacity if most subscribers are generating most of their own energy ? “.

  • Jarryd

    Considering the three highest density distributors are in Melbourne and the fact that during winter solar generation can be negligible, I dont think this will be the case for all parts of Australia. I mean my neighbor was showing me his PV generation by month and a few weeks in winter his 5KW system generated only 30kwh (per week). Vic does have around 3000MW of wind planned so we’re covered for renewable generation..

    • David Osmond

      I’m in Canberra, and I’ve had a solar system for 3 years now. I’ve found my worst week in winter generates about a quarter of the annual average week. However I have shading issues in winter which reduces output during the winter months by 30%

  • JohnRD

    The actual cost of running the existing grid is negligible. Most of the distribution cost consumers are charged is capital cost.
    From the country’s point of view it would make economic sense to use the existing grid while avoiding the need for upgrades and extensions by judicious use of local power sources, storage and back-up. There is a good case for rejecting distributor demands that consumers pay for the poor decisions made by distributors in recent years. It doesn’t make sense to go off grid because of distributor overcharging. Apart from the extra cost of going off grid when it is not necessary there is the loss of very cheap surplus power produced by systems with the surplus power needed to give power reliability.

    • Jarryd

      Spot on! I mean for god sakes network costs only make up 28% of power bills in VIC, whats the other 72% being wasted on?. Its a joke and something needs to be done before the entire system becomes a huge mess…

      • RobS

        Ahh… generation? Not sure I’d call the entire process of generating the power for the distribution system to distribute a waste but each to their own.

        • Jen

          Renewable electricity? As you’ve all been saying on this site for ages, renewables are cheaper than anytbing else, a centralised and decentralised mix.

          • RobS

            No disagreement with any of that Jen, I was merely responding to Jarryd who asked, under the current grid, if Network costs are only 28% of the cost what does the other 72% pay for, I was pointing out that the answer is the generation infrastructure and ongoing costs. I don’t disagree that much of that cost can be replaced with distributed renewables, however at present utility bills are made up of approximately 30% network costs, 40% generation costs, 5% levy to pay for renewable energy and climate change programs, 10% administration costs and ~15% profit.

          • Airquality Australia

            Last year, the Australian Government’s Clean Energy Future website said that 51% of a typical electricity bill was for network charges, 20% electricity generation, 20% retail & customer services & energy efficiency, 9% carbon tax. These figures were stated to be National averages provided by the Commonwealth Treasury.

            Wholesale prices are about 5 cents per kWh, so with retail prices of about 30 cents per (regional NSW) and a $1 a day connection fee, the Treasury’s estimate of 20% for generation costs seems a lot more realistic than 40%.

            However, your argument that most of the money is spent on “upgrades” makes sense, and implies that if we can control usage patterns so that no further capacity increases are required, we could keep the network we have for many years to come as a safeguard against power outages and for times when local generation and storage need a small amount of boosting, or for trickle charging storage systems overnight.

            I really hope those in charge of developing new regulations consider this possibility.

            Sources of information:
            http://web.archive.org/web/20130811154524/http://www.cleanenergyfuture.gov.au/helping-households/your-electricity-bill/
            http://www.aemo.com.au/Electricity/Data/Price-and-Demand/Average-Price-Tables/Daily-Price-Tables?year=2014&month=03

          • Jen

            We were talking in reference to Victoria.

    • JonathanMaddox

      Maintenance of a far-flung distribution network is far from a negligible cost. There is expensive emergency call-out work after every storm and not a few motor vehicle accidents. Until quite recently upgrades proved necessary year-on-year as consumers added appliances such as air conditioners which draw high currents for long periods of time. Poles have a limited lifetime (especially those softwood poles dating from the period immediately following the withdrawal of creosote, when substitutes weren’t quite adequate).

      • RobS

        The vast majority of the maintenance cost arises from the need to maintain the system to a level where faults and outages are a rare event. With distributed storage the distribution system takes on a whole new function, backup in the event of prolonged low distributed generation. With 1-2 days storage in place you can have hours of outage a day and as kong as the storage is topped up at some point in those 24-48 hours there is no impact on customers. A grid with such significantly reduced reliability requirements is substantially cheaper to maintain.

        • Jen

          Why would you have a massive system that’s more than capable of supplying large amounts of power just sitting there for backup? Most inefficient idea I’ve heard of. Reduce or completely replace peak demand using storage, distributed generation or grid upgrades (which ever is the cheapest for the specific case) and that would significantly reduce the costs of the network. Remember average demand isn’t the problem it’s the peak, if it wasn’t for the massive peaks we experience in AU we would had significantly lower power prices. Maintenance and reliabity of the network isn’t a major cost factor, its capacity increases or as they say “gold-plating”. Worse in QLD and NSW and less of a issue in NT and VIC.

          • RobS

            The alternative to the grid providing backup in the event of prolonged low distributed generation is to have thousands or even millions of small generators locally to supply power in that event, which is far less efficient. I already suggested storage to alleviate peak demand, I was merely pointing out that storage provides two benefits, alleviating peak demand AND alleviating the need for the grid to be so reliable. If the grid is acting as a trickle charger to keep distributed storage topped up during low distributed generation periods then it barely matters if sections of the grid are down for hours at a time. Those two things, peak demand and very high reliability requirements are the two predominant factors in the cost of maintaining and upgrading the grid and both nearly vanish with higher levels of distributed generation combined with storage.

          • Jarryd

            Wouldn’t that mean every single connection to what ever part of the grid that was involved would have to have storage and solar installed if reliability was allowed to get bellow a certain threshold?
            For example say we had a substation serving 30,000 homes that needed a complete replacement as it was old and failing, this would cost $30,000,000. Instead the idea you have presented is taken up and all 30,000 homes connected have solar and storage installed. At $8000 per home the total equals to $240,000,000. Then the substation completely fails and needs to be replaced regardless though a smaller station is built at $10,000,000… Correct me if im wrong but this is the idea youre talking about?

          • Chris Fraser

            The economics of it are important, but thankfully, some remote distributors are considering scenarios like that. Also keep in mind the reducing cost of storage, so this hypothetical can be run again in the future to see how it stacks.
            Renewables are available somewhere all the time and with the aid of a battery, a trickle may be all we need. Removing peaks and having Most users (as you can’t get everybody) on a trickle would also reduce the capacity and cost of the substation.
            If those with PV and storage are now set up, return to the plight of those that have none. They are still dependent on peak consumption, however peak in the system is still reduced because peak users are now fewer. If the grid goes down it is unforunate for them, however a reduction in grid capacity doesn’t necessarily come with an increase in outages.

          • Jarryd

            Yes thats quite true. Peak would definitely be removed in this scenario, I was more focused on the reliability side of things such as very old infrastructure or the cleaning of power lines which is something that cant really be avoided.

          • RobS

            It’s fairly rare for infrastructure to be replaced due to age, it almost always has to be replaced to upgrade capacity first. If the grid’s role transitions to one of supplying average demand rather then peak demand then these capacity upgrades are no longer needed and the infrastructure will last decades longer saving billions.

          • John Silvester

            I think it more likely that if a grid operator wished to add storage to defer feeder upgrades, it will build it at the substation. Possibility at the street level, but not behind the meter. This would reduce control and access issues for maintenance and repair. This would also avoid the argument that those who can afford to install a subsidized storage system will have power in the event of a blackout being subsidized by those sitting in the dark. Also being in front of the meter the cost can spread across all customers. This would not stop individual customers with solar from having storage to allow self consumption and extend the time that customer has power in the event of a prolonged feeder outage beyond the capacity of the substation storage.

          • JonathanMaddox

            Yes! Storage actually represents far more value to the network as a whole than it does to any individual consumer; behind-the-meter in general would fail to capture much of that economic benefit unless it’s operated on the basis of instantaneous local “market” information, which just doesn’t exist.

          • John Silvester

            In addition to savings made by buying one large system as opposed to a number of small systems. A much larger range of alternatives would also become available. Many of the big players are developing drop-in containerized Energy Storage Systems using a wide variety of technologies.

          • JonathanMaddox

            Like this! http://www.lightsail.com/

            And this! http://www.highview-power.com/

            And this! http://isentropic.co.uk/

            And this! http://www.ambri.com/

            And much, much more. It would be something of a shame if low-cost lithium chemistry batteries were to undercut them all!

          • John Silvester

            I’ve been interested in Donald Sadoway’s Liquid Metal Battery after seeing his Ted Talk a few years ago. The hardware for one of these would not be far removed from a aluminium smelter. Imagine converting some of Australia’s aluminium smelters in to large grid batteries. The electrical infrastructure would already in place. Especially given aluminium producers are deserting countries with high carbon electricity in favour of countries with lots of cheap carbon free electricity like Iceland.

            Link to Donald Sadoway Ted Talk: https://www.youtube.com/watch?v=Sddb0Khx0yA

          • mikeswift

            Another storage option I have found is AQUION energy at http://www.aquionenergy.com/

          • RobS

            That’s the end point of the idea I’m talking about but it will be a staged process. Imagine a town of three thousand homes with an aged HVAC interconnector 40km long tying it into the nearest major grid connection and a substation to step that interconnector down to usable voltage. A rule of thumb for mid range HVAC lines is ~$0.75 million/km plus approx 20 million for the substation. Upgrading or replacing that infrastructure would leave you little to no change from $50,000,000. If all of those homes were subsidised 50% to install storage systems costing $8,000 the total cost would be 24,000,000 with the government or utility depending on who owns the infrastructure picking up only $12,000,000. Just as solar initially only made sense in far remote off grid scenarios where it saved huge transmission costs or $1-2/KWh diesel generated power, storage too will initially be economical only in certain scenarios. As storage costs fall the number of locations where it is justified will increase.

  • Martin

    “in Ergon’s area [..] the average customer density is just 4.3 per kilometre of wires.”

    Note that the customer density of Western Power’s SWIS (one grid) is lower than the overall average for the 38 Horizon Power grids. I’d guess some outlying areas of the SWIS might better go it alone.

  • Miles Harding

    Community power!
    It would make installing a small wind farm a lot easier. They could be a point of pride for the community they serve.

    It makes a lot of sense to have a mix or renewable, battery and fossil fuel/diesel, centralised and distributed. The community can choose the mix the best suits them. I would expect that wind and solar would play a big part, as well as community education to reduce the amount of diesel burnt on those days.

    You could even drive electric utes to and from the farm!

    Forget those crappy three word slogans and go for this sort of direct action.

  • Miles Harding

    Do this right and an electric vehicle fast charge network could be had in the country, making EVs practical both in the city and country. There’s a glimmer of hope that petrol dependence can be overcome before it becomes unavailable or unaffordable and Mad Max takes over. (when? how soon?)

  • Justin Case

    there going to bend us over and use us like poker machines till we all have to move the the city’s. Seen this coming and have it sorted. Stuff them. https://www.youtube.com/user/NoMainsPowerNoProble