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Australian networks see future of renewables-based micro-grids

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When Ergon Energy began a Solar Cities program on Magnetic Island to try to make the isolated community as efficient and self sustaining as possible – and avoid an expensive new cable to the mainland grid – one of the first things it did was to remove all the old bar fridges.

It filled up more than a shipping container and took them off the island. Bar fridges, explains Ergon Energy CEO Ian McLeod, are usually old, and terribly inefficient.

Roofs on the island were also painted white to dissipate the effects of the sun’s heat on household interiors. Solar was installed and the new cable deferred for nearly a decade. Now, with storage about to be installed on Magnetic Island, the new cable will probably never be needed.

4587044181This is now becoming the model for regional and isolated communities around Australia. Inefficient appliances like old bar fridges are being replaced, local generation is being installed, and that is being followed by energy storage – probably installed in the garage where the old bar fridge used to be.

Australian network operators, particularly those in regional areas with lower population levels, have accepted that new technologies – mostly centred around localised renewable generation, energy storage, and some smart software – are a better and cheaper option than just adding more poles and wires.

As McLeod suggests, this is a dramatic change, both in the culture and the economic driver of these organisations: “Our role is not to be a transporter of energy from central power stations to customers, because that is the old model. That is how we used to do it,” he told the Energy Networks Association conference in Melbourne this week.

Instead, he envisages the network becoming a partner and facilitator, to encourage consumers to invest in installation.

“People can choose between green and black energy, clean and dirty, they can use it, they can store it, they can sell it,” McLeod says. “What we are seeing is a transfer of capital from the networks into the customer installations.”

This is a massive shift in just a few years from an industry accused (probably quite accurately) of gold plating and boosting its asset values in order to lift its regulated returns.

McLeod is not the only one who thinks this way. Rob Stobbe, who heads SA Power Networks, told the same conference that rural communities would likely look after their own generation needs in the near future.

“We might just be operating, managing and building micro-grids, in localised areas, with their own renewables on site, and some of their other renewables that could support that community. Why wouldn’t that work?” Stobbe said.

Indeed, Stobbe said centralised generation and transmission could be made redundant by distributed generation, a prediction he shares with Frank Tudor, the CEO of Horizon Energy – Western Australia’s regional utility, which is already looking to base energy supply in some remote towns around local generation and storage.

“Our traditional energy business may be very different and very small (in the future),” Tudor said in March.

But while key network chiefs can now see the future, they are not sure that they can get there quick enough. This is because, they say, the regulators and the politicians who set policies and implement them are still way behind the times.

McLeod says many of the initiatives he would like to take – encouraging co-investment in local generation, storage, efficiency and demand management – are sometimes not possible because the regulatory regime provides no incentive.

“I’m restricted from putting PV on grid to support the network. I can’t own it, I can’t put in smart meters. If I was to put in a $40 million substation, and there was rollout of smart meters, the right tariffs could shift the load. But that’s duplication, because meters will shift the load. The regulators should networks the ability to have options where there are grid restraints.

“We see governments and regulators thinking in the past rather than the future,” he said. “We are in a competitive business, not in a monopoly business. We don’t produce energy, we transport it, and if that is too expensive, then people will look elsewhere.”

Board_CharlesMcLeod’s fears are echoed by Charles Popple, (pictured) the head of SP Ausnet, one of the major distributed network operators in Victoria. Popple says the regulations are based on the assumption that customers have no choice, and that there is no possibility that they could bypass the grid.

That is no longer true. “Customers can vote with their feet and can change the way the network is used,” Popple told the conference. “They have the opportunity to exercise choice and bring competition with the networks.”

As he noted, the likely imminent arrival of competitively prices battery storage could change everything. (It is interesting to note that some network operators are as dismissive of battery technology costs as they were of solar PV five years ago.

“Energy storage changes the whole real time equation that controls the physics of the electricity supply system,” Popple says. “That could change it overnight, and allow solar PV to be stand-alone device even at residential level. That would turn our world upside down.”

For this reason, while the network operators see what’s coming, the industry as a whole is in no rush to embrace solar PV, and is looking to slow the adoption of rooftop solar, rather than accelerate it.

At the same time as Stobbe, McLeod, Popple and others were contemplating new business models, the ENA released a series of documents that looked to downplay the benefits of rooftop solar on the grid, accusing it of loading costs on other consumers, and calling for federal subsidies – in the form of the small scale renewable energy target – to be removed.

One of the key arguments used by the ENA was the supposed “abatement” cost of rooftop PV, which it put at $150 – $500 per tonne of CO2-equivalent. This, though, is disingenuous, as it reflects the cost of feed in tariffs and federal incentives at their highest. The impact of solar PV in the recent heat waves, recognised by Stobbe as shifting the peak significantly, and by others as lowering the cost of those peaks, is significant. Just ask any owner of a coal asset that has been forced to mothball or close plant, or is losing money.

This, however, goes to the heart of the problem facing the networks, or more particularly the network owners. While the new paradigm painted by many of the executives may ensure that future grid investments better reflect the market, and the power of new technologies, there is the curly question of what to do with the huge sums already invested, and which are locked in to customer bills for years to come.

This is where the networks talk about solar households “freeloading on the grid” or “loading costs” onto other customers. But as they know – and every study has shown – loading those costs is a network choice justified by their perceived right to recoup their grid investments to the end of their natural life. But the studies show this approach – adding special fees to households, or increasing fixed charges – will simply encourage more people to seek the options that the network operators canvass. The attempt to dump the small scale component of the renewable energy target is just one attempt to give themselves more breathing room.

Still, the networks do have the comfort that their services, in some form, will be needed in the future, whatever the grid looks like. As Stobbe pointed out, the picture for generators and retailers looks bleak. Why would they be needed in a world when households, businesses and communities could generate their own power and store it, and just need the network for connection, trade and back-up. It’s not just old bar fridges that have a bleak future.

Even Tim Rourke, the CEO of Citicorp, the Victorian network operator most often accused of slowing down and preventing solar installations at household and commercial level, conceded that solar was the future. “We may end up owning a solar business ourselves,” he said. “Every distributor is very mindful on what we need to do.”

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  • Motorshack

    If the power companies were small businesses owned by private individuals, and the owners had made an unwise use of their investment capital, then the businesses in question would simply go bankrupt.

    In particular, this would not be a financial problem for the customers of such businesses, and they would just find someone else to supply their needs.

    That is to say, there is normally no compulsion whatsoever for such customers to keep spending money on the products in question, much less to tolerate a price rise, just to paper over the mistakes of management and owners. It simply is not their problem.

    However, when the owner of the business is a state, and the managers are elected officials, who are trying to win their next election campaign, there is an obvious temptation for management to use its legislative authority to force the ratepayers to cover for their financial errors.

    Unfortunately, in the long run, the politicians in this position cannot possibly win, because they really have only two choices: admit their mistakes right off or admit them after trying to coerce the voters into covering for them.

    And there you have the essential difference between an honest politician and a dishonest one: namely, they all make mistakes, but an honest politician will admit them without having to be forced to do so.

    The other kind has to be voted out of office.

  • Ray Del Colle

    “America has the natural resources to meet its energy demand with clean, renewable energy. It’s time to harness that full potential.” http://clmtr.lt/c/Gyu0fz0cMJ

  • http://slickercity.net kristian handberg

    The most pertinent regulatory limitations referred to by the network operators include those related to “ring fencing”. Unfortunately the AER review of these guidelines has been deferred as a reflection of the number of reviews being supported by the industry already (http://www.aer.gov.au/node/12493).
    Notably, Ergon applied for and received an exemption from these guidelines in 2011, however their application was limited to solar PV for their own offices (http://www.aer.gov.au/node/15371). Since then Ergon has applied for one more exemption relating to the Mt.Isa region, which was approved on 17 April 2014 – a mere 3 months after they lodged their application (http://www.aer.gov.au/node/23487).
    I’ll leave it to others to decide as to whether regulatory constraints are the real issue here…