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Network operator sees no future for generators, retailers

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The head of one of Australia’s biggest electricity networks says he sees no long-term future for large, centralised electricity generators, nor for big electricity retailers.

Rob Stobbe, the CEO of SA Power Networks, says both business models will be made redundant – the generators by the increased use of localised, mostly renewable generation, and the retailers because, well, they just won’t be needed any more.

Stobbe’s remarks, made at the company’s investor day presentation last week, challenges the bedrock of Australia’s electricity network – which is dominated by three big “gentailers” – Origin Energy, AGL Energy and EnergyAustralia – who combine the two very services Stobbe says will no longer be needed.

It also shapes up as an intriguing power play between the network operators who deliver the energy services, and the retailers who deal directly with the customers. Now that consumers are being empowered with solar and storage, and becoming “prosumers” in their own right, the dynamics and the services they need are changing. They may even be able to trade their own electricity.

Stobbe’s theory is that solar PV uptake will increase dramatically – even from its current level of one in four houses – and so too will battery storage as its costs follow solar down the cost curve. Networks will be still be required, however, to move the electrons around between homes and communities, and from individual and collective storage devices.

SA Power Networks, like Ergon Energy in Queensland, and Horizon Power in WA, is currently looking at using battery storage to replace poles and wires and to encourage more local renewable generation. For the moment, this is being done for the sake of reliability – poles and wires carrying electrons from centralised coal fired power stations are prone to damage from winds and fire, and can no longer be relied upon.

But it is also becoming rapidly more economic – as well as more reliable – to use solar and storage to establish micro-grids; first in areas that compete with diesel fuels, and within a few years in regional towns. Inevitably, as the technology is deployed, this will also be the case in larger towns and cities.

“We will have a totally new business model going forward,” Stobbe told analysts during the presentation. “There is no doubt about that. We just need to be part of it.”

Asked by analysts about the future role of networks in a decentralised grid, Stobbe said: “I’d be more concerned about the generators and the retailers and what their future is. They don’t have one.”

He continued: “At least we have got the network that can be utilised in micro grid environments. It is easier for us to move into that environment. A lot of people still don’t believe it will happen. We think it is a long way off, but we may be proved wrong.”

Stobbe says that the power, so to speak, will lie with those entities that “own” the data. “They will be the ones that own the future,” he says. And, he notes, networks are a more trusted source of information, advice and service than retailers. “They (the retailers) are not highly regarded,” he said.  “We are trusted. They (the customers) know we will be here in another 20, 30, 40 years.”

Screen Shot 2014-12-10 at 11.32.35 AM

Stobbe’s remarks are based on predictions that the uptake of solar, storage, and even electric vehicles, will be dramatic. As we reported last week, and see table above, it expects 70 per cent of customers to have solar and 50 per cent to have storage within two decades. The economics of grid disconnection will fall rapidly, first in regional areas, and then in more built up areas. (See graph below to the right).

Stobbe says it will make sense for consumers, even communities, to go off grid, especially in remote areas.

Source: Spark Infrastructure

Source: Spark Infrastructure

Then, others in urban and rural areas will also defect, because they like the idea of renewables and independence. And “no doubt over time”, Stobbe says, some residential developments and communities will either go off totally or use the local grid or a “thin grid” to assist in moving energy around that development or community.

The trick for network operators is how they manage this. SA Power Networks, as we reported on Monday, is to trial a micro-grid in regional areas, although it has yet to decide on the location.

“In the next 5 years, we are just preparing ourselves in terms of this new future coming towards us,” Stobbe says.

“If you think about what people are putting in, whether it is solar PV and or storage,” Stobbe says, the distribution network is a very useful tool – to export excess into grid and get some revenue, or to share power between consumers.

“We believe there is a long-term benefit and value in terms of the grid. We are just positioning ourselves to ensure we can play in that market.”

It could happen a lot quicker than that, were it not for the massive cross-subsidy paid by city folk to people living in regional areas. SA Power Networks estimates that 70 per cent of its grid costs are to service just 30 per cent of its customers – but the costs are share equally. Regional customers in Queensland and Western Australia are also subsidised by the government, or other users, to the tune of $1.2 billion a year.

Stobbe was asked by one analyst if his scenario meant that SA Power Networks would end up competing head on with the likes of AGL Energy and Origin Energy.

Stobbe sad: “You can be a retailer without being a retailer, it depends on the how micro grid is set up. Who says that you need retailer at all, if you have community willing to share energy among houses. We just provide a charge for that network.”

As an example, he suggested customers could pay $15 a week for that network, and that is all thy would have to pay – apart from the cost of installation of their own solar and storage. “They could get rid of 70% of costs and have us as provide distribution for $15 a week. That’s not bad. Economically, that makes sense for consumers.

“Do you need retailers in the future? I doubt it.”

 

 

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  • WR

    “… poles and wires carrying electrons …”

    In AC transmission, the electrons oscillate back-and-forth at a point, they don’t travel along the wires. It is the energy that is transferred along the wire, not the electrons. It is just like creating pulses on a slinky spring. https://www.youtube.com/watch?v=TqfOQ-mIz5w

    In DC transmission, the electrons DO travel along the wire, carrying the energy with them. This is like transferring energy by throwing a ball or shooting a bullet.

    • Pied

      The guy is basically right. The cost for people to be independent of the grid will only ever come down to a certain point which still won’t be cost effective enough to compete with the grid. The cost to provide a independant utility for your house with 99.99% up time will always be prohibitive. A battery grid on the other hand will be cost effective soon. Imagine most house in a street having some cheap claptrap generator going hammer and tongs after a few days of bad weather. It ain’t going to be allowed.

      • Pied

        If I owned and invested my capital in a network yes I too would want very decent returns and basically fuck everyone else.

  • Engineer Malcolm

    This sounds more like a play given SAPN have their draft determination in. But maybe the AER should take them up on their offer of $15/customer DUOS. Oh and by the way Rob – regarding the networks being a trusted source – take a bex and have a lie down. We’ve got bad news for you.

    • suthnsun

      Yes, it sounds like ‘only somewhat enlightened’ self-interest to me. At $15 pw that puts my costs at .256c/kwh equivalent, currently with daily network charges I pay 37c all up. FIT from solar reduces that currently by 12c but that will diminish in time. LCOE solar is around 6c , storage 25c or so? So the network at that price ( and current charge regime also) may not be so well placed for survival. I think there is still severe underestimation of potential for efficiency savings greatly diminishing both energy and power needs.

      • Pied

        By the way the network doesn’t sell you electricity, they don’t care what the power cost is. Unfortunately you just happen to need their network , basically pay up or leave, they would know what it really costs to go off grid totally so for them as long as it cheaper than that that know they won’t be having that many defection that matter anyway

        • suthnsun

          I realize they don’t sell the electricity. What they don’t seem to realize is how little electricity is required if consumers really embrace efficiency. In my case I can get by at a flat 4 kwh / day all year if I use no heating in mid winter. 8kwh/ day with a midwinter peak if I use electric heating. On the basis of $15pw that gives a high effective kwh cost which I might wish to avoid and the consistent 4kwh element of that use would be very easy to arrange an alternative supply. (We have2 person all electric household)

          • Pied

            Well done on the power, just saying though they won’t care if you or anyone else use 1 watt or one gigawatt, they will get their return on the network charges, they don’t care about the generators or retailers.
            The problem with going totally off grid is the cost to do it properly, this means very reliably as you are now responsible for your own utility. I agree with a 4kWH a day demand your cost will be a bit lower than most. The killer for off grid is that the design has to cope with the worst conditions, midwinter (with 8KWH usage) and also to minimise any generator runtime as this is very expensive. The off grid system (batteries, generator and electronics) have a life of about 10 years so the cost of those needs to be amortised over that period. Part of my business is consulting on off grid, I do designs and costing for various solar businesses so I have a very good idea of what it costs. Assuming you are in Southern australia to do a system properly for you would be around $40-45K assuming you have no solar already. In this is about $11K in batteries, With $40k over 10 years, you would use about 18000kWH, thats $2.22 kWH. I haven’t even taken into account the cost of some generator run time and servicing costs. So even assuming a dramatic reduction in battery costs you might save say $5K it still aint cheap. You see all sorts of claims by people on the internet that they can do it cheap, yes you can but it doesn’t work and they do their money. On the other hand a battery/grid tie system should eventually be cost competitive as battery prices reduces but currently they are not.

          • PW

            Looking backward at batteries is destroying your analysis. The present cost of Lion batteries for large users like Tesla is under $250/kwh of storage capacity and is expected to decline to less than $100/kwh of storage capacity by the time they complete their two Gigawatt Battery Factories in 2017.
            The capacity cost is only part of the story since these batteries are designed to retain more than 80% of their original storage ability over 10,000 full discharge cycles – that would be 26 years of Daily full discharges with the battery still 80% good for an unknown amount of time afterwards.
            Since Tesla and Panasonic have stated that their Gigawatt factory goals include the distributed generation home market, Mr. Stobbe’s observations are spot on.

  • Ken Fabian

    Why not consumers buying off or selling excess to whichever supplier has the best prices at that moment, without any contracts or longer term agreements? Smart systems can manage that, just as they can manage time of use for appliances to better match self supply or lower cost supply. A relatively small amount of storage combined with smart system management of usage can go a long way, extending every sunny day’s solar supply through the evening peak. From running continuously to firing up every evening, to firing up only in extended renewable unfriendly weather, fossil generation is going to be downgraded to intermittent backup.

  • Marcelo

    Will households be able to exchange power between themselves as in peer-to-peer and not even use a grid? I mean are there laws against distributing electricity across properties via home-made setups?

    • Blind Freddy of Cairns

      Yes Marcelo, there are laws against that. There are also laws that require you to sell your export generation to a retailer so not sure what Stobbe is smoking in SA however the demise of retailers will be a difficult thing to achieve when they have billions invested. He is also just pondering the future and mentions 20, 30 or 40 years, So no need to get too excited. A lot of what he says is just not technically and economically viable at this point.

  • Michel Syna Rahme

    Good stuff!