Networks told they need to play fair with local energy, solar

Australia’s major utilities are being advised they need to give fair treatment to local energy generation – such as rooftop solar and battery storage – if they are to avoid the so-called death spiral that threatens their business models.

A new report from the Institute of Sustainable Futures at the University of Technology in Sydney suggests local generation needs to be adequately rewarded to prevent mass defection from the grid from consumers unhappy about their treatment from utilities.

The ISF is proposing two possible tariff alternatives which they plan to test in 2015 – one is a local generation charge, and another is a “virtual private wire”, a bit like “virtual net metering”, where a group of consumers share the output of a single generator.

The proposal by the ISF is significant because there has been a massive pushback against the utility response to solar and storage, which has been based around lifting fixed tariffs, accusations that solar households are “free-riding” on the grid, and paying minimal amounts for electricity exported back to the grid.

This latter issue has been the most contentious. Despite numerous attempts to obtain a “fair value” for solar, the desultory tariffs now on offer have caused solar advocates and other analysts to say they will simply accelerate what the networks are presumably trying to avoid – mass defection from the grid.

Solar households currently get paid little for any excess electricity they generate – 5.5c/kWh in some areas, a voluntary payment in others.

This means that consumers are now motivated to consume much of their solar power as they can on site, or to install batteries to store it for use later. This is expected to accelerate dramatically when gross feed-in tariffs expire in NSW and Victoria, and there is concern that when battery storage costs fall far enough, and/or consumers get irate or motivated enough, they will simply disconnect.

The response by utilities to hike fixed charges might address some of their short-term revenue problems, but ISF warns that it could accelerate grid defection and so make matters worse in the long run. High daily access charges also raise equity issues as low use, because low income households pay a disproportionate amount compared to the services they receive.

Most of the problem lies in the cost of delivery of Australia’s supposedly “cheap” coal-based generation. Huge network costs – driven by massive investments of $45 billion in the last five years, means the cost of delivery accounts for more than half household bills, and just the network costs are being undercut by rooftop solar.

The ISF says up to one-third of the $45 billion network investment was to meet peak demand growth forecasts that have not eventuated (see graph below, click to expand) and the current charging structure does not produce optimal outcomes. It says there is little incentive to reduce peak loads, there is no flexibility to cater for partial use of the distribution system, and the potential benefits of local energy and use are not rewarded.

isf peak

“Electricity consumption from the grid, once thought to have an inevitably upward trajectory, has been going down for more than five years,” the ISF writes in a new proposal.

“If grid defection becomes a reality, it could precipitate an untenable situation for network operators, where rising prices push customers to reduce consumption or even disconnect from the grid, which increases prices and further drives down consumption.

“Those customers who remain grid-connected face higher and higher prices as they pay for legacy infrastructure, built to serve a larger customer base and meet now out-dated demand forecasts.”

To try to address this, ISF is proposing two new possible tariff systems that could provide a solution, and which will properly reflect the value of local generation to the network.

Under the “local generation credit” system, a credit is paid according to how and when a generator exports back to the grid.

Under the ‘virtual private wire’, the calculation of the credit is only carried out on the portion of electricity exports that are used by local customers. The export is ‘netted off’ at the customer’s site on a time-of- use basis, and the amount used at the customer’s site forms the basis for the calculations. It has various methodologies to calculate those tariffs – based around volume or current network tariffs- which it is discussing at workshops to be held this week.

The ISF says network charges need to be restructured to “recognise the value of local energy” and to recognise the actual proportion of network utilised. This, it says, will reduce the incentive to maximise ‘behind the meter’ generation or actually disconnect from the grid.

“Providing a level playing field for local energy may also prevent customers from disconnecting from the grid, which has multiple benefits.

“Firstly, it will prevent the upward pressure on electricity prices for customers remaining on the grid.

Secondly, grid electricity services are likely to be more reliable than stand-alone systems in terms of maintenance down time, voltage, and power quality. Finally, grid connection allows customers the ability to sell exported energy (‘local exports’) or provide other services such as voltage regulation.

ISF says that local generation needs to be valued for the benefits it can bring to the network in providing energy when it is most needed, and to reduce the peaks. It sees the networks evolving into something like this (click to enlarge).

isf grid

“Developing appropriate local charges and payments will enable network operators to start ‘shaping’ local energy to deliver effective network support.

But it notes: “The most important benefits for network operators from enabling local energy are likely to be in the medium to long term, in ‘future proofing’ their business model.”

The ISF report can be found here.

Comments

12 responses to “Networks told they need to play fair with local energy, solar”

  1. Chris Fraser Avatar
    Chris Fraser

    Great idea. The method to value the exported energy is to, as you have said, consider the time the export was made and the amount, whether it was made to stabilise the grid system – or in other words – offset high grid usage of another local customer. Step two is to set up an exchange where the option to export is given to PV households, which energy has an inherent value that compares well with the cost of grid augmentation investment.

  2. Mark Melocco Avatar
    Mark Melocco

    I would love to be able to offset my energy use in town where I live in an apartment with a solar array installed on my holiday house. As I understand it a virtual private wire would be perfect for my situation. Somehow I don’t think Ausgrid will every let me do it.

    1. wideEyedPupil Avatar
      wideEyedPupil

      Diamond Energy offer this to commercial customers I believe.

  3. Steve Fuller Avatar
    Steve Fuller

    South Australian Power Networks, the grid operator in SA, has submitted its operation/tariff/pricing proposals for the coming 5 year period. These proposals include ‘smoothing’ costs to customers over that period. Interestingly, the forecast is for a dip in costs next year and then a steepish rise after that.

    The ‘smoothing’ proposal would see costs to consumers being maintained on a less precipitous but consistently rising sets of charges over the 5 year period.

    Whom this would benefit apart from SAPN is unclear. SAPN would collect approx $100 million more than necessary in the first year and then subsidise actual costs after that.

    Curiously, this proposal falls within the time span where grid defection may begin and then accelerate. If you were a former customer in year 2,3,4 or 5 it is unlikely that SAPN will be refunding what they overcharged in year 1.

    The Network rules and the application of those rules is an area replete with opacity and the ordinary consumer has little idea what is proposed and whether it is good or bad.

    The electricity utilities are an essential service in modern industrialised societies and with the advent of new technologies including renewable energy, we need to find a means to shine a light into the depths of the inner workings of these behemoths to make sure that they are serving the public interest.

  4. Ian Avatar
    Ian

    To a household with PV the grid is a storage device, nothing more ,nothing less. When electricity is generated in excess of usage it is sent into the grid and when its needed it is drawn from the grid. In effect the grid supply is in direct competition to a private battery storage set up. The network operators can reflect this by creating a ‘virtual battery’ . This could be a small electronic device in the meter switchboard. The householder could rent storage from the network at a rate competitive with a physical battery system and then export or import electricity as they see fit. For example 5kwh storagecould be rented. During the day there may be 10 KWH of excess power generated. 5 kWH is ‘stored’ , 5KWH is exported at 5 to 8cKWH. At night 8KWH is used. 5KWH is from ‘ storage’ 3KWH from the grid at the going rate say 27cKWH. The householder could buy more storage or less as his circumstances change. If batteries become more cost effective then the grid operator could choose to drop their prices on storage capacity rental. The grid would have advantages over home based battery storage including reliability, no up front costs, space saving, no maintenance to the householder. The cost and complexity of an electronic virtual storage device would be small and could be placed in the circuit such that it does not interfere with the normal metering system.

    1. finn Avatar
      finn

      That is a brilliant idea Ian.

    2. Harry Verberne Avatar
      Harry Verberne

      Great idea.This is the sort of approach the industry needs to take: accept that BAU is no longer tenable and embrace innovations such as this.

    3. wideEyedPupil Avatar
      wideEyedPupil

      Other variable is ‘pipe diameter’ (thin pipe/fat pipe): how much current can be drawn at any given time in or out. This more directly relates to what has supposedly been driving network costs up so rapidly, the peak demand limit on the wires themselves.

    4. john Avatar
      john

      Ian have a look at NZ with Vector Energy

      http://vector.co.nz/electricity
      They install the storage they manage it to draw power at peak demand time any left is for the householder to utilise.
      Yes you pay for the privilege.

  5. Malcolm Scott Avatar
    Malcolm Scott

    Great timing in reporting this.

    The Victorian Shadow Minister for Energy announced last week as part of the election campaign:

    Lily D’Ambrosio
    November 17 at 10:10am · Twitter ·
    ‪#‎VicLabor‬ will require the ESC to inquire into the true value of distributed energy generation to the grid.
    @LilyDAmbrosioMP on Twitter

  6. Alen T Avatar
    Alen T

    Here’s an article worth reading about the gold plating of our grids. http://www.themonthly.com.au/issue/2014/july/1404136800/jess-hill/power-corrupts

    When is the senate inquiry expected to start?

  7. Nick Coles Avatar
    Nick Coles

    aussie utilities need to shift to renewables with battery parks like these (http://www.younicos.com/en/home/) asap – improvements in battery tech (eg Nanyang Tech Uni http://media.ntu.edu.sg/NewsReleases/Pages/newsdetail.aspx?news=809fbb2f-95f0-4995-b5c0-10ae4c50c934) and decreases in price from greater scale in battery production (eg musk’s new battery factory – http://www.bloomberg.com/news/2014-09-11/why-musk-is-building-batteries-in-a-desert-when-no-one-is-buying.html) are going to accelerate the decline of fossil fuel utilities – personally i think the future will be a mix of utilities pumping out cheap renewable power (mostly solar) backed up by battery parks and local energy generation (again mostly solar) backed up by batteries – it’s a kodak moment and utilities need to adapt fast or die

Get up to 3 quotes from pre-vetted solar (and battery) installers.