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Australian regulators struggle with shift to an energy democracy

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Ever since the theories of Thomas Edison lost out to those of fellow energy pioneer Nikolai Tesla a century ago, the electricity industry has been dominated by centralised power.

That power has been invested not just in the size and shape of the generators – particularly of coal, gas and nuclear – and of the massive grids that have acted as their delivery systems, but also in the monopolies and oligopolies that have dominated the business of electricity, and the regulators who have served to protect those interests.

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It has all been about centralised power, and has had the happy outcome of creating an industry in the shape of the preferred business model of the incumbents. It has been protected by system complexity and technology advantage that has left the sector both indispensable and unassailable.

That was, at least, until the emergence of serious competition in the form of rooftop solar and battery storage; and the emergence, since, of new innovations, smart technologies and business models. In short, a new way of doing things. Suddenly, centralised power is not as absolute as it once was.

In Australia, an industry with a cosy cabal of a few dozen generators is now facing competition from more than 1.5 million smaller rivals, as the households, business and consumers begin to generate, and now to store, their own power, and new business ideas evolve to connect the dots and challenge the incumbents.

This has already had an impact on the earnings, the outlook, and the investment plans of the generators, networks and big corporations who have seen their advantage on technology and costs rapidly deteriorating.

HAZLEWOOD POWER STATION VICTORIA

And now, one of the last bastions of their control over the consumer – the influence over regulatory and pricing outcomes, where complexity is king and confusion is profit – is also under attack.

A striking example of this is in Victoria, where the new Labor government wants a review into the “fair value” of solar, and an assessment made of whether the the reduced feed-in tariff – cut to just 5c/kWh this year, as recommended by the Essential Services Commission –is justified or not.

So who has Labor asked to review the ESC assessment? The ESC of course. And the solar industry and environmental groups are bashing on the door to try and break down the exclusivity that has guided such reviews in the past.

Greens MLC Greg Barber has launched a Facebook campaign – a fair go for solar – to encourage solar home-owners – and there are 250,000 of them in Victoria – to make a submission to the ESC review. He has already gotten nearly 1,500 such submissions. But still, it seems, no seat at the table.

According to Barber, the ESC had invited “stakeholders” to a meeting – held today – to discuss the ESC’s approach to the review. The meeting was to be “open”, but references to it were suddenly deleted from the website and it ended up being “invitation only”.

Such is the glacial pace of change in the electricity industry, that the ESC last December issued a 60-page report on how it would approach the review.

It has sought submissions and then will consider the matter. Then it will do the review. That might take more than a year, by which time tens of thousands of Victorian solar households will see their 20c/kWh tariff slashed to around 5c/kWh.

Barber says this is not good enough. He, and others, say that the question of distributed generation has been treated as almost “trivial” by the incumbent industry, and the issue buried under the complexity of weighty submissions.

“They turn it into a reductionist exercise, breaking it into a million bits until it is meaningless,” Barber tells RenewEconomy. And true enough, the ESC wants to split the inquiry into two – one for the “energy value” and another on “network value”. And it wants more time.

The solar industry wonders why there should be a distinction between energy and network value. It points out that the network does not end at the consumer connection point, but this does not seem to have dawned on the regulators, even if it is becoming abundantly clear to the “gentailers” now competing with nimble rivals to get behind the meter.
“These reviews are dominated by a couple of dozen stakeholders, mostly representing the interest of a few power companies, and a a few NGOs,” Barber says. But now Barber is trying to reinforce the fact that the stakeholders of the regulators should be the consumers, and not just the industry.

“This is the storming of the Bastille,” Barber promised. “If they want to invite stakeholders, they are going to need the Melbourne town hall, rather than a small room.”

It’s true that regulators have had trouble understanding that their stakeholders are much broader than their cosy relationships with the industry.
In one notorious recommendation a few years ago, the Queensland Competition Authority recommended tariff changes that were designed to extract more money from solar households. It admitted that the proposals were likely ineffective, were unfair on users, and were probably illegal, but it suggested them all the same because it would protect network revenues.
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Those tariff changes didn’t go through. The solar industry is proving effective in challenging and reversing some of the more egregious policy changes, such as solar taxes in Western Australia, NSW, and in South Australia, and the AER is now stepping into the breach where it can.
But solar households are still aggrieved. New households are getting paid little –and in some states, nothing – for their exports. Regulators are refusing to even value the benefits of distributed generation. The returns on  household solar arrays is being eroded by huge jumps in fixed charges.
And solar households are not the only ones suffering. In Queensland, fixed charges have been lifted so far that households using little electricity are forced to pay a minimum 72c/kWh for the electricity that is generated at a cost of just 4c/kWh at a coal generator a few kilometres down the road.
Confusion and complexity and regulatory fiat have been abused to the point of absurdity. Little wonder that new business models are emerging that propose to by-pass the incumbent industry completely. How does the industry respond? By threatening new rules that would impose fines and penalties to those no longer tied to the centralised system.
“It is a serious problem. It is an insiders game played by insiders,” says John Grimes, the CEO of the Australian Solar Council, the industry’s main lobby group.
Grimes says the situation is worsened because many of the people employed by the regulators come out of the industry. Some are seconded to write the policies and the rules of their own sector. Meanwhile, expensive consultants are hired to present documents of 10,000 pages to bury the issue in complexity.
“Even as industry group, we often don’t have resources to deal with this. If they continue to play this way, putting the energy industry at the centre of focus, rather than the consumer, then these tensions will continue.”
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  • humanitarian solar

    Putting my Social Worker cap on, the solar industry would need to formalise its membership under a peak body and lobby government that peak body is a stake holder, requiring a seat at any table discussing policy. Sounds like that’s what is becoming formalised? In the mean time, I guess Victorians effected by 5c/kWhr feed-in-tarrifs need to reconfigure their solar system for using their own power, rather than feeding it into the grid.
    This Lithium battery system is supposed to have an interface that is compatible with all micro inverters and string inverters. I haven’t read the tech spec sheets to check it out as there is quite a number of them. If I were in that boat I would check it out. There’s also stuff about it in Springers blog and on the net.
    http://www.springers.com.au/product/2021/Enphase-AC-Battery

    • Ken Dyer

      I was always under the impression that when the sun shines, the power generated from my solar system was used by me and the surplus was exported. I would think that the same thing would apply when batteries were installed. Once the battery was topped up during the day, the surplus would be exported. Therefore, on cloudy days when the battery required topping up, then you might need to “buy in” power.
      The lousy feed in tariff doesn’t worry me because I am already ahead of the game with my solar PV system, because it makes money for me by reducing and, ultimately eliminating (with battery storage) electricity bills.

      • humanitarian solar

        I think it depends on what state your in and what type of meter. I don’t know the details though there have been state comparisons here on this site.

  • Chris Fraser

    Our increasing standard of living demands that we electrify more things. Why are they so afraid of the death spiral ? Perhaps the large generators and transmitters should do as they did 90 years ago – used local public offices to promote appliances and the consumption of electricity (enter plug for e-bikes and EVs here).At the end of the day, they’re going to have to value their own energy based on marginal usage by households.And to stop being idiots before designing smarter grids rather than high capacity grids.

    • humanitarian solar

      The death spiral is a hypothesis about the future. They are losing profits now. Hence, they are lobbying on behalf of their shareholders now. Wouldn’t you?

      • Chris Fraser

        Hmmm, the lobbyist response is panicked, scarcity and avaricious thinking. Still, if they consider that annoying their customers off for a long time is the best way to go …

        • humanitarian solar

          I’ve never worked in the field of Social Policy and was partially trained in it long ago. Though the way democracy works is big groups of people and sometimes private companies, form lobby groups who have input into policy development. The reason they do this, is for the reason the article mentions, that a table of discussion can’t have too many people, otherwise it gets unwieldy and too hard to facilitate a discussion. So then groups form memberships, representing various parts of a field, these elect their representatives who they feel are best to represent them at these policy tables. It’s not just big business that attend such meetings in a democracy, it is all stakeholders and if solar owners are interested in being represented at these policy discussions, then they too need to formalise their constituents. I only have a basic understanding of how political process and democracy works, though thats the basics of how it is supposed to. It is supposed to give community groups the ability to input expertise into portfolios of Ministers.

          • Alastair Leith

            the consumer and installer peak bodies exist if ESC wish to invite them. it’s clear they are the unwanted intruder into this little charade of a process. until i can use the grid to trade energy with you at a price of our determining, it’s not open access. until FiTs reflect the grid service they provide in removing peak demand (and traditionally the large windfall profits flowing to fossil generators one and all) then rooftop solar is not getting the ROI it deserves.

            what do we want?
            an open and democratic grid, truly in public hands

            when do we need it?
            now

          • humanitarian solar

            If the political process has become derailed by bodgy mechanisms, in my view the focus to correct it is the Minister of that portfolio. It would require someone with a big picture understanding, to create a critique of the process and possibly where it got derailed and publish, put the view forward to media or politicians. It doesn’t matter what government or party, in hindsight, led the process astray, the current government is responsible to fix it.

          • Chris Fraser

            Broadly speaking a good idea. To start with, the appropriate Minister – who is no doubt a highly trained person, intelligent but not a technical expert in the field – should solicit and then give more time to the University faculties and CRCs who declare they have received no funding from vested interests.

  • Math Geurts

    And once again: an awful distressed complaining about tariffication for rooftop solar!

  • suthnsun

    Meanwhile in Tasmania wholesale prices are $111 , PV is paid $60 or so and a 10 fold increase in PV solar would solve most of the low-dam-storage problem.

    • Ken Fabian

      Hydro’s value should be greater than any average daily price would reflect in the presence of intermittent renewables.

      • suthnsun

        Not sure what you are getting at Ken. If distributed PV output was 500MW Tasmanian storage would be very much improved at this point and energy security risk dramatically reduced. If PV solar was paid 10c/ unit, the scope for it is likely to be 10 fold current installations and owners would get sufficient returns..

        • Ken Fabian

          I was thinking that Hydro can take advantage of the intermittency of renewables and concentrate on supply when the sun is down and the wind is calm, and when the value of electricity is highest – essentially it provides storage but not necessarily pumped, just held back and delayed would go a long way. Of course if there is a full sufficiency of Hydro those renewables will be seen as competition, yet, with the link to the mainland the market for Tasmanian Hydro extends beyond local needs. Hydro with Solar and Wind looks like a good match.

          • suthnsun

            Right, I agree. The medium term outlook is brown coal generation stops, full dams in Tas should be a priority for the whole NEM. A full build out of easy to access distributed PV combined with wind and wave will make sense in the near future, a capacity payment mechanism for storage of different types would keep storages legitimately full and the fully distributed resources, fully utilized, would come at lower cost provided the incumbent transmission/distribution system is kept at bay.

  • john

    Having read some of the submissions made to inquiries, it becomes apparent, as Giles has pointed out, that the information is made as confusing as possible to decipher.
    I have been aware that the distributors and retailers are focused on going to a demand charge or daily supply charge makeup of the household bill.
    Considering the only component of a bill in previous years in Qld was the $15 a quarter to read the meters now this has moved to a charge per day and is the main point of contention.
    By increasing the standing cost of supply and depressing the actual cost of power used the outcome is resulting in low usage customers paying a higher amount for power.
    It is helpful for the transmission system to have distributed power feeding in at the extremities of the network.
    I notice Ergon is doing this as well as large battery systems are being put in place to help them run the system.
    The large FIT put in place should have had a tapered decrease down to wholesale cost, transmission losses and savings from not having to upgrade systems as the base FIT.
    It is terrible to see large shopping centre roofs bare of PV, present regulations appear to block the take up of this rather easy supply solution.

  • Alastair Leith

    great article Giles (as always) thanks I have brought to the attention of my networks. hopefully we can put pressure on the Andrews government to intervene and lift the game out of this mire.

  • Ian

    The debate about tariffs should be turned around. Sure, the fixed fees and 5c/ KWH Fit is outrageous, but here is an opportunity to negotiate. Screw us solar prosumers, with your ‘tariffs’, but in exchange allow unlimited access to the grid to feed in power. That is unlimited solar array sizes and unlimited methods of power generation and storage fed back into the grid. People should be allowed to purchase electricity from the grid and then sell it back at a different time if they so wished. We can buy the building blocks of a distributed grid with all the legal frameworks for an electricity marketplace by accepting the pathetic FiT’s. Once we have the grid we want then we can renegotiate the FiT.