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Australia could have 960MW virtual power plant, at no additional cost to consumers

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MHC’s latest research demonstrates that if all the customers with a premium feed-in-tariff (PFiT) subsidy used the residual value of that subsidy to purchase a battery storage system, Australia could have a 960MW virtual power plant, at no additional cost to customers.

In fact, costs to the residual customer base will be reduced, the ability of the power system to transition to a low carbon future is improved immensely, there would be specific network security benefits and the timeframe for implementation is only limited by the market’s ability to respond to customer demand.

Approximately one third of Australia’s solar PV installations (approximately 500,000 customers) currently benefit from a state-level PFiT.

Electricity consumers in these states have financial liabilities of about $5.4bn over the coming decade to pay for these premium feed-in-tariff policies.  What if this value could be ‘cashed out’ (at a discount) by PV owners as a subsidy for distributed battery storage?

We believe that, if given the choice, many PFiT consumers would be willing to convert their residual PFiT subsidy into a battery storage subsidy (BSS) – an up-front lump sum to offset all or part of the cost of a battery storage system. And, they would be willing to accept that battery subsidy at a discount to the estimated full value of their PFiT subsidy to secure and enjoy more benefit upfront.

Figure 1 and the below guidance show how distributed storage could be delivered.

Figure 1: Schematic of the PFiT to BSS conversion

Figure 1: Schematic of the PFiT to BSS conversion

The process would work as follows:

  1. A customer chooses to convert the residual value of their PFiT subsidy, at a discount[1], into a subsidy to put towards a battery storage system. The BSS may cover the full cost of the battery and installation, or the customer can choose to co-invest in a system[2].
  2. An eligible storage system – all of which are “VPP enabled” – is installed by an accredited installer.
  3. The storage provider receives the lump sum subsidy from the DNSP and passes the saving onto the customer in the form of a discount off the listed price.
  4. The DNSP covers the upfront cost of the BSS via a financing agreement at a low interest rate (possibly via State Treasuries or the Clean Energy Financing Corporation, alternately via other national or international sources of low-cost clean energy dedicated finance).
  5. The DNSP recovers the cost of the BSS from the customer base via their network charges over the life of the scheme[3].

If individuals chose to supplement the value of the BSS with additional funds to purchase a larger sized battery storage system commensurate with their solar PV specifications, the scale of the distributed storage could rise to 1.24GW.

The introduction of a BSS would also enable the state government to define the minimum standards for eligibility – ensuring high quality systems and installation. Eligibility would also be contingent upon the battery storage system being integrated into a virtual power plant. This would provide additional benefit for the system owner, as they could access value streams from external markets and additional benefits for the remaining customer base from aggregated demand response at critical peak periods, improved local power quality and reduced network augmentation costs.

If the discount accepted by the customer on the residual value of their PFiT is greater than the financing and administration costs of the BSS, then the cost passed through to the customer base of the BSS is less than the PFiT subsidy.  The power system benefits are extensive and include more distributed storage, increased system stability, lower cross-subsidies and bills for consumers, more certainty for existing PFiT customers, and so on.

We think this is win-win for the sector and will enforce Australia’s position at the vanguard of distributed energy policies and technologies.

However, we are conscious there are some specific consequences that need to be analysed and mitigated, including:

  • The risk of poor quality products and installations creating commercial and physical risks for customers
  • The domestic storage and installation industry not being prepared for the rapid increase in demand
  • The risk of an increase in network prices due to the increase in self-consumption
  • Exploitation of scheme by customers e.g. customers intending to move house receive a windfall gain, customers with a faulty PV system receiving a benefit

For more information, as well as the potential VPP size by state, please see our Finkel submission.

Ryan Wavish is CEO and Principal Consultant of Marchment Hill Consulting.

   

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  • trackdaze

    A big benefit would be reduction in peak load.

    In queensland with half of solar homes about 500mw on the 44c tariff this would make perfect sense.

    This unfortunely wont sit well with the share holder of the network and the bulk of the generators as their reason for being is to unnecessaily gold plate the network and to generate electricity for maximum profit not reduced cost. This effectivley a massive state tax.

  • Hi Ryan

    I have many reasons to have a big interest in these sorts of proposals, including the following three big ones:
    1) As a keen commentator on energy sector matters at http://www.WattClarity.com.au, this sort of idea is talking at a couple of the vexed issues in the energy space.
    2) Operating a software company in the energy space at http://www.global-roam.com, the battery storage space is one involving many pieces of uncertainty and unknowns – part of the reason we are creating the service at http://www.BatteryStorage.info/
    3) At home, as a happy beneficiary of a very long-dated and (overly?) generous net FiT (http://www.wattclarity.com.au/2014/05/full-disclosure-3-a-beneficiary-of-qlds-44c-solar-feed-in-tariff/)

    If I put hat #3 on, though, I don’t think I would be in the camp of the people you say “many PFiT consumers would be willing to convert their residual PFiT subsidy into a battery storage subsidy (BSS)”. Why would I give up a guaranteed return for at least the next decade to buy a battery storage system that I might not need at home (because of the FiT), even though the market would sorely benefit from it?

    Maybe there’s something I don’t understand in what you are thinking?

    Paul

    • trackdaze

      If it then allowed you freedom to upsize the solar system this would appeal to many.

      Further incentive could be achieved by a peak FIT for what will mostly be supplied by battery rather than solar.

      It won’t neccessarily need be fully subscribed to to be a success.

      • Rod

        Good point. If people were allowed to increase their PV size and participate in the market via Reposit or similar. they would be more likely to give up their PFit.

  • Rod

    I currently get over $1200 per annum tax free in my pocket for my exports.
    I haven’t had an electricity bill since 2008.
    So, going by the average power bill I am at least $30K better off with BAU
    Trade that for a battery? Thanks, but no thanks.

    • Pfitzy

      Does that scheme mean you can’t alter the system (obviously except where a component fails) and it expires if you move house? Just curious as to how it works.

      • Rod

        Yes, I can’t increase the size and I would lose the PFiT if I sold the house.

  • Stewart Rogers

    I’m about $50,000 better off due to the PFIT. No thanks.

    • Stewart Rogers

      Avg 21 kWh exported per day. Got the system in 2011. Goes till 2024.

      13 years * 365 days * 21 kWh * 0.68 c/kWh FIT = $67758.6 – cost.

      • Ren Stimpy

        Nice work if you can get it.

  • Tom

    Nice idea, but no one would do that voluntarily unless they were about to sell the house.
    Make it mandatory. No one deserves 40c FiT.

  • Goldie444

    “if given the choice, many PFiT consumers would be willing to convert their residual PFiT subsidy into a battery storage subsidy (BSS)”

    It should not be mandatory and people should be aloud to change/increase their system size.
    With these points noted, I for one would be up for this idea.

    I am in Victoria on the PFit of 60 cents, a generous Fit. A 15% discount of this would still leave a Fit of 51 cents, still generous.

  • Ricky Lee

    Batteries are measured in Whr, not W. These have very different meanings. When you say 1.2GW of storage, what do you really mean? A bit too ambiguous for a technical discussion.

    • Jonathan Prendergast

      They can be measured in both Wh or kWh, or Watts or kW.

      In this article, it is using W, as that is the level of grid support it can provide at a certain time. Comparable to, say, a generator. Rather than the length it can maintain that support.

      • Ricky Lee

        Yes, but the BSS is a storage system. Not like a generator at all (that is the job of the panels). The length of time the BSS can supply power to the grid is the critical factor here. eg, at night time.

  • Jonathan Prendergast

    A great idea worth exploring!

    No doubt a few issues along the way. But easily tested as a pilot then scaled from there.