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Incumbents’ tariff war on rooftop solar accelerates “death spiral”

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The refusal of Australian utilities to recognise the value of local generation – such as rooftop solar and battery storage – means that they are undermining their own business models and effectively accelerating the “death spiral” they fear so much.

That’s the broad but inescapable conclusion of a new government-funded study that looks at the current tariff structure in much of Australia, and whether individual consumers, the utilities, and the broader community are getting value for money.

The study points out that “perverse” effects of the utilities’ and regulators’ insistence on offering paltry rewards for exports into the grid from rooftop solar and other localised generation.

These tariffs – like many being introduced by utilities – is designed to protect the revenue of the incumbents. But the study points out that this is ultimately self defeating – because it simply provides incentives for homes, businesses and even communities to cut themselves off the grid, even when staying on the grid could offer greater benefits for those consumers, the utilities themselves and other consumers.

Much has been made – by the incumbent utilities, some regulators and the popular press – about the cost of premium feed-in tariffs for rooftop solar.

But little is made of the potential huge distortions from the paltry tariffs now offered by the utility, which do not recognise the network value and other benefits of distributed generation.

Jay Rotovitz, from the Institute for Sustainable Futures in Sydney, has been working on a government-funded project – Facilitating Local Network Charges and Virtual Net Metering – that looks at what would happen if the owners of local generation received a network credit and were able to trade with others.

Right now, no local network credit is offered. Local generators are treated the same way if they are 3 metres away from the point of consumption than if they were located 1,000km away – despite the obvious benefits.

“This is a really good example of how the market is not working and why we really need to change it,” says Rotovitz, during a presentation at the Local Energy & Microgrids conference co-hosted by RenewEconomy and One Step Off The Grid in Sydney last week.

“The market is structured badly, and we are going to get perverse outcomes unless it is changed.”

The study, which modeled the benefits of local network credits and local energy trading (also known as virtual net metering), found that the current structure creates a “perverse” incentive to duplicate infrastructure.

It also offers little financial incentive to export energy, discourages cost-effective distributed generation, because sizing would be sub-optimal, and creates a strong incentive for customers/product developers to keep generation “behind the meter”, leaving an under-utilised network.

One illustration is the outback Queensland town of Winton, which has been looking at exploiting near-surface geothermal resources to provide geothermal energy to the council and 29 of its buildings.

Currently, the average cost of energy (but not their actual tariff) is 21.4c/kWh, and adding geothermal with no change in tariffs would actually cause costs to increase slightly. But the costs come down if local energy trading is allowed (allowing the buildings to sell to each other) and if a local network credit is also introduced.

winton graph

If both these measures were taken, the effect would be quite substantial – with costs coming down by around 30 per cent. Winton could achieve similar costs if it took those buildings off the grid, and built its own electricity network.

But if they did build their own “private wire” to deliver the sort of incentives denied of them in the main grid, then the infrastructure would be duplicated, and the main network would still seek to recoup its costs elsewhere (from other consumers). With some proper thinking about network tariffs, then both parties – and other consumers – would be better off.

The modelling at other facilities in Byron Bay, suburban Sydney and regional Victoria came up with similar results: i.e. that the networks – and the consumers – would be better off if the tariffs were adjusted and local generation was encouraged rather than penalised.

winton trials

 

That is not the way that most networks are thinking, however. But change may be on its way. The Total Environment Centre, along with the Property Council of Australia and the City of Sydney, has proposed rule changes that would introduce local network credits and allow for local energy trading.

The City of Sydney, in particular, has been frustrated by rules that have prevented it selling electricity generated in one building to another. A decision is due in July.


  

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  • john

    One aspect mentioned { Local generators are treated the same way if they are 3 meters away from the point of consumption than if they were located 1,000km away – despite the obvious benefits. }, but not highlighted in the Winton study is the cost of actually getting the power to Winton. In fact with the amount of power lost in transmission; this a part of the $430 million subsidy paid by south east Queensland to get power to there at the same cost as 3 meters from the Local Generator.

    So the fact they can put in a local distributed energy plant has to be applauded because it reduces the cost of power for everyone in the state.
    If every local area at the end of long distance transmission was to implement this kind of exercise the cost of power for the whole state would be reduced!
    Is this not the kind of exercise that should be done?

    • MaxG

      Sure 🙂
      But how can the distributor gauge the systems if there are less wires to maintain! 🙂

    • Ian

      solar can be produced at about5c/KWH, but storage in the form of batteries comes in at 5 or more times this price. If you were in charge of a rural town minigrid, how would you set tariffs to your customers who also happen to be stakeholders in the council run minigrid? You could overcome the problem of high battery costs by having a trickle feed from the wider grid, you could look at other options for power generation such as wind or geothermal or gas preferably biogas. You could set the after sunset tariff high to encourage load shifting to daytime when solar power is cheap to produce. You could pay a reasonable FiT for non-sunlight hour electricity fed into the grid and a far reduced FiT for sunlight hour solar.

      Here’s a little costing for battery storage: 1400 people 4 to a house, each house has a 2KW air conditioner that they run 24/7 . Roughly 16 hours of storage needed = 11 200 KWH of storage. $ 11 Million needed to keep Winton cool on a Summers eve. How much would the power transmission cost from the grid?

      • john

        In this particular case because it is geothermal there is no need for storage, however if the use of solar was the main generator method then yes storage is needed to go completely independent.
        Looking at a cost structure, if no storage then during production daylight hours may be 5c/KWWH and supply from grid 22c/KWH
        Using 50% daylight and 50% nighttime cost of power = 13.5c/KWH.
        Using 40% and 60% cost of power = 15.2c/KWH
        Using 30% and 70% cost of power = 16.9c/KWH
        So the council puts in the solar farm or wind if there are sufficient resources and those are rough figures to work on.
        In the individual case it would appear that feeding into the local grid would be beneficial to the community and a FIT that reflects the cost of power by the council and a lowering of nighttime power usage may be the answer.

        • Ian

          How very lazy of me, the Winton geothermal project is electricity generation, using relatively low temperature water. It’s to supply a few council buildings and they estimate that it would pay off in 7 years. Apparently there are loads of towns with similar geothermal resources in the area. The heat source water is only about 80’C or so. Presumably they utilise the water for general town use after extracting the heat energy through the geothermal plant.

          This puts into perspective other types of renewable thermal energy such as solar thermal with molten salt storage. These systems ought not to be large and centrally located but could be distributed to many of these isolated towns and settlements. Together with solar PV; wind,if there’s a sufficient resource and small battery storage these places could be successfully supplied by local electricity generation. The problem of Alice Springs, for example, has a sizeable population , can afford plenty of solar PV but has a large night time energy consumption. Solar thermal and molten salt storage would be a great candidate to supply this need.

    • david_fta

      ” the amount of power lost in transmission; this a part of the $430 million subsidy paid by south east Queensland to get power to there at the same cost as 3 meters from the Local Generator”

      Distance Callide (near Biloela) to Brisbane: ~580 km
      Distance Callide (near Biloela) to Winton: ~1360 km

      I’d hardly call it a big subsidy.

      • john

        You have put your finger on the situation distance from Callide 1360 Km.
        The transmission loss in Zone 1 is 10%
        The transmission loss in Zone 2 is 20%
        The transmission loss in Zone 3 is 30% to 45%
        So we can safely say Winton falls at least in the 20% zone or more.
        So the price of power should be 25.68c KWh @ 20% or 27.82c KWh @30% this puts a light on the subsidy.
        So the use of geothermal not only replaces real delivered subsidized cost by at least 4c KWh there is the ongoing cost of R & M of the present structure.
        If every local authority at end of grid areas were to do the same action while it will not be huge against the more populated areas the removal of some part of that $430 million subsidy would be of benefit to all.
        If totally removed I am using 10 billion as the bill it works out at $0.043 not exactly a lot i know, however i do not know the total cost of energy so used 10 billion.

  • Math Geurts

    Stop this awfull complaining. Leave the grid when you fall in love with rooftop solar.

    • nakedChimp

      [ ] I missed the point of the article

      make a cross there Math ^^

      • Math Geurts

        It does not matter how the articles start, the conclusion is always the same: the treatment of rooftop solar is supposes to be unfair.

        • nakedChimp

          Yeah sure.. and you can’t help it but give people a solution that you personally think is right and fits your personal world view.
          If you’d just stated the obvious and simple solution of “Leave the grid when you fall in love with rooftop solar.” I wouldn’t have get back on ya.. but you had to get personal and suggest that people who come here to discuss options to “Stop this awfull complaining”, which essentially means STFU and is totally besides the point of this.
          It also paints you as someone intolerant.

  • Zvyozdochka

    Another example of why the generators can go to hell, but the grid should remain a community owned utility.

    • john

      Power supply like water like mail delivery is or was a community obligation.

  • hydrophilia

    If FITs are too high, it leads to a death spiral as coal and nuclear plants get taken off-line frequently (they need high utilization to pencil-out). And costs get shifted to non-PV producers.
    If FITs are too low (as you’ve pointed out), it again leads to a death spiral as PV-producers defect from the grid and leave the other consumers to cover the fixed costs.

    But…. what is the “right” or “fair” FIT? Too bad that it seems so darned tricky to accurately figure out. And a lot of folks just want things to stay the safe and stable: incumbent producers want protection, networks want their profits, politicians want to keep their masters (….um, sorry..”donors”) happy. Even worse, the optimum FIT (for society) will vary from moment to moment (depending on demand etc), location to location, and from installation to installation (depending on ancillary services needed and provided to the grid).

    I really can’t blame the incumbents for wanting to avoid the question, but one would think they might see an enlightened self-interest in having a FIT that is not too high or too low, even if the perfect FIT is hard or impossible to find.

    • john

      This is not about a FIT it is about the ability to supply a end of grid area with their own power.
      That is why we will be witness to charges for Capacity or charges for ability to connect otherwise know as standard charge of connection or some such.

      • Mike Dill

        The utilities will need to keep total charges lower than the cost of local storage. Failure to do that will cause them to lose customers. Storage is running down the cost curve, and the crossover is going to happen in a few years. My EV (V2G) will fill in for the ‘cloudy weeks’ that everyone worries about.

        • john

          You are correct and if the real cost of delivery was taken into consideration for end of grid consumers battery is already below that figure i would argue.

    • Ian

      Have you ever seen a rooftop solar system production on a good day. It’s like a camel’s hump. Add all solar produced in a state and the curve still looks the same. Plenty of electricity in the middle of the day and disconcertedly nothing at night. No throwing a FiT will change that. People ,companies, town councils will just keep installing solar because it is so cheap. Wind and once- through- hydro might match the cost of solar and be able to produce it at complimentary times. Gas is becoming pricy but may be needed to fill the gaps. Solar plus storage, will always be more expensive than solar on its own. Large scale solar plus transmission and marketing etc will also always be more expensive than behind the meter solar.

      There’s one thing distributed solar is not good at and that’s produce power when the sun does not shine. Our FiTs and tariffs will eventually reflect that. The new competitor for the grid is not behind the meter solar ,that battle is all but lost, it is behind the meter storage( and load shifting , economising etc).

      I think the death spiral referred to the uptake of solar. It’s more the challenging of the old alpha male by the new one. As you say coal and nuclear need to run flat out all the time to be economical, enough solar with its big fat daytime peak puts a stop to that like a big road bump. The new challenge for the grid is complimenting solar with ” online ” reliability and storage. Can they do this, behind the meter batteries are hot on their heels. Coal is like a big deadweight slowing them down. Can the networks dump coal generation for more dispatchable varieties of generation?

      • nakedChimp

        It’s not a question of ‘can’ it’s more a question of ‘when’ and ‘how’ and ‘who’ is going to pay for that.

    • nakedChimp

      That would mean the ones in power and charge would actually care for the business they run and not just think about the next step in their career path which happens 1-2 years after they’ve taken their current position on that ladder.

      The whole construct is geared towards churn and burn on that level with sustainability (for the business, market or environment) at the bottom of the pile of considerations.

  • MaxG

    The point is: the grid has nothing of value to offer. I would expect that a large-scale system has the benefit of economics of scale. Why is a kWh from my panels and batteries cheaper than what I pay for a kWh from the gird?

    • Ian

      Max, we know that you are a happy off-gridder, and that is fantastic, but how did you overcome the high cost of batteries? Presumably you have enough battery storage to last you a few days without sunshine and presumably you have become super efficient with your electricity use, shifting most loads to the sunny part of the day. I’d be curious to know roughly your cost of solar system in $/KW, your cost of connected battery in $/KWH installed. And the totals of solar and battery you have installed.

      My solar system was installed about 5 years ago and cost $3600/KW for a total of 5 KW installed. I rely on the 44c/KWH to pay off this huge expense and admittedly don’t bother too much to shift most of my load to the night. I like the grid for obvious personal reasons but also think it has relevance in the future distributed generation grid.

      Batteries are obviously the key to future electricity supply, but at the moment they are pricy, roughly $1000/KWH. Three definite benefits of the grid on a collective basis, are access to complimentary wind and hydro electricity sources and sharing of energy across a wide geographic area to increase the reliability of supply.

      To the individual household these benefits translate into ” online” reliability and storage.

      The future of electricity supply is evolving rapidly, all sorts of people and schemes become ” stranded”. You might be stuck with your outdated off-grid setup. I might suffer loss of the premium FiT I need to justify my expensive solar set up. Those that invested in Coal fired generators, those that paid a premium for large scale solar or wind farms only to see prices tumble.

      Whatever system you buy, realise that there will be a better cheaper one in a few years time. Only spend as much as you are willing to lose is my dictum.

      • Mike Dill

        I whole heartedly agree. My solar panels will probably be obsolete in thirty years, and may be replaced with ones that might be twice as efficient. The coal plants will not have a market by then, and I may be off-grid. Everyone needs to recognize the change is happening.

      • MaxG

        Thanks for your reply… “we know that you are a happy off-gridder”… 🙂
        It is not about that, it was about the grid (as in all players: gen disti, retail) not being of value, considering there should be economics of scale keeping/providing low prices for electricity. Privatisation has added three layers, each with a profit-margin, which has increased the kWh price.

        So back to “we know”, I have mentioned my cost elsewhere, which was $500/kWh in LiFeO4. I have 16 x 3.2V 400Ah cells, giving me 20kWh, running them down to a 20 SoC if need be, providing thus 18kWh usable energy. The point here was not about individual component cost, but a different way of thinking, where I ‘pay in advance’ my current bills — say over 15 years, and spend this money now to build my system.

        To answer you query about $/kWh; it sits at 22C/kWh based on a 15 year life. If I take the difference between actual cost per kWh not account, the pay back would be shorter (but this does not matter to me).
        BTW: you can check out the system performance and images here: http://www.pvoutput.org/list.jsp?p=0&id=11239&sid=34144

        • Phil

          Max what BMS brand / model do you use ?

          Some looking at going Lifepo4 off grid batteries might need to know a Battery Management System – BMS is critical with lithium Ion technologies to achieve long life by managing safe charge and discharge currents as well as low volt , over volt and cell balancing functions

          • MaxG

            ev-Power.com.au cell modules and a modified RAPS. Modified, because I was not happy with the relay being used (by them) to switch high current DC. It was replaced with an appropriate GigaVAC type. The link above to PVOutput has photos (though not of the improved relay). This system acts as “insurance”, in case the Selectronic inverter/charger would cause a fault (which I cannot see happen, given the quality product they are producing).

    • Phil

      Not to mention reliability and safety.

      For a supposed “Gold plated Grid” i have experienced uptimes as low as 97% and a best of 99.5% at 3 different locations.Storms , hot weather , equipment failures , dry periods and dust , falllen trees , car into pole accidents all seem to take their toll on the 3rd world above ground poles and wires that countries like the UK simply dont have. And we are FAR more urbanised than they are so the costs are similar.

      Not to mention the cumulative effect of distortions and voltage variations well beyond the australian standard from some parts of the grid with poor voltage regulation / impedance and the cumulative effect of all those on grid inverters adding harmonic distortion.

      Dont be surprised if your off grid appliance failure rate drops dramatically compared to on grid. Mine did.

      Electricity used to be cheap and profitable. Now it’s expensive and obscenely profitable.Consumers simply dont like cartels charging whatever they choose to

      I went off grid mostly , or as the final straw , because they (ENERGEX – a goc ) sent an unkempt meter reader out in a never washed 20 year old car with no I.D on car or person and reluctantly showed a card when challenged.Could have been ANYONE . They (energex) have no consideration for your security , imagine a mum home during the day on her own , quite a concern. And a standard M.O is for some crims to pop off your power and come back 24 hours later . If it’s not back on they know your away

      How do i know they dont care ? , when i complained they said there is NOTHING they can do as they are subcontractors who we have no control over them , their signage , who they are , what they do. I doubt they do background checks , so they could be “casing” your place.My complaint is on the record with energex i would LOVE to get a comment on this site from them.

      So i thought about this event , crunched the numbers and went off grid and not only save money , but have 99.9999% uptime and i have control over meter readers because there are none. I have control back again and it’s fabulous.

  • MaxG

    Also, I would argue that this is the price of privatisation. If the grid would have stayed public, policy changes would be easier to implement. You will never find/get consensus from a commercial operator to cut revenue.

  • Suburbable

    The government keep spending money on studies that tell them the same thing…that they are wrong. Even their own study into nucleat energy gave them answers they didnt want.
    The government’s response – ignore the info and continue with their farcical war against renewables, education and welfare. The three cornerstones of their agenda.
    We will continue to see articles like this until we realize that the government just doesn’t care.

    • Dispassionate

      Actually all the studies come back saying solar is only worth the avoided costs…and in Queensland’s case you are right, it is not the answer the government was looking for! The government wants to give more but the studies say they shouldn’t because it will cost the community more than it should.

  • Suburbable

    Articles and replies on these discussions only ever consider the financial aspects of solat and storage. There are many more benefits than just money.