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The first Australian utility to embrace era of “base-cost renewables”

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West Australia’s regional utility Horizon Power has become the first major Australian utility to embrace the concept of “base-cost renewables”, recognising that the plunging cost of solar and wind is set to turn traditional theories of energy supply on their head.

Horizon boss Frank Tudor has outlined a vision that he says will be an R&D “sandbox” for bigger and more centralised utilities across the country – and the world.

And it’s about shifting to a future of “distributed energy”, built around low-cost renewables and enabling technologies like storage and smart controls to fill the gaps.

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Horizon’s own vision is to provide 82 per cent of its supply in the form of distributed generation by 2050, a massive shift from the conventional view that all customers should be served by centralised generation and fed by long networks of poles and wires.

The concept of “base-cost renewables” is being championed by Bloomberg New Energy Finance to reflect the plunging cost of solar and wind, and to replace the traditional concept of “baseload” and peak plant.

The idea is to build the grid up from the base by using these cheap renewables, and then adding in storage and other smart technologies such as demand response and energy efficiency to fill in the gaps.

This idea is getting stronger support now that it is clear that the cost of solar has already fallen to below 2c/kWh in places like Mexico and the Middle East, and will soon follow elsewhere.

UNSW professor Martin Green says 1c/kWh solar will likely be reached by 2020 – making the idea of burning coal when the sun is shining completely redundant, or even insane given its environmental impacts and the lack of flexibility in coal-fired technology.

Tudor also thinks that 2c/kWh solar will reach Australia soon enough. “The marginal cost of generation will be close to zero” he says, and adds Horizon is well placed to benefit from this.

Tudor says while it will result in a wholesale cost much reduced from today, it must also translate into reduced costs for consumers. The distributed model seems to be the best way to deliver that.

“It’s a paradigm change …. we are turning the model on its head,” Tudor says.

Tudor describes the future as “distributed, decarbonised and digitalised”, although not necessarily “democratised”, because he is unsure that consumers themselves will want or need to invest in this technology.

That may be true in Horizon’s area, where the cost of energy is heavily subsidised by the government (it guarantees the same price of power in remote areas as it does in the big cities).

That puts the onus on utilities like Horizon and Western Power, which services the main grid in the state’s south west corner, to invest in renewables, storage and distributed energy to lower the cost of service, so long as they can get a regulatory re-set that smooths the transition.

Horizon has already been down this path, replacing poles and wires with stand alone systems after fires swept through areas around the south coast town of Esperance in late 2015.

Like Western Power, Horizon has found the SAPS – based around solar and storage, with the support of diesel genesis, to be cheaper, cleaner and more reliable than the grid-based alternative, and Tudor speaks of a “huge pipeline” of opportunities in remote areas, and on the fringes of Perth.

“We are collaborating with Western Power to unlock the enormous financial, reliability, safety and emissions benefits, and it is only a matter of time till the regulatory frameworks catch-up and we see hundreds and thousands of these systems across the country,” he says.

Indeed, Western Power shares Horizon’s view of a more distributed grid. It wants to break up its centralised grid into a more modular arrangement, where some areas are off-grid completely (using micro grids), some have “thin” attachments to the main network, but are mostly self-reliant.

To address the regulatory issues (the regulator is still locked into the old hub and spoke model), Horizon says it is developing an innovative regulatory framework that supports these renewable microgrids, protects customers, and provides appropriate incentives for utilities.

Tudor says that even the bigger grids within its area will operate at higher renewables. It is currently trialling two 1MW batteries at the Mungullah Power Station in Carnarvon to slash costs.

And it is undertaking what it says is Australia’s largest remote microgrid project in the coastal town of Onslow, where it is targeting 50 per cent renewable energy with a high proportion of distributed energy resources.

Horizon says it the Onslow DER microgrid project is the first major deployment of a complete DER business model by an Australian utility.

It has also completed a demand based pricing trial with 400 customers in Port hedland, and plans to roll out the pricing model, dubbed MyPower, to other towns.

“The trial was a huge success. It showed that customers “got it”, liked it and made changes for it, (and we are) seeing some reduction in peak demand for the group as expected,” Tudor says.

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The key, however, is to develop the technologies to enable this.

Up till now, most renewable investment have been “unmanaged”, and this graph illustrates the sort of technologies that will be needed to meet his goals, including voltage and frequency control, ramp rate installations, virtual power plant and storage co-ordination, and other technologies.

“Most of our towns will flip over to high distributed energy at some point or another,” Tudor says. “The landscape is changing pretty dramatically.”

And he says Horizon’s unique position as a fully integrated utility – it is the generator, network operator and retailer – makes it the ideal place for a regulatory test bed for how this will play out in larger networks. That, and the massive subsidies that support its largely fossil fuel generation now.

“The future is very much distributed and I would say that we in Western Australia, and in turn for Australia, and then in turn for the world are the real sandbox for research and development.”

The goal, he says, is to make energy boring again, in other words, to remove the controversy by ensuring that customers benefit with reduced costs from the dramatic energy transition.

“Our job is to make energy boring. It was boring in the last 100 years and it’s going through a transition point at the moment. It should be boring.”

(The quotes from Tudor in this article were taken from a speech he made at the National Energy Efficiency Conference in Melbourne two weeks ago, and in a subsequent interview with RenewEconomy at the same venue).  

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  • MaxG

    Various things at play:
    1. people like to believe that a customer/people-centric view on benefits exist — which it doesn’t.
    2. Governments use energy as tax revenue; and
    3. corporations feed the shareholders, which are by nature and definition greedy.

    It still holds true that if you want something to work in your interest: take care of it yourself. Current trends however, predict a different future of much greater addictions across the board, as cloud uptake confirms.

    • Robert Westinghouse

      Well said Max. I am a cynic…but I can hope the Horizon view will work….

    • Ren Stimpy

      All well and done for a tiny WA market – but how would it play out in a NEM market?

      • Chris Drongers

        Practice my boy. First, we take South Australia (3 GW peak to 100% renewables), then we take WA (5 GW peak to 100% renewables).
        SA is easier as the biggest battery is source substitution to the NEM (‘store’ your momentary excess power by exporting to the NEM, ‘discharge’ by buying it back). As overall supply goes to 100%, domestic SA storage in pumped hydro/utility scale batteries/domestic batteries gradually increases to reduce dependency on the interconnectors.
        In WA, storage will have to come relatively sooner after increases in solar and wind than in SA because the SWIS is isolated. But hey, $2Bn for a new coal generator at Collie or for a couple of pumped hydros between Geraldton and Bunbury, pick one.
        With experience on single farms, then on small towns, then on isolated SWIS the move to a renewable, distributed NEM will be less risky and probably a lot cheaper than we think.

        • Ren Stimpy

          I was probably more wondering how or if this could work in densely populated Sydney and Melbourne.

          • Chris Drongers

            I don’t see your point Ren. Obviously a larger part of the Sydney and Melbourne populations would be unable or uninterested in participating in distributed generation.
            But why wouldn’t ‘base cost’ generation in the boonies connected by extension cords to consumers in the city be more difficult than in WA or SA?
            With appropriate billing systems (plug for blockchain here but ordinary retail systems with a few separate items for transmission/distribution would work) the actual sources of supply and demand don’t matter that much. What is more difficult to sort is executive management in all levels of utilities whose pay is presumably tied to increasing profit, not to distributing lower and lower cost power to consumers.

          • Alex Hromas

            Ren has a point places like Sydney and Melbourne and environs each probably have more connection points than all of WA and little free space for solar, which is not a good resource in either location. Their grids are dense and well interconnected so there is little to be gained by breaking them up. Large despatchable concentrated solar stations will ultimately fill the requirements of these loads with various backups such as pumped storage and batteries. All we need is for the Lib/Nat knuckle draggers to get out of the way

          • Ren Stimpy

            Why not? 1c/kWh for solar by 2020 (which means a magnitude less by 2030) opens up a lot of opportunities such as installing solar on the SIDES of tall buildings. Yes the difficult installation cost for that would probably double of quadruple the cost but 4c/kWh by 2020 is still better than 40c/kWh from the main grid. (The solar panels on the sides of the north/east/west of tall buildings could be angled up by 25 degrees from vertical to increase generation capacity).

            OK so say in a 1 sq km radius of densely populated Syd or Mlb there are a dozen large apartment buildings housing 500 people each or 6000 people total. They plaster each building with solar, sides and all, and install battery arrays on the walls in the basement or parking lot, and probably also mini wind turbines along with the solar on the high roofs to charge up the batteries overnight.

            They engage a grid service company to install a micro grid connecting the dozen buildings. This would also increase cost but still many times lower than the grid cost over the medium to long term. All electricity generated and stored is shared fairly within the micro grid of the dozen apartment buildings according to an algorithm. The dozen apartment buildings collectively own the micro grid, with the grid service company who provided it then servicing it. One building is nominated to connect to the main grid, so in times of low self-generation or storage for the micro grid this one main connected building ‘forwards’ power from the main grid onto the others in the micro grid. The fact that only one of a dozen buildings is connected to the main grid offsets the micro grid cost with savings from 11 out of 12 not having to connect to the main grid.

          • Chris Drongers

            Agree here. But a cheaper way would be to use the existing grid to switch power between buildings and to run the large battery.
            Your suggestion is what might happen if current grid operators try to keep their monoply use of wires AND refuse to share savings from low cost renewables equitably.
            Most of us here probably think that existing monoplies on transmission and distribution will try to grab savings to themselves and ride the existing system until they are forced out by public opinion.

    • Mr Sam

      Please explain how a state government entity which is massively taxpayer funded (as it has cover a vast land mass – 4/5 of WA with only 45,000 odd connection points) is a) being used by the government for tax revenue and b) being government owned is feeding shareholder profits. Please stop with making uninformed comments, it doesn’t do anyone any good. Being from Western Australia I can attest that Horizon Power is a progressive vertically integrated electricity utility provider, developing policies like paying households energy feed-in tariffs based on the cost of supplying diesel power to area and also allowing additional RE on constrained micro-grids by giving the dwelling the ability to become connected if they can to add on 7 minutes of backup generation, as this gives them time to rump up their gas turbines in a cloud cover event which means they can add lots more PV to the system. But hay, I guess I must be missing something because everyone is evil and various things are at play.

      • MaxG

        a) When you had your June 2017 price rises, your treasurer Mr. Wyatt said: “West Australians had to pay more because of the state of the finances.”
        b) your retail market has been privatised, hence, profits go to shareholders (and not back into the public purse).

        Where am I making uninformed comments?

        • Mr Sam

          Point a) WA prices for households and small businesses are set by the government, due to politics they were kept stagnate for 10 until the Barnett government decided to increase prices to cost reflective prices. The new Labor government is continuing down that path of increasing prices above inflation until prices become cost reflective. At present retail electricity costs are still not cost reflective. Hence, the government is still subsidising energy costs in WA.

          Point b) Horizon Power is 100% state government enterprise which generates, distributes and retails power to the regional and remote areas of WA. The above article concerned Horizon. Still, to leave no doubt that the WA market is mostly government owned, I will outline the ownership structure of the SWIS. The SWIS is the network which covers the metro area of Perth out to Kal and the populated south west of the state. Within the SWIS there are contestable and non-contestable customers. Noncontestable customers which include small business and all households get their energy at fixed prices through the 100% state government-owned retailer Synergy, with the power distributed within the SWIS through the 100% state government-owned Western power. Some of the generation assets are privately owned, but the vast majority are owned by Synergy (as the Barnett government decided to merge Synergy with Verve which used to be the 100% owned state government generator).

          • MaxG

            I appreciate your effort and enthusiasm to set the record straight for WA. My generalised statements still stand for the rest of AU.
            b) seems to show partial (scattered) private ownership, which makes my statement there partially true 🙂
            BlueStar is privately owned and sells at present to business customers…
            Not wanting to split hairs… Barnett intended to sell and got booted for it. At least this was a good thing.

  • Megs

    The whole point of the story is that the basic financial realities are driving the change. Regardless of belief. In WA governments have subsidised energy from when it was all government owned. The very uneven population distribution and resulting small but powerful rural electorates carried weight and there is also a general understanding in the State that “the bush” needs a hand because that’s where the money comes from. The point bein made is that an isolated place like Esperance or Onslow or Port Hedland with local populations less than 20,000 , 800km or more from the city with not much in between etc can now consider alternatives and start to do without subsidies. The same is happening for individual farms or isolated mine sites etc.

    • My_Oath

      The isolated minesites have (almost) always been energy self-reliant. In some cases its actually the mines that generate for the nearby town – which causes a tricky situation when the mine closes as they are want to do from time to time.

      • Megs

        dead right. Norseman where i grew up in the 50s was all powered by the mines.
        Nearly 20 years ago now it was cheaper for my friend to put solar and batteries on a house 1km into the farm IN THE SW than to pay for mains grid poles and wires. And he avoided all the blackouts and brownouts and damaged appliances etc. All that is happening is that the sums have changed so Horizon are adjusting appropriately. WA is not East coast or SA.
        Back in the late 70s as a contracting Surveyor I actually marked out hundreds of km of power lines tgrough all the farms, radiating out from the diesel power station at Esperance. Very different sums today I bet.

  • Robert Comerford

    I don’t get the the ‘diesel genesis’ bit, should that be ‘diesel gensets’ ?

    • Ian

      No, it’s diesel genesis. You reverse energy flows from the grid into the diesel plant and it regenerates diesel 😉

      • Robert Comerford

        Ah… I live and learn, thanks Ian

  • Ian

    The concept ‘Base-cost renewables’ is a double edged sword:

    On the one hand it means the amount of energy generated by the renewables wind and solar is independent of any input costs for any such existing installation and thus represents the cheapest form of any electricity generation from all existing generators. It also means that this “free energy” should take precedence in supplying energy to the grid when its available.

    The perverse of this is embodied in the idea of the ‘duck curve’ that is renewables , when generated in large quantities, has a boom and bust cycle, it’s pretty much worthless when going gangbusters and very much useless when the resource is silent. – it’s a good thing it costs nothing to generate, because it’s worth nothing – base-cost.

    Getting back to Horizon: what is their understanding of base-cost? Every successful politician is a master of double entendres.

    • Ian

      Despite the cynicism expressed above, this article does represent very positive news. Ideally rural communities will be able to maximise locally generated renewables for their needs and minimise their fossil fuel requirements. Fortunately, or unfortunately, Western Australia is notorious for its endless sunshine, so daily time shifting of solar with small amounts of storage should nearly take care of their electricity needs, with diesel generators only working seldomly. Wind is also very persistent on coastal areas, again making daily wind supplied variation adjustments easily achieved with small quantities of storage and the (mostly) silent diesel standby units.

      This gets back to their core network – that supplying the large, aggregated population centre. This part of the system is the rub: They have plenty of gas and coal generation assets, how will they let go of these? If you have a decent income stream, you’re not likely to part with it willingly. We do know that the government subsidises gas generator capacity very heavily in WA, so maybe the maths does favour distributed renewables ( household solar ) for the core grid.

      Reading this article about Horizon’s intentions, thus needs careful dissecting, I think what would be useful is to separate their network into core-grid supplying the city and nearby surrounds and into isolated rural long-line network. If they can transform their core grid into a distributed, customer- generated and customer- centric sharing type renewables network then kudos to them. If it remains Coalition-esque BAU then shame on them.

      • Ian

        Base-cost renewables has another meaning: This is behind-the-meter renewables generation. This is the reality facing any Australian network, especially when housing is mostly suburban and can easily install solar. The networks customers in this scenario can and do generated their own very cheap electricity, and soon will store it for time-shifting purposes. The network becomes a virtual BBB and standby generator. That is the grid’s role no more, no less – generator of last resort – just to fill generating gaps and act as the crutch in the corner.

        • Coley

          And is probably doubly incontinent at the thought that, their life of privilege and affluence is in danger of being snatched away.
          Hence the constant drumbeat of anti RE soundbites from the right wing establishment and their media paymasters.

          Believe it or not, I’m no anti capitalist left winger, just somebody that’s appalled, that given the current evidence of harm that coal and oil is causing the GP, that politicians can carry on propagating the Interests of the FF lobby.

          Ok, reasonable hat off, sting the greedy bloodsuckers up

        • Coley

          And is probably doubly incontinent at the thought that, their life of privilege and affluence is in danger of being snatched away.
          Hence the constant drumbeat of anti RE soundbites from the right wing establishment and their media paymasters.

          Believe it or not, I’m no anti capitalist left winger, just somebody that’s appalled, that given the current evidence of harm that coal and oil is causing the GP, that politicians can carry on propagating the Interests of the FF lobby.

          Ok, reasonable hat off, sting the greedy bloodsuckers up

        • Coley

          And is probably doubly incontinent at the thought that, their life of privilege and affluence is in danger of being snatched away.
          Hence the constant drumbeat of anti RE soundbites from the right wing establishment and their media paymasters.

          Believe it or not, I’m no anti capitalist left winger, just somebody that’s appalled, that given the current evidence of harm that coal and oil is causing the GP, that politicians can carry on propagating the Interests of the FF lobby.

          Ok, reasonable hat off, sting the greedy bloodsuckers up

        • wideEyedPupil

          Much more so than car’s I’d argue. Cars are mostly used by us to fit into the extended system of commute and shop way beyond walking distance. Where as energy generated and stored and generated at the point of use is potentially a disruptor (word?) to the system not an enabler of a deeper state.

  • TweedCAN

    I think in the cities you could operate suburb by suburb microgrids. Rooftop solar would provide most of the power, reducing the draw on the centralised grid which in return reduces the storage needed at the household level. Circuits within the house could be prioritised as a form of demand management in cloudy periods. Its surprising how much you don’t need all the time and it is preferable to have the minimum you do need instead of nothing when the power lines go down. Anyway, that’s the way we work it and it is comfortable, 100% reliable and cheaper than wholly off the grid or wholly on the grid.

  • itdoesntaddup

    Imagine you get solar for free. Now show you have a viable (physically and economically) series of storage solutions to work around that.

    • GregS

      Well plenty of folks get water for free when it falls out of the sky, but instead of capturing it they let it drain away, and then pay a water company to provide them with more.

  • Greg Hudson

    ”Tudor says while it will result in a wholesale cost much reduced from today, it must also translate into reduced costs for consumers. The distributed model seems to be the best way to deliver that.”
    This sounds OK, but my question (to the retailers here on the East Coast) is ‘WHY’ charge extra for ‘Green Power’ when it costs the retailer a fraction (20%?) of the cost of buying coal fired power. Green Power should be CHEAPER, not more expensive IMO, and should be the ‘default’, only falling back to dirty power when PV and Wind is not available.