Leading energy retailer AGL Energy has come up with an innovative idea that it suggests could slash the network component costs of consumer energy bills, and help utilities compete with new technologies such as solar and storage: pay by the metre of poles and wires used.
It’s not a formal idea – but it is being canvassed, because energy utilities are trying to imagine how the grid of the future may look like, based on the assumption that it will become “decentralised” and focus on local generation and storage, rather than the traditional centralised, hub and spoke model.
One of the biggest barriers in Australia – thanks to enormous distances and massive grid over investment – is the cost of delivery, with network costs making up around half of all electricity bills to households and small business, and accounting for more than half of recent price surges.
The problem for the likes of AGL, trying to navigate their way through this energy revolution, is that retailers are required to include these delivery costs in their bills, and their concern is that unless the nature of the network costs are redesigned, they may struggle to retain consumers who are being offered cheaper solar and battery storage.
Edward Lynch-Bell, who heads AGL’s energy storage operations, says it is an issue for those customers – be they in apartment blocks or local communities – who want to share energy, but are hit by prohibitive network bills.
“It’s a frustration for many customers, that you can’t pay less to send energy around the corner,” Lynch-Bell said during a session at the Energy Storage conference in Sydney. “It is prohibitive to innovation to Australia.”
Lynch-Bell says utilities need to start thinking differently about how they charge for the grid – “maybe this is something that you for by the metre, or by the mile. That will enable these local transactions – and maybe where the networks find their value into the future.”
Lynch-Bell’s comments reflect a growing view in the industry – particularly as new technologies including solar, storage and smart control systems allow for local micro-grids and peer-to-peer trading – where building owners sell the excess output of a solar system to another customer, rather than back to the grid.
Currently, network charges are pretty much the same whether a consumer is sourcing power from a generator more than 1,000kms away, or next door. By and large, there is a massive cross-subsidy paid by those close to generation to those further away, something networks recognise and why are are starting to look at local micro-grids as an alternative.
The issue is highlighted by the low feed-in tariffs being offered to solar households, which give no allowance for avoided grid costs, or the benefits to the grid from local generation. Some have suggested that neighbours could simply “throw a line over the fence” to avoid that penalty.
Local energy networks, or shared solar, is an emerging option, but the grid costs are an issue. Proponents wonder why consumers should be saddled with massive network charges when the distance from the point of generation (rooftop solar on one house) to the point of consumption (the neighbouring house) may only be 10 or 20 metres.
One of the most egregious examples of this is seen in Queensland, where household rooftop PV is being used as a “solar sponge”, with the networks turning on controlled loads during the middle of the day to absorb excess electric power.
This is a good idea, and a good use of solar, but for some homes the solar power travels one metre down a cable before being directed to the hot water system, yet the utilities are clipping up to 10c/kWh as the electrons pass through the meter (the difference between the feed-in tariff and the cost per kWh grid power).
How the networks work around this is yet to be seen. Many are keen to get in “behind the meter”, and offer solar and storage to consumers, because they figure that this can actually help them defray network upgrades.
The retailers are seeking to keep them at bay through the “ring fencing” rules currently being discussed by regulators. It is a clash, the conference noted, between the “two 800 pound gorillas” of the energy industry, the retailers and the network operators. The retailers, meanwhile, want to see networks also opened up for competition.
One thing the networks are not keen on contemplating is writing down the value of their assets, which has been called for on the basis that too much has been invested in poles and wires and those ongoing regulated revenues are making those assets uncompetitive with new technologies.
Powercor’s head of strategy, energy solutions, Charles Rattray said that fixed charges (around $1 a day) were not too much to pay for the grid connection. Some say it is, though, noting that in some states the unavoidable network charge is approaching $500 a year before any energy is consumed.
The alternative, says Rattray, is not to use the grid at all, and that, he said, could cost $70,000 installing enough batteries and solar to see through the Victorian climate. “Write down of assets? That is not something that we are going to think about.”
Some might dispute his maths, considering technology costs and the efficiencies, energy savings and smart software that is available now.
But this is a big issue for networks, whose costs are not limited to fixed charges, they also draw a percentage of the volume charges (they differ state to state), but generally amount to around one half of all bills.
The retailers are not so happy about that, particularly as new technologies emerge, such as solar and storage, that give consumers options either to reduce their grid use significantly, or quit the grid altogether.
“The customer has to come out winning because they now have alternatives. If we get this wrong and make grid power too expensive, people have choices and can go elsewhere,” Lynch-Bell said.
“We all have competitive pressures from an off-grid world. We have to be aligned to that reality. We can deliver better on-grid solutions than off-grid, but not if (the costs of the network) make our product uncompetitive.”
James Myatt, the head of new retailer Mojo Power, agrees that reform of network tariffs is essential to cope with the emergence of new technologies and new business models and energy system design.
“The whole tariff structure is set up for a centralised approach to deliver energy from remote generators to households,” Myatt told RenewEconomy. “That is not going to be the future, particularly as storage emerges, and businesses look to aggregate systems.
“We need to see network as a trading or as a connectivity network, linking households for the transportation of energy rather then a delivery point from a remote source.
“A lot of reform has to happen, and a lot of rule changes on the way the tariffs are structured. You will need a model that will allow networks to make money, but there shouldn’t be a need for another dollar of augmentation to be put into low voltage networks.”