AGL's novel proposal to cut network costs: pay by the metre | RenewEconomy

AGL’s novel proposal to cut network costs: pay by the metre

Print Friendly, PDF & Email

AGL Energy suggests reform of network costs to help utilities compete with new technologies like solar and storage: pay by the metre of poles and wires used. Unless costs can be restructured, retailers say, the utilities face losing customers altogether.

Print Friendly, PDF & Email

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.

AGL’s Edward Lynch-Bell

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.”

Print Friendly, PDF & Email

  1. Barri Mundee 4 years ago

    An intruding and creative proposal. I wonder how the per metre concept would work in practice, ie how do you measure the distances the power is carried?

    • Jason 4 years ago

      Put name tags on each electron. 🙂

      Actually, I’d be very interested to see what unfolds. If my smart battery charger can bid on multiple sources offered by my retailer (e.g. Nearby peaker, far-away wind, neighbour’s surplus from solar), that would change things from the tragedy-of-the-commons approach we have now.

      I’d be especially interested in how fine-grained their approach is. By house, by postcode, or by substation hops?

    • Chris Baker 4 years ago

      It should be pretty easy… my smart phone can already tell me the route between two points for driving, or walking, or by public transport. Its pretty sophisticated and accurate with its route selection. Someone is probably already working on an app that will tell me the electron distance between two places. All we need then is a retailer that can behave a bit like Uber and match up buyers and sellers for electron transport instead of people transport. I suppose the Australian electricity market operator will have to be dragged screaming to facilitate these changes.

  2. Chris Fraser 4 years ago

    The retailer is actually an obstacle. I can’t choose to get energy from a nearby generator, that’s purchased for me by the retailer. And because of the flat rate for access, they don’t care from how far it comes. That’s anti-competition and inefficient usage of the grid.

    • Jon 4 years ago

      I think the point of the article is that “they don’t care how far it comes” because their costs from the network are the same. It is the network tariff structure that prevents any innovation in the retailing!

  3. nakedChimp 4 years ago

    interesting approach – I like it.

  4. MrMauricio 4 years ago

    At last the penny is starting to drop!!!

  5. Geoff Bragg - SEIA 4 years ago

    Funnily enough I have been modeling local energy flows for a solar powered embedded network just today…I remember writing about here:

  6. Ian 4 years ago

    First things first! Technology is available to generate electricity locally, and to a certain extent store it locally. Rural and edge of grid communities can be adequately supplied with electricity from local sources and the long supply powerlines can be reduced in size or removed altogether. ie, edge of grid communities can have islanded minigrids. The supply and maintenance of long powerlines is a real problem, the actual efficiencies of getting electricity from one end to the other is very good. Popping an electron into the grid and retrieving it next door or over a 1000km away does not have much difference in energy cost. It’s the cost of the actual hardware that’s the problem.

    The network tariffs have been specifically designed to discourage solar as a punitive exercise, no more and no less, ” per metre ” charges is just silly obfustication of the real problem: resistance of the encumbants to distributed solar generation.

  7. Ian 4 years ago

    If we honestly want a renewables only electricity supply system,what should it look like ? Forget the current large scale centralised fossil fuel system and picture something just built. How can We build something that is light on the environment and on the climate and is economical. What Lego bits do we already have and what are their relative strengths and weaknesses?

    Here are the pieces: Taking a stab at costs: advantage disadvantage

    Solar PV. D. Limited daylight
    Distributed. 5c/KWH. A At site of consumption
    Large scale. 5 to 10c/KWH D Network costs

    Wind ( generally large scale). 5 to 10c/KWH. A Generates at times different to daylight hours
    D. Network distribution costs

    Solar thermal plus/minus salt storage ? 5 to 20c/KWH. A With storage can be dispatchable
    Smaller scale may be useful for
    remote minigrid applications
    Large scale:
    D network costs

    Geothermal. ? 15c/KWH. A BaseLOAD, but still potentially
    A Very suitable for remote minigrids
    D Availability

    Primary ( once through). 5c/KWH existing installations.

    A Very dispatchable
    A Not dependent on diurnal weather changes
    D Network costs

    Pumped storage. 10c/KWH plus cost of energy input ( storage device) has
    network costs on top of energy input costs

    Sea based: wave,tide. ? Costs. D Network costs
    ? Positive role in remote islands

    Biomass 5 to 10c/KWH. A Multi sizes, multi functions
    D Opportunity cost
    for other uses ( feed stock, land use, habitat preservation )

    Storage batteries distributed, centralised, cell based or flow based
    20 to 40c/KWH plus cost of energy input
    Distributed no network cost
    Central. Has network cost

    Poles and wires. Can be cheap, is subject to high markups and

    Mobile battery vehicles. Joker in the pack, can be multipurposed for personal
    transport, standby storage, and import of electricity in a
    otherwise urban off-grid system. Could have leverage
    power to reduced grid monopolisation of electricity

    Putting this all together then : this is a possible future renewables grid.

    A base of distributed solar supported by daily cycling of distributed batteries supplemented and complimented by the wider grid or minigrid.

    Numerous islanded rural minigrids with various combinations of locally available energy sources with battery storage, more use and development of small scale solar thermal with salt storage.

    Near rural and suburban communities with minigrid hubs and storage but with trickle feed thin network connections.

    Using the urban grid as a market place between distributed solar, storage and other generators and distributed small scale and large scale consumers, allowing private solar generation and storage to be sited remote from point of private consumption.

    Areas with primary hydro : grid maximises the dispatchability of the hydro resource and compliments with maximum distributed solar and large scale hydro. Industries that are energy intensive are encouraged such as aluminium smelting. Grid connections with other areas are maximised so that the hydro resource is fully utilised for its ability to provide electricity when other resources cannot.

    Looking at the costs of various resources, centralised storage does not look like a viable option. That includes large battery storage and pumped hydro ( unfortunately) these two storage methods are subject to the cost of the primary energy source chargingup these devices and the cost of distribution. Hard to see how these can compete with widely distributed wind farms, primary hydro and solar. And also how centralised storage can compete with distributed battery storage which has no distribution costs.

    The grid would no longer compete with distributed solar for many households, the cost battle is already lost. What the grid would still compete with is distributed battery storage. It may further lose ground if diurnal battery storage and solar becomes cheaper than grid power overnight, all that would remain for grid supply to solar and battery storage households would be standby electricity supply. The standby function of the grid would be the last tenuous apron string left and electric cars will snap that final link. Where there is unlimited access to the grid with opportunities to generate power remotely and trade electricity freely there is incentive for solar and storage households to remain connected to the grid.

    Electrification of transportation and electricity intensive industry would be great soak-always for electricity generation, the grid’s continued existence would probably depend on this.

    Pumped storage hydro might find a life in a situation where there is a large industrial load connected very cheaply to a large intermittant resource, with minimum distribution soft costs. For example wind farms, pumped hydro, aluminium smelting.

    • Mike Dill 4 years ago

      Since individual loads as well as individual power sources such as wind turbines and PV arrays are extremely variable, there is a need for a grid or a massive amount of storage to balance the supply and demand. We will need some dispatchable resources for those times when wind and solar are unavailable.
      Hydro, either natural or pumped, can be a great dispatchable power source. While I expect that battery storage will become a cost effective alternative in a few years, getting to a carbon free world will take all the tools that we currently have.

  8. Brunel 4 years ago

    Could 2 houses share a grid connection?

    If we get the bulk of our electrons from rooftop PV – each house would no longer need a massive connection to the grid.

    • Mike Dill 4 years ago

      Your suggestion has merit. This is the first step in a connected micro-grid. One meter and connection charge for everyone connected to the grid meter.
      This can work for apartment blocks where the metering is done by the landlord. It also works for other types of communities that can share without being energy hogs, or additional sub-meters would be required.

      • Brunel 4 years ago

        Will work in units – the landlords will finally have an incentive to install rooftop PV.

  9. JeffJL 4 years ago

    Electricity is an essential service.

    Any plan to vary the cost over the grid such as is suggested by the AGL person is just another capitalist proposal to increase their profits. Those who are most disadvantaged, those living on the edge, will be further disadvantaged.

    He may have dreadlocks, he may put on the airs of a left leaning person but Mr Lynch-Bell, is to me, somebody who is aiming to profit off the miseries of the unfortunate, uneducated and poor.

  10. Leigh 4 years ago

    Do we only pay for how far we drive or register to drive on all the roads?

    • wholisticguy 4 years ago

      Yes, via the fuel tax. If you don’t drive as much, you don’t pay as much.
      Toll roads would be another similar device, if you use a premium section of the road network, you pay extra. The jump from a local 240V grid to the 415V grid, to the 11kV grid could be seen as on ramps to a more expensive service with additional “tolls”.

      • Leigh 4 years ago

        I get what you’re saying except that the 240v & 415v parts of the grid are the same.. Long term maybe this type of transaction is the way to go, but in the short term I’d like to see AGL prove that this makes the grid cheaper for ALL people, and does not just benefit the rich ones (& AGL) that can afford to buy solar & batteries from AGL…

Comments are closed.

Get up to 3 quotes from pre-vetted solar (and battery) installers.