Duck season: How solar is impacting value of Australian networks

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Morgan Stanley says rooftop solar is impacting value of network operators, as falling demand reduced the need to spend on poles and wire upgrades.

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See also: Moody’s: Why battery storage is bad news for coal and gas generators

The duck season is officially open. No, it’s not the traditional shooting season where hunters armed with shotguns try to impose zero altitude on thousands of ducks. This one is about the impact of rooftop solar on network demand, and the mess it is making with traditional business models.

For anyone not familiar with the “solar duck”, here is one below. It measures the impact of rooftop solar on network demand. It show’s the duck’s back and abdomen sinking as more rooftop solar is installed. initially, the neck straightens, but it too, along with the head, droops as solar reduces peak demand as well as midday demand.

morgan stanley ducks sapn

This is it, in all its glory. It shows the changing demand patterns in South Australia, and on the monopoly network provider, SA Power Networks, caused by the rise in rooftop solar, which now has a penetration rate of 18.3 per cent in the state.

The point being made by Morgan Stanley analysts, who produced this graph, is that increasing solar is changing patterns of usage, and could mean that networks will be able to spend less on upgrades and extensions.

That could deliver savings, but because the regulators are now likely to keep a close eye on developments, it could also mean a reduction in the allowable regulated capital expenditure.

That, in turn, means less revenues for companies used to making profits simply by building bigger networks. The more they are allowed to spend, the more they are allowed to charge consumers.

This is one of the reasons why Morgan Stanley has slapped an “underweight” rating on SAPN owners, Spark Infrastructure, but has not done so on the other main listed utility in Australia, SPN.

SPN operates the network in eastern Victoria, and it has a much lower penetration of rooftop solar than SAPN, or even the Powercor network in western Victoria that is also owned by Spark.

This is Morgan Stanley’s comparative duck curves for the two networks.

morgan stanley duck SA vs vic

“Ausnet’s electricity distribution network in eastern Victoria (ElecD) shows some demand reduction over time due to efficiency and lower industrial activity,” the analysts note. “But it has  limited hollowing out (the duck has a small ‘abdomen’) as solar penetration in the network is low at ~10.1% ( with 3.4kW average system size) and production is lower due to the Victorian sun.

“In contrast, SA Power Networks (SAPN) shows material annual declines in demand, and a pronounced hollowing out.

“South Australia has ~18.3% solar penetration, an above-average installation size of ~4.3kW and more productive sun. The pattern for Powercor, the western Victorian network, approaches that of SAPN. Powercor has ~10.2% solar penetration with an average installation size of 3.8kW.

“Based on our demand pattern analysis, we think the networks in our coverage most vulnerable to the ‘duck lowering its head’ are Powercor and SAPN. Therefore, all other things being equal, we think Powercor and SAPN will see lower RAB growth relative to peers, particularly Ausnet.”

Morgan Stanley’s conclusions are interesting, particularly in combination with the new report by Moody’s Investor Services analysis of the US network market, and the potential impact of battery storage.

Moody’s argued that widespread battery storage would help flatten the curve, lifting the duck’s belly and lowering its head. That will soften the blow for networks, Moody’s argues, but will have a bigger impact on wholesale generators, particularly the merchant plants that profited from large spikes in peak demand.

Those spikes are already being reduced in number and duration, and battery storage could eliminate many of them altogether.

Although Morgan Stanley does not look at the issue of battery storage in its analysis, it supports the idea that networks should be able to cope over the long term.

“To be clear, while we consider scenarios where energy networks become stranded and/or subject to ‘death spiral’ impacts (fixed costs socialised over a declining user base), these are not our base case,” the Morgan Stanley analysts write.Put simply, we do not anticipate that large portions of the community will cut themselves off from the grid.

“Having said that, we think that network capital intensity could decline in future years, particularly if technology enables load flattening, obviating the need for network augmentation for peak demand.”

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15 Comments
  1. juxx0r 4 years ago

    The californian duck is always shown with a higher tail and higher head as the years progress, yet we are not seeing that here, we are seeing a decline in consumption across the board. Can the californian duck change it’s feathers too?

    • Mike Dill 4 years ago

      The California duck has been decapitated by wind, which blows in the evening there. The graphs have not been updated in two or three years due to the ‘neck and head’ being cut off.

      • juxx0r 4 years ago

        If that wind is not behind the meter, then it should still show on the duck curve.
        You might be right that it lessens the impact on generation though.
        And you’re definitely right that it hasn’t been updated for a couple of years, perhaps the scare tactics didn’t match the reality.

        • Mike Dill 4 years ago

          The California duck from 2013 was only looking at baseload generation. In only two years the concepts have changed, as both wind and solar were not considered ‘firm’ enough to count in that original chart. Obviously the 2GW of utility scale (in front of the meter) solar California has added must be accounted for, as well as the 2GW of wind farms. In California the wind blows in the afternoon and evening, and has reduced the concern that existed around the evening ramp.

          • juxx0r 4 years ago

            Thanks Mike.

    • Sim 4 years ago

      A large uptake in Bifacial panels would help to increase early morning and late afternoon solar power. I am sure that this can offset some of the peaks.

  2. Jonathan Prendergast 4 years ago

    It’s important to keep an eye on the y-axis. The SA figures are incredible if true, dropping down to under 150,000 in the middle of the day and up to 500,000 in the evening. And that is just the average.

    This certainly points to the importance of efficient lighting and heating.

  3. ben 4 years ago

    I’m in Adelaide and have 4.5 kW of solar power so see this effect directly. What I wonder about though when I read this article is how we are going to replace the 18 GW of black and brown coal generated power for NSW, Vic and Qld from the chart in the top right.

    • Zvyozdochka 4 years ago

      We can already turn off 9GW of it now according to AEMO.

      • ben 4 years ago

        Why? Is it not being used? Why is it being generated then?

        • Giles 4 years ago

          It’s not being generated. It’s unused, excess capacity.

          • ben 4 years ago

            Doesn’t that chart show the actual generated electricity, not capacity? Sorry I’m genuinely asking.

          • Giles 4 years ago

            you were asking about the 9GW of excess capacity. Australia has around 23GW of base load capacity. AEMO says 9GW could be closed right now.

        • Zvyozdochka 4 years ago

          What the figure implies, and what I thought your question was getting at (sceptically? perhaps) was that wind/solar are already displacing fossil generation.

          • ben 4 years ago

            Yes they are but not fast enough for my liking. I’m not sceptical at all. 🙂

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