Ergon to set California-style energy storage target for 2020

Queensland electricity utility Ergon Energy is planning to set energy storage capacity targets out to 2020 as it seeks to further move its business model away from a sole reliance on poles and wires.

Ergon CEO Ian McLeod says the target will be similar in concept to California, where the state has mandated a 1.3 GW target for energy storage by 2020. The Ergon target would not be nearly as big. McLeod would not reveal the amount being considered, pending board approval, although he agreed that it would be at least “tens of megawatts”.

In an interview with RenewEconomy, McLeod (pictured) said the energy storage target would be part of a number of new key performance indicators that would reflect the new industry dynamics in the market, and the emergence of competitive technologies such as solar and storage that challenged the traditional means of delivery.

McLeod last year – in the unlikely forum of the government-owned utility’s annual report – channeled Bob Dylan when he noted that the “times they are a changing” for the utilities industry, particularly networks. He noted that solar and storage would likely offer cheaper options for some of its consumers than remaining connected to the grid.

He told Renewconomy this week that this remains the case and it “makes sense” for some customers to produce the energy where they use it.  Right now, the Ergon area has 312MW of solar PV capacity spread across the rooftops of 92,346 customers (nearly 15 per cent of its customers) – with 1,074 new customers signing up in March, despite the downgrading of the export tariffs.

The challenge for Ergon, McLeod says, is to provide a service that combined localized generation, energy storage, demand management and centralized generation. “We see our new business model as connecting those things.”

In a sense, Ergon is following the path set (belatedly) by European energy giants RWE and E.ON and others, and the likes of NRG in the US. What makes Ergon unique is that it operates what is probably the world’s most extended network, with some 700,000 customers on more than 160,000kms of poles and wires spread across 97 per cent of the state’s area.

That’s an average of less than five customers for every kilometre of line, making the cost of delivery even more challenging, and open to competition from new technologies, particularly localized generation and storage.

What’s more, the state’s customer service obligation that requires all consumers pay the same amount for electricity imposes a cost (subsidy) from the government of $600 million a year. That equates to an average of nearly $900 per customer (household), although the cost to service some customers such as those on Torres Strait Islands – is around $14,000 a year.

McLeod says it was possible that the cost of CSO would be channeled through the network business – rather than the retailer – to open up retail competition, and to provide greater incentives for the network operator.

But for McLeod to implement his vision of the utility becoming a connector and enabler for a host of different technologies and delivery systems, more regulatory reform or tariffs and incentives is needed.

He wants to see more opportunities for “trading demand”, and time of use tariffs, so that this will provide incentives for greater efficiency. For instance, in new sub-divisions, he would like to see the opportunities for home energy systems, including storage, that would reduce the connection size needed for the grid.

“If I got rapid growth in areas such as north of Cairns, my preferred options would be to put in smart meters and demand management, but the regulations don’t allow that,” he says.

This would allow hybrid solutions that could include a mixture of PV and battery storage and network solutions. “There are some regulatory barriers to get through,” he says.

“There will be a network for some time to come – the task is to make it efficient as possible.” McLeod argues that Ergon has already been relatively efficient because revenue caps – rather than earnings on asset size – have existed for some time. This means Ergon had an incentive cut its planned expenditure by 1.5 billion in the last regulatory period.

McLeod says he has a preference for more battery storage – rather than an excess of solar PV – to be installed in homes, while commercial businesses offer an opportunity for bigger solar arrays because they can consume that output.

McLeod says energy storage would be an obvious options for the augmentation of “single line” wires that were built to provide lighting and refrigeration to remote areas of the state.

But that will also apply to other situations. For instance, the developers of new privately owned Toowomba Airport have asked Ergon if they can use their own internal network, to allow them to generate and store electricity on site, and use the main grid only as a back-up, and feeding it at one connection point.

On Magnetic Island, where a successful solar trial deferred a grid upgrade for several years, Ergon is considering installing a “mobile storage” unit that would allow the grid upgrade (a new link to the mainland) to be deferred for even longer.

McLeod says that storage and “islanding grids” made sense in regional areas where “thin lines” were not economic to upgrade and strengthen, and alternative technologies were now competitive.

As for consumers making a mass exodus from the grid to pursue energy independence, he is not so sure that will happen on a large scale, even if there is an economic incentive.

“Some customer segments will want to disconnect, and there are others that will want to generate and share with others. Most people want to be passive on energy use – they don’t want to be worried about batteries, or the fact that the sun hasn’t shone.

“I was up at Daintree (north of Cairns) recently and they want to connect the grid. That‘s a community arguing for right to connect, because of the cost to connect.

The key for the network operators was to ensure that the price to connect is not prohibitive. He believes that most houses would need a large enough battery to provide for 20kWh of usage. That’s about the size of the battery powering the Tesla electric vehicles, but that is not likely to get to a point where it is economic for households until around 2022. (Tesla has plans to build the world’s first gigawatt factory to bring down costs).

“The grid is the thing that connects everyone. We want the grid to be agnostic (about the technologies), and this is going to come down to customer preference and choice. Some customer segments will want to disconnect, and there are others that will want to generate and share with others. New demand loads such as electric vehicles will come in.”