Horizon Power ponders end of centralised generation

In regional and remote WA, utility Horizon Power is increasingly turning to renewable energy plus storage as the cheapest form of secure electricity supply.

Proponents of renewable energy have advocated for some time that distributed generation, in particular solar PV and small wind, will be disruptive to the traditional utility model.

WA utility Horizon Power, which supplies the cities and towns outside of the South West Interconnected System (SWIS), is currently in the process of restructuring its operations to reduce the subsidy it is paid by the state government and is turning to distributed generation and storage as one of the key ways in doing so.

At the 8th Power and Gas conference this week in Perth, Horizon Power Managing Director Frank Tudor said that the utility is currently contemplating whether its business model as a utility supply towns and cities from centralised generation assets will be the one to take it forward in the future.

“Our traditional energy business may be very different and very small (in the future),” said Tudor, echoing comments from the heads of Ergon Energy, which have a similar regional and remote market in Queensland.

Last year, they predicted that within 10 years customers may be better off with solar and storage than being connected to the grid.

Horizon’s Tudor said that the arrival of grid parity for solar PV was generally considered to apply in Australia at around the 25c/kWh point.

By contrast, the current price of PV is well below some of the costs of generation Horizon can achieve at some remote sites or towns across the 2.3 square million kilometres Horizon services.

“Our cost of generation and distribution at some sites is around $2 or $3/kWh,” said Tudor. In light of this and even with battery prices remaining relatively high, PV plus storage is more than cost competitive.

Horizon began the review process of its operations, to bring down its reliance on subsidies by an aimed $100 per year through to 2018, in September 2013.

“Once you start the process of thinking about change, you owe it to customers and business to do it quickly,” said Tudor.As a sign of this shift in focus and thinking towards the role of renewables and storage on the Horizon grid, last month the utility called for expressions of interest to supply six towns in the mid-west of WA with 2 MW PV installations, coupled with 1400kWh of storage.

The tender closed yesterday. The installations are slated for the towns of Cue, Meekatharra, Wiluna, Mt Magnet, Yalgoo and Sandstone and deliver is scheduled for within two years.

Horizon Power has been implementing measures for some years to encourage distributed generation on its grids. In 2012, it introduced buyback prices which reflected the cost of generation.

These prices range from 10c/kWh in areas where it is cheap for the utility to supply electricity, such as Karratha in the North West and Esperance in the Great Southern up to 50c/kWh in places like Wiluna and Meekatharra. It is no surprise that the locations with high buyback prices align closely with those where Horizon is seeking tenders for the 2 MW arrays coupled with 1400kWh storage.

Due to the success of the price signal these tariffs send and distributed generation’s increasing cost competitiveness, on certain grids Horizon Power has reached what it believes are the technical limits on how much distributed generation can be added. Horizon refers to this as “hosting capacity”.

As of February of this year, Horizon Power will not allow grid tied renewable energy to be added without some kind of “grid smoothing” technology, either feed-in-restricting power electronics or batteries.

At four sites, Horizon indicates that no hosting capacity remains for managed (with grid smoothing) or non-managed capacity can be added – essentially preventing any new grid connected installations.

These sites include Denham, Exmouth, Marble Bar and Nullagine. In these towns, Horizon has essentially put the brakes on any further renewable energy development – despite the underlying economics of solar PV.

Resultant from the costs added to an installation by the technical requirements for grid smoothing, Horizon has stopped the market for new installations dead, according to some PV developers working throughout the state.

The developers told RenewEconomy that while they don’t believe Horizon has done this maliciously, the relatively blunt instruments used to manage renewable energy penetration have prevented them from doing business on many of Horizon’s grids.

RenewEconomy has contacted Horizon for comment regarding the tender, however it says it is unable to comment at this stage.