How Australian utilities will cope with solar and storage

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It’s the big question facing energy utilities around the world: How quickly will rooftop solar and battery storage change the nature of the energy market, and how long can those that currently dominate the market hold on to the their incumbent business models?

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It’s the big question facing energy utilities around the world: How quickly will rooftop solar and battery storage change the nature of the energy market, and how long can those who currently dominate the market hold on to the their incumbent business models?

This week, AGL Energy gave some insight into how it was preparing for solar and storage. It appointed a new CEO, Andrew Veser, who comes with experience in new technology and business models, and the utility’s head of strategy outlined a push into the distributed energy market.

AGL, Marc England says, plans to launch its own power purchase agreement model early next year that will allow solar and storage to be installed in homes at zero upfront cost. It says it aims to have one million “distributed” customers by 2020.

AGL Energy got some headlines in the Murdoch press on how they will be “leading the charge” into solar and storage in Australia. That’s a headline with strong marketing value for a company more associated, in recent times, for leading the charge into coal-fired power, but it is overstating the extent of its ambition.

A closer look at England’s presentation says that although AGL Energy recognises the influence of solar and storage on the energy market, it remains highly conservative in its predictions.

And, critics would venture, AGL seems intent on defining the industry in its current image. It suggests, for instance, that it wants to limit the size of solar systems on rooftops; it seems dismissive of the threats of mass-defection and the emergence of new business models; and – contrary to the predictions of many market analysts – it doesn’t expect battery storage to compete for nearly another decade.

It is a fine balance for companies like AGL. In the face of digital photography, Kodak judged it could hold on to its incumbent model for longer, and not be disrupted by new competitors. It was wrong. Will the utilities be wrong too?

AGL, with its newly purchased coal plants, and Origin Energy, with its huge investment in LNG, will likely make heaps of money in coming years, particularly in the favourable policy environment of the Abbott government. But will that make them blind to how quickly things will turn in the direction of distributed generation?

So here’s a closer look at what England told a utilities conference in Melbourne on Tuesday. It gives an interesting insight.

First of all, on that so-called Kodak moment:

England suggests there won’t be one.

“The disruption we are going to experience in the Energy Utility industry is more akin to that seen in computing, than others such as cameras or telecoms,” he said. “Energy in the home and business will become “ubiquitous”, where consumers have multiple sources to get their energy from rather than a complete swap-out of technologies.”

So, England sees it as an “evolution” rather than a “revolution”, taking comfort in studies from the CSIRO and Accenture that up to two-thirds of customers will remain entirely dependent on the grid, even by 2030. This goes against some predictions, such as from the WA market operator, the IMO, that 90 per cent of businesses and three quarters of residential customers could have solar within a decade.

On the power of energy incumbents:

AGL says it is encouraged by research, also by Accenture, that over 80 per cent of Australians would choose their incumbent energy supplier as their first choice for distributed energy over any other providers. And it is disparaging about its presumed competitors.

“We believe that as the market matures, customers will increasingly reject fly-by-night outfits for this highly technical and personal kit going into and onto their homes – they will want someone they can trust, who will do the job right and who will be with them for the long term,“ England says.

At the same time, he notes, retailers have copped the flak from consumers for the continual rise in energy prices over the last few years, a situation compounded by lack of choice and “misunderstanding which breeds distrust”

“Retailers have, to some extent, held back from pushing their advantages in the solar market. For AGL, this is now changing.”

“Our strong customer relationships, industry knowledge, brand and financial fire power mean we have the ability transform to meet customers’ changing needs. We deliver so much without fanfare, and it is time for us to stand up and be counted in this space. “

On the installation of solar PV:

This is interesting. AGL Energy seems to be concerned that too much solar is going on to individual rooftops, suggesting that 5kW systems are being installed when only 3kW systems might be necessary. (It is true that the average size of systems is now growing to more than 4kW, suggesting more solar panels are being added, despite minimal feed-in tariffs)

“We know more than most about consumer consumption patterns and therefore what system suits them most, so we won’t sell someone a 5kW system if a 3kW system is the right solution for them and the one they actually need. We’ll be honest with them on the amount they will self- consume and what their payback period will be. “AGL-home-promo-solar_v3

So, hopefully, will its competitors.

It’s true that before anyone should be putting solar on their roofs, they should be looking at their own consumption, how to be more energy efficient, and then design the system accordingly, with an eye to how the tariff is structured and whether some of the output can be stored in a box (battery storage) for later use. But that is not what AGL appears to be saying – as the largest generator of coal, they have and interest in minimising the fall in demand from the grid which is pushing down wholesale prices (hence their opposition to the RET being maintained at its current target, and their call for end to SRES scheme).

On the costs of battery storage:

England says there will be not be a cost benefit advantage for battery storage in the National Electricity market until after 2024, a decade hence. England says commentators often “underestimate the balance of system costs and therefore over-estimate how fast total system installation costs will fall.”

He concedes that it will gradually become a viable mass market product. “However in the next 5 years our forecasts see it remaining a niche product for early adopters.“

That is contrary to the thinking of some network operators, such as Ergon, which is already installing batteries at grid level to avoid the cost of upgrades to poles and wires, and looking to do the same at customer sites. Ergon is even thinking of buying back high feed-in tariffs to change consumer behaviour and make storage more attractive. Others, such as UBS, and some installers, say rooftop solar with storage is already commercially viable.

As for the market being limited to early adopters, perhaps AGL Energy should check their NSW customer base, and see what people are thinking when their gross feed-in tariffs run out in 2016.

The future?

As described by England:

“We see a future where AGL provides consumers with a home energy ecosystem, providing them with the smarts and insight, to have choice, flexibility and control, at as low a cost as possible – and if they still want grid power they will get it at competitive prices, too.

“We are investing in growing our solar business, as well as developing new capabilities that will help us to compete in the future. AGL plans to deliver more “in home” energy services, including those enabled by digital meters and energy storage. This will form part of AGL’s transition from a vertically integrated energy supplier to an integrated energy solutions provider.”

It aims to have 700,000 digital meters in South Australia, NSW and Queensland that will help incorporate solar, efficiency and storage.

“Over the medium-term our goal is clear – Establish a distributed energy presence in 1 million homes and businesses by 2020. We won’t do this alone and recognise we will need strong strategic partnerships, some local and some global, where strategic visions are aligned to our own.

“AGL will however be at the forefront of this transition, as consumers move from passive and unconscious consumption to a more empowered and energy literate consumption.”

Our conclusion:

It’s going to be interesting to see how this pans out. It’s great to see the “gentailers” reacting, and so they should, because they are the most exposed. Their generation assets are feeling the pinch from falling demand, and anyone can come and compete with packaging bills and customer service – if they can get their minds around the billing systems.

That’s where the role of the networks comes in: if they can get direct access to customers, then they will have greater capacity to make battery storage interesting and viable. As the head of one network operator said earlier this year, he would rather be in the network business than the current gentailer model. Which – along with tariff design – is why regulators will have such a say in the outcome of this particular energy (r)evolution.

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36 Comments
  1. john 5 years ago

    Reading the article lets look at the situation.
    Charge a high cost of supply on a KvA basis and very low charge for actual use this effectively kills any utilisation of solar.
    What do I mean?
    A small business say a supermarket could put on its roof about 100kw or solar delivering about 400 KwH of power some of which they could store.
    But charging them at the KvA of 50 KvA which is the peak demand and then for use 8c a kwh as use they effectively kill it.
    Why you ask?
    Because they reduce their lets say use of 400 kwh of power per day and it costs $32 @ 8c a KwH.
    To invest $160k for solar to save $32 a day is not a business plan.
    Meanwhile they charge for the KvA at $540 a single 1KvA brilliant, deceptive but this is a business plan that works sorry folks but that is how it is.

    • Matthew Wright 5 years ago

      Yes so that supermarket then buys just 1-5kVA – a much smaller pipe and adds storage. Then provisions capacity locally. If the network operator tries to rip them off for the 1-5kVA maybe the supermarket quits the grid entirely!!

      • john 5 years ago

        The whole idea of using KvA as charge is to make RE totally unviable and he would need 50 KvA gen to be sure his supply does not shut down now that is too expensive.
        It is being charged in a devious way to overcome the real use of power replacement.

        • Matthew Wright 5 years ago

          No no, the price of chemical batteries will drop and the generator will not be required. This solution is coming at a cost that the supermarket owner can afford!!

          • john 5 years ago

            I am so hearing you Mathew just go look at http://www.energystoragenews.org/
            The amount of money going into storage and the cost reductions in the very near future I am talking 5 years in fact even this year there is now available in Australia storage solutions that were in the $23k region below $12k for 8KwH systems.
            Flow battery storage is really getting a huge amount of investment mind I do notice one start-up which has over $1B and I am thinking they are so over capitalised.

          • Paul Lemming 5 years ago

            KVA or Power factor actually worsens with a solar install , but also Install Power factor correction, and it’s a win win situation,
            For Commercial Solar, when installing Solar and a Good Power correction Solution , the ROI , is really impressive.
            All the utilities are doing are alienating their own customers who will defect in the short or long term.
            The whole Grid distribution/transmission business model is broken , it’s just the time frame that’s in dispute. Lots of utilties and retailers with their heads in the sand, and just trying to tread water for the moment , with whatever tactics they can come up with. In the mean time the consumer is losing.

          • john 5 years ago

            The use of KvA as the charge for power for large users of power was put in place to try to prevent them using RE.
            It is simplistic and not good business practise but hey lets get real who can argue with it?
            I know it is absolutely a deceptive and not honest way of running your business but if your allowed to go for it

          • Paul Lemming 5 years ago

            John your above example , is close but not quite accurate.

            While the Contract price might look like $0.08c per Kwh , it will be much higher is reality , when you add on the the commercial charges designed to confuse and get the customer focusing on the fact they think their buying power at 6 or 8c per kw.

            But do the math on your own example – $32 per day x 365 = $11680 per year

            $160,000 for the system divided by $11680 = 13.7 years.
            What do you think the cost of power will be in 14 yrs , this bad example of a business model would pay back in 7 or 8 years, plus batteries will be more viable by then, so you still think the utilities are sitting pretty .
            your kidding yourself , Solar and Batteries will kill the grid and the utilities.
            Google , Apple , Ikea and the like , I don’t think they got their sums wrong when installing solar.

          • john 5 years ago

            Paul
            I do not dispute what your saying.
            However unless the large user of the power goes completely off grid then they will be paying on peak usage on a KvA that is why the distributors are using this method of charge to large customers.
            I totally agree with you it is viable now and only going to get more so as we move on.
            For instance if I was building a home now I would install storage to save my production of power this is not in dispute.

    • juxx0r 5 years ago

      I know of a supermarket in WA with about 20kW of solar on the roof and 20kWh of storage inside. This is currently installed. What will they do next?

      • john 5 years ago

        Obviously they are not charges as the eastern states are juxxOr

        • juxx0r 5 years ago

          I don’t know what tariffs they pay. I do know that they had a large bill and now it’s smaller.

  2. Leigh Ryan 5 years ago

    It’s not about greenhouse or GW anymore AGL, it’s about lies and deceptions and more importantly economics, privatization is exactly what the consumers said it would be “A burden on the pockets of the consumer”, the politicians and the utilities both at the very least attempted to deceive us, the result is we will defect from the grid, we are already defecting from the grid, we are taking control of our own energy needs at a significantly lower cost than you could possibly envisage or want, so go ahead invest billions in renewable’s, your business plan is hopeless and there is no way you can adjust to our business plan without writing off significant infrastructure and divesting yourself of corrupt politicians.

    • john 5 years ago

      Leigh that is why they are going to offer Storage and PV for that matter; so they do not loose their finger in the energy pie.
      Victor Energy in NZ have gone down this path a while ago, and there is very good reason for them doing it, as they are a distributor it is in their best interest to be able to control the storage and use it to reduce their cost when peak hits.
      If you look at the ever narrowing price between RRP and peak RRP you will realise why it is in the best interest of companies to get into storage pronto.

  3. Ken Dyer 5 years ago

    My little 3KW system pumped out 21 KW yesterday, 15 of which I sold back to the grid at 8c per KW, and could not get into credit. The electricity company then sells me back my power for 27 cents a KW at night. Not very fair, is it?

    I was advised over 12 months ago by the company that installed my solar panels that a suitable battery storage would cost $10000, but they advised me to hang off until 2015-16 because the costs would reduce significantly. This advice has been born out by various articles that state that battery costs are rapidly approaching less than $200 per Kw/Hr. A recent enquiry of another supplier revealed that I could install a battery system for as little as $3000, although it was not based on Lithium-ion components.

    Investing in a stationary battery system is the equivalent of buying a fridge. Both items have a big upfront cost, but once bought, mean you never again have to lose money on a daily basis by trading something that you will require only a few hours later. I will be seriously shopping after the next federal election.

    • john 5 years ago

      If your 3KW system pumped out 21 kw then it is doing extremely well I must say that is 7wkh per kw are you sure about those figures?

      The usual output for a 3KW system would be more in the range of 12-15 at best unless your using a movable array.

      Beside that I can bet you if you read your agreement with your energy supplier it will exempt any payment if you store.

      If it does this is deceptive practise so lets hope that is not the case.

      Go to

      http://www.energystoragenews.org/

      As you can see a heap of developments happening in this area and yes distributed RE and storage is just going to happen.

      • Ken Dyer 5 years ago

        Hi John, It did 21.2KW yesterday, but according to the documentation supplied, the system should average 14.6KW for November with an annual average output of 11.2KW for my area (Mornington Peninsula – South of Melbourne) facing due north. The system consists of 12*250 watt Benq solar panels running through an Enasolar 3KW inverter.

        Checking my system on wi-fi as at 5:40PM EDST today 19/11/14 on this beautiful sunny day, I find that it has generated 18.5KW and is currently collecting at just over 1.8KWH. The system has also been audited by the Clean Energy Regulator and I also monitor its output on my smart meter, as well as the United Energy website as well as the online retailer.

        And as far as my energy retailer is concerned if they try to exempt payment, I will just tell them to go to buggery and move to a new retailer prepared to pay me for what’s left after I store.

        • john 5 years ago

          Ok you have 12*250 panels and it is doing extremely well I must say that can be put down to low temperature as they do rather better when the panels are cool.
          I think you will find those panels will put out 265 if conditions are good ie low temperature
          I am hearing you about deciding about going off line however that is not easy to do as you do realise not all the time you will be making that much power in winter it will degrade.
          No offence meant ok

          • Ken Dyer 5 years ago

            Hey John no offence taken. It is good to share a conversation about this. I guess that is the long term aim to go off grid, but given that on average 10% of all available rooftops have solar installed in Australia, and it is unlikely that all will install battery storage, the model of distributed power storage taking over from centralised power generation and distribution is still some way off.

            Having said that, overall my system under the present setup covers all my electrical usage, but I find I am still paying about $400 a year for the gold plated poles and wires. I can buy a small generator for about that much and it will pay for itself during the few times when the sun don’t shine. I will just have to put up with the noise and pollution. (grin)

            I see the disruptive technology of solar and battery in a similar way the disruptive technology of the personal computer took over from the mainframe systems in the 1970’s.

            Just as Moore’s law predicted that computer power doubles every two years, so Swanson’s Law predicts that solar power costs halve every three years. So far, this law that was developed for the aeronautics industry in the 1930’s has also been found to be relevant to and accurate for the photovoltaic industry since the mid 90’s.

            I think things will move a hell of a lot faster than the power companies would like. Solar power is a powerful tool for consumers, and the power companies, particularly those with obsolete coal power generation technology, do not like it one bit. Dare I say it……”Power to the people!”.

          • mike flanagan 5 years ago

            May I say I think you on the right path Ken. I survive on a much more modest system (Progressively expanding) than you without the grid (terminates many K away) and my only advice is to consider the muffler set up on the proposed generator purchase. I have found the Chinese made mufflers are far quieter ([email protected]) than those on the more reliable motors from Japan with Aussie made generators, unfortunately.

          • Pedro 5 years ago

            I have 5 more years of a generous FIT and as soon as that ends I will convert my system to an AC coupled grid interactive system and see how it goes. If I find that I rarely need the grid as a back up I will disconnect. Luckily for me I am in the industry and have installed quite a few off grid systems in the past, so I can do it cheap. Very much like the idea of using an EV for storage.

        • john 5 years ago

          yes correct I forgot about average against output on a given day and yes your system will do those figures.
          Would like to know you yearly output and average per day

      • Pedro 5 years ago

        20kWh at this time of year on a clear sunny day for a 3kW system is about right. I have already hit 37kWh with my 5.5kW system on a good day.

    • john 5 years ago

      Ken

      If you not locked into a contract I would say do not go Storage how if your interested to

      http://www.energystoragenews.org/

      There is a heap of movement happening some companies have raised a lot of money I honestly feel as with PV they should build an income stream before raising the amount they have however like all new businesses a few will survive but the bottom fact is price is going down and this is going to be an industry that has a future

  4. Ian 5 years ago

    Gentailers like AGL have huge lobbying power in Canberra which they could use for the common good rather than their current selfish ‘ business as usual’ agenda. Storage is the next big thing, electric vehicles could double as storage and transportation to improve the cost/benefit of batteries. There is one little problem with using electric cars to store solar power and that is the family vehicle is usually sitting at the place of employment during daylight hours. This is where AGL can be useful. Their poles and wires can provide a virtual transmission service from solar panel to battery vehicle. AGL could of course charge a reasonable transmission fee. They could use their lobbying power to get government to subsidise electric vehicles. The government could earn election brownie points, petroleum import dollars could be saved, a huge load could be created to take up the solar power generation and reduce the competition on utility coal power assets, solar installers could continue to provide employment as the demand for photovoltaics increases. Tony Abbott happy, Marc England happy, Giles and Co happy, environment happy, BP not happy.

    • Ian 5 years ago

      Gentailers like AGL need to transition themselves from being providers of electric power to managers of power. These are the current needs of the consumer: Reliability of supply, storage, transmission of power from point of generation to point of usage, trading and sharing of power from small scale generator- (solar farmer, House holder, community solar allottments ) to consumer – (electric vehicles, businesses, apartment dwellers). AGL could provide a frame work for an internet of electricity. A shopping world with a 10 to 100MW of roof top solar could pay AGL to transmit its excess power to a factory across town with whom it had a private supply agreement. A renter in an inner city apartment could pay AGL a transmission fee to move the power he generates in a rural solar alottment to his unit in town. Instead of buying heavy, space occupying and toxic batteries for a home a family could hire storage space in an AGL virtual battery or pay a transmission fee to send the power to a third party’s electricity storage facility. This is the interconnected future that the electricity companies should be pursuing. One person could have solar panels, another wind turbines a third pumped storage , another ceramic fuel cells yet another tidal power generators, flow batteries, organic waste incinerators, on the other side of the equation: an equally diverse set of loads. AGL could market a virtual battery. Here is how this would work. A person would buy electricity storage from the grid say 10KWH for a fair and competitive monthly fee and then upload and down load to his or her hearts content. The ‘ battery’ could be an electronically controlled black box in the consumers switch board. ‘Storage ‘ would be power from the grid originating from all its myriad sources. There may be a real battery in the mix but not necessarily one. A smart company, possibly like AGL, could position themselves in the middle to manage the network.

      • W.M.A 5 years ago

        yes exciting stuff! this is the third industrial revolution model – distributed ‘peer to peer’ energy with the ‘big guys’ managing the complexities of grid wide distribution.

  5. disqus_3PLIicDhUu 5 years ago

    20kWh of LiFePo4 cost about $10k, to buy, an existing solar system, on an SMA inverter can be coupled to an SMA inverter charger, to give you off grid
    Otherwise xantrex inverter chargers, are good units for new solar off grid installs.

    • Ian 5 years ago

      Here is a calculation you may not like:
      20KWH at 25% utilisation factor for long life = 5KWHper day storage
      $10000 @ 6% interest( assuming unlimited life of battery) = $50 per month
      Therefore $10 per month = 1KWH per day storage = 30KWH per month storage
      Therefore the cost of storage is $10/30 = 33cper KWH
      Therefore grid prices cheaper than storage.
      Oh damn, back to the drawing board!

      • disqus_3PLIicDhUu 5 years ago

        Hate to break it to you but this is lithium chemistry, not old clunker, lead chemistry.
        Lead chemistry life, is severely affected by DOD, whereas lithium, not so much, you could still get a level of a minimum, 85% Capacity, at a DOD of 50%, after 4000 Cycles, so your sum is reduced by 1/2 to 33/2= 16.5 cents per kWh, making it viable to most.
        Another correction too, it’s kWh, not KWH.

    • john 5 years ago

      I would be looking at flow batteries and their cost would be less than LiFePo4 at about $1000 KwH and falling rapidly as they scale up and 15 year refit for a lot less than capital cost.

      • disqus_3PLIicDhUu 5 years ago

        They’re not really available for domestic use, as of yet.
        But I’m with you on that John.
        Storing cell electrolytes in tanks is a good idea, I think it will be what will running our electric cars in 10 years time, due to the convenience of being able to replenish the relatively high amount of energy needed, in a few minutes, needed to go 500km+

        • john 5 years ago

          I rang a flow battery company only a week ago and 8KwH flow are available.

          • disqus_3PLIicDhUu 5 years ago

            Geez I must be off my game, your right.
            1000 cycles to 100% DOD and then I guess you just maintain and replenish too, because it’s a flow cell.
            That’s a real game changer, this could spell the end for gentailer monopolies, as with a good solar system matching a domestic energy requirements, the grid is just an add on, excellent, unless the screwed up Fed’s get in the way.

  6. Rob G 5 years ago

    I hear echoes of a false security. If AGL believe that they will hold the lion’s share of customers because of their size, then they are dreaming. NRMA and Ammi thought they had car insurance stitched up, but then the ‘fly by nighters’ disrupted them taking a very large chunk of their customer base with them. Today, they are losing the price war, we see customer loyalty comes to nothing when a better price is on the table. Utilities have many more ways they can be disrupted and that should have them nervous. With Kodak, it was just one wrong business idea that wrecked them, that was the assumption people would still print photos…they hurried the first digital camera into the market and the rest was history.
    Utilities will stumble on many more game changers and really it only takes one very good one to finish them. For my money, the small but numerous renewable smart grids owned by new fresh thinking utilities will do it.

  7. WA David 5 years ago

    The IMO reference you have made, which I assume is refering to http://www.imowa.com.au/docs/default-source/Reserve-Capacity/soo/sedo-external-presentation-2-july-2014.pdf?sfvrsn=0 p.71 also states that “This level of uptake implies installation by approximately 30 per cent of all customers in the SWIS over the forecast period.” which when combined with the IMO presentation on the SEDO (http://www.imowa.com.au/docs/default-source/Reserve-Capacity/soo/sedo-external-presentation-2-july-2014.pdf?sfvrsn=0, slide 16) suggests that:
    1. The “high customer response scenario” (an upper case) results in 30-35% of customers having PV by 2024.
    2. The saturation levels that are input into the model and to which you refer (90% commercial and 75% residential) are not reached by 2024, but sometime in the future (beyond the timeframe of the forecast).
    These two points suggest that there is not much difference between the two forecasts referred to in the article and that we should expect PV takeup to be at about 30-35% of customers some time in the period of 2024 to 2030.

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