Today, three rule change requests to better integrate distributed energy resources (DER) in the electricity grid — from TEC and ACOSS, SA Power Networks and St Vincent de Paul — were published by the AEMC, with a six-month consultation period to begin shortly.
Before diving in, let’s give a bit of context.
A decade ago, the grand total of rooftop PV in Australia was not much more than nothing. Now it’s over 9GW.
That’s impressive, but it’s just the tip of the proverbial iceberg. According to the latest CSIRO modelling, we could be headed for up to nearly 60GW by 2050.
UNSW has estimated the total capacity across the country at nearly 200GW.
To put that into perspective, total current capacity in the NEM is around 50GW, and the average maximum demand is around 35 GW.
So we are headed for a future in which solar, home batteries, home batteries, electric vehicles, demand response and other forms of DER will inevitably play a much greater part in our energy system than they already do, supplying perhaps half of all energy needs.
DER helps accelerate the decarbonisation of the grid, improve grid reliability and make energy more affordable for everyone.
Up until now, a grid that was designed for one way energy flows has coped pretty well with increasing reverse flows.
But cracks are beginning to emerge, especially around overvoltage, thermal constraints and the lack of network visibility of low-voltage networks.
Networks are starting to go cap-in-hand to the regulator to fund remedial actions and to plan for an even higher distributed energy future.
But the existing rules don’t create any obligations or incentives for them to accommodate higher solar and battery exports. In fact, they contain incentives not to invest to make the best use of existing hosting capacity or to expand it. As a result, the current rules are starting to act as a roadblock.
Not only are inverters tripping more often due to overvoltage, but export limits are becoming increasingly common, including zero exports (anecdotally, especially in Victoria).
With the average household only consuming about 30 per cent of the solar energy it generates, if you can’t export the rest it is just wasted. That’s not helping the decarbonisation of the system.
There are some technical solutions available, including the rollout of smart inverters that are capable of being dynamically limited.
Also helpful are innovative tariffs like solar sponge tariffs which encourage large loads like pool pumps and hot water systems to be turned on in the middle of the day.
But these changes can only go so far. It is estimated that by 2025, one in four substations will be subject to reverse flows and require more substantial investment to overcome.
We also need more substantial reforms to facilitate innovative ways of trading and sharing energy like community batteries, solar gardens and peer to peer trading.
For instance, networks need to be able to offer local use of system (LUOS) tariffs that would reflect the state of the system being used utilised.
At the moment, as soon as energy passes through a meter it is subject to full network charges (except in a couple of cases where exemptions have been negotiated).
The national electricity rules, which were originally written over two decades ago, are 1640 pages long. Only a few of these pages relate to distributed energy.
Of these few, most are devoted to connection agreements. Then there is a clause protecting solar owners from being subjected to discriminatory network tariffs, and another one preventing networks for charging for exports to the grid. That’s about it.
And by the way, they don’t guarantee a right to export to the grid equivalent to the right to connect to import from it. At the moment, from a regulatory standpoint, networks are doing us a favour by letting us export anything at all.
The three rule change requests submitted to the AEMC have all come out of an extensive stakeholder consultation process undertaken over the past year under the auspices of ARENA’s Distributed energy integration program (DEIP).
They are all focused on reforms that will better enable a higher distributed energy future system, but they go about it in slightly different ways.
SAPN and Vinnies are best placed to explain their own proposals, so I will focus on the TEC/ACOSS one.
Basically it consists of a number of incremental reforms that create obligations and incentives for networks to optimise existing, or invest in additional, DER hosting capacity; improve access to export for the grid for DER owners; and create an opportunity for owners to pay to further increase their capacity when the costs to increase their export outweigh the benefits for all consumers.
Fundamental to our reform is the idea of net market benefit.
Where distributed energy exports create value that is greater than the costs of integrating these exports, then the costs can be recovered from all consumers.
This principle is already part of the regulatory investment tests, but we want it to apply to all network investment.
There will no doubt be a lot of haggling in the next six months over the methodology for calculating what is in and out of scope for the net market benefit.
Decarbonisation benefits are excluded from the national electricity objective, but we will do our best to get around this outdated limitation.
In the longer term, we have flagged our in-principle support for a move to fully symmetrical or two-way import-export pricing to drive the kind of trading innovations I spoke about earlier.
Essentially this means that prosumers should be rewarded for any benefits they create not only for themselves but also for networks and the wider system and other users.
But conversely, where they cause costs that are greater than the benefits, these additional costs should be recovered from prosumers themselves, rather than from other consumers who may not benefit.
In most cases, up till now, the benefits have outweighed the costs, but this may not always be the case.
This quid pro quo principle would involve getting rid of the clause in the rules which prevents networks from charging for exports under any circumstances.
Some solar advocates were not ready to support this reform at this point, so we decided to leave it for a future process. And we wanted to wait to see the outcomes of a number of other reform processes including the Energy Security Board’s Post 2025 and Two-sided market reviews.
However, it is a part of the other two rule change requests, so the AEMC may decide to go there during the consultation process. At the very least it would need to be phased in.
But we would not be likely to support a change that would force prosumers to pay to export to the grid. It should be a choice they would be free to make if they thought it would be worth their while.
We had some simple modelling done which showed that an increase in export limits of 2kW might be worth over $200 a year, while an increase of 5kW might be worth nearly $400, even if prosumers had to pay an export tariff for a few hundred hours a year (probably in the middle of the day in spring and autumn when solar generation is high and demand is relatively low).
So one of the longer-term implications of this reform would be to recognise that solar energy is worth more to the system at some times than others.
This would be likely to tip the scales in favour of home batteries, since peak demand is mostly in the late afternoons and evenings.
All in all, this reform heralds a shift to a more dynamic and localised future energy system.
It will also be more complex, but the complexity can be managed through aggregation and automation. In the long run, it should create better equity and affordability as well as environmental outcomes for everyone.
Mark Byrne is energy market advocate at the Total Environment Centre.
Listen to an interview with Mark and Kellie Caught from ACOSS on the latest Energy Insiders podcast, here. You can read Giles Parkinson’s discussion of whether households should pay for the right to export more solar to the grid, here. And read about the South Australia Power Network’s submission on the proposed rule changes, here.