Network lobby proposes special tariff to keep households on grid

Australia’s main network lobby is proposing a new tariff for stand-alone power systems that it says will encourage more than one million households with large amounts of solar and battery storage to stay connected to the main networks, rather than lead an exodus.

A new report commissioned by the Energy Networks Association predicts that by 2050 some 10 per cent of consumers – or 1.25 million households – will leave the grid because solar and battery storage will offer a cheaper solution.

It believes that by offering a “stand alone power system” discount, it can provide an incentive for most of these to stay, thereby avoiding added costs to other consumers, who would be required by networks to pick up the revenue lost from households leaving the grid.

The way the SAPS discount might work is by requiring those with significant solar and battery storage arrays to disconnect from the grid at times of “critical peaks” – effectively acting as a load shedding feature on the grid and trying to avoid those pricing surges that are passed on to all consumers.

There is no doubt that the threat of mass defections is an issue that troubles network owners, because if people do leave the grid, they will no longer be contributing to the networks’ regulated asset base, thereby forcing those networks to recoup their revenue from remaining customers.

That, in turn, leads to more defections, more price rises, and chaos and the so-called death spiral ensues.

Of course, many think that the value of the regulated asset base has been massively inflated, possibly by a factor of two or more, through “gold plating”. But the network lobby has rejected any calls for write downs, and indeed has even canvassed penalties to consumers who do leave the grid.

This new tariff proposal indicates a slight evolution from that thinking, as it appears to want to find a means to tap into the solar and storage resource of those households, and presumably use those assets and reward them for their ability to help meet peak demand, defer grid spending and provide grid security.

However, the forecast of a 10 per cent defection rate by 2050 contrasts sharply with recent work by the CSIRO through its Future Grid scenarios, which suggested that one-third of consumers could leave the grid by 2040 unless the network operators changed their business models.

This is the modelling done by Energeia. It shows that under Scenario 1, with no change to tariffs, grid defections begin in the early 2020s, reach around 1 per cent by 2026 and 10 per cent by 2050. But by offering a variety of tariff proposals, including a 5 per cent discount on “residual” network costs and giving centralised control to their storage, it estimates that the number of customers choosing to go off-grid falls to almost zero.

It wants rule changes that will allow the networks to offer such solutions, rather than being forced to build new poles and wires – the underlying philosophy of politicians and regulators since the dream of “rural electrification” came into vogue in the 1950s and 1960s.

John Bradley, the CEO of the ENA, says providing solar and battery storage based stand alone power systems to these 27,000 new rural farm customers could save $700 million rather than building more poles and wires.

“By 2050 these customers could be supplied more cheaply and reliably with stand alone systems using 2GW of solar PV or more than twice Victoria’s solar PV capacity today and 7.5GWh of battery storage,” Bradley said in a statement.

Grid companies could save customers over $1.7 billion in costs and provide more reliable service to rural customers if they can make smarter use of off-grid technology

However, the modelling from consulting firm Energeia presents a surprisingly bleak view of the economics of micro-grids and stand alone power systems for customers in remote areas – suggesting only that farms more than 3km from a grid connection, and bigger farms more than 8km from a connection, would find staying off grid economically attractive.

It suggested that even small mines around 500km away from the nearest connection point would look to linking with the grid rather than go for a microgrid.

And it doesn’t seem to think that remote townships will even find it cost effective to cut their links to the grid by 2050, under any scenario.

The Energeia study on the viability of micro-grids seems to contrast with the views of some individual network operators, such as Ergon in Queensland and Western Power in Western Australia, who admit that many customers, and some communities, in remote and not so remote locations would be a lot cheaper to serve if they did not have to rely on poles and wires.

Regional consumers in both those states enjoy a significant cross-subsidy from people in the city. In both states, that subsidy ranges from $300 million to $600 million a year. In WA it amounts to one-third the cost of electricity.