Networks ‘push back’ on more small-scale solar. But why?

Last week the Clean Energy Regulator announced that Australia had reached a new milestone in installed small-scale renewable energy capacity – 6,000 MW – most of it small-scale PV. But can the rapid rate of small-scale solar energy adoption continue?

My paper, also released last week (and available for free until October 20), suggests that electricity network operators may be ‘pushing back’ on additional grid-connected solar capacity – even if there aren’t explicit policies or regulations in place allowing them to do so.

During my conversations with government representatives, industry members and the community I heard that network operators in Western Australia ‘push back’ on increasing penetration by increasing the cost and complexity of network connection applications, delaying the approval of network applications, making important information difficult to access and transferring network costs (for example network upgrades and generation management systems) to solar installers.

Interviews, including with representatives from the network operators, indicated that there are four motivating factors that lead network operators to ‘push back’ on additional solar capacity.

Firstly, there are genuine technological issues, in particular increasing grid instability, associated with an increased penetration of intermittent distributed generation, like solar.

Technological solutions to most of these issues are available, however these may be costly to administer and may not provide any direct benefit to the network operator.

While there is now plenty of evidence showing solar reduces peak load, and therefore creates benefits for network operators, benefits of additional solar (without the help of batteries etc) may be minimal once the network peak shifts to outside daylight hours.

Secondly, solar adoption has the potential to reduce income for network operators.  Where the majority of cost recovery for network assets is sourced from the consumption tariff, and use of solar reduces consumption, there is going to be a reduction in revenue for network operators.

Thirdly, network operators are influenced by regulatory and political environments that may prevent strategic planning to deal with increased solar adoption.

This is particularly the case for government-owned utilities.

Government-owned utilities are exposed to: a lack of clear long-term objectives given political cycles; governments interfering with the way utilities operate; and state-based budgetary limitations.

However, privately owned utilities may also find it difficult to undertake long-term planning considering they are (seemingly constantly) awaiting updated rules, regulations and reviews from governments and energy agencies.

The effect of policy inconsistency on generation investment decision-making is often discussed, but this inconsistency impacts the long-term investment decisions and planning of all companies associated with the electricity sector.

Changes to regulations that could help network operators adjust to increasing solar may also be required.  For example, in WA batteries might be considered generation assets and therefore Western Power, the network operator, is prevented from owning them.

This is in spite of the fact that batteries might serve an important function in stabilising the network.  Regulators may also be required to change/increase tariffs to help network operators recover the costs of upgrading the network to connect increasing solar capacity.

Finally, the culture within network operators influences the potential for ‘push back’.  In particular, a risk averse engineering culture was seen as a major barrier to allowing an increased penetration of solar.

While the culture of an organisation shouldn’t stand in the way of increasing renewable energy penetration the reluctance of the network operators to move into technically risky areas is understandable – if anything goes wrong they will receive the brunt of the criticism.

So, which of these four motivating factors is strongest in promoting ‘push back’ from network operators?  It is likely to vary between network operators depending on the potential benefits of solar, the potential costs of solar, levels of political influence and ownership models.

It might be easier for Western Australia’s network operators to self-start a shift towards increased acceptance of distributed generation.  After all, the shareholders of WA’s network operators are the voting WA public, so there is a political incentive for WA’s utilities to function in the best interests of the voting public, including potential solar installers.

This might not be the case for privately-owned network operators in the eastern states, where minimising costs and maximising network benefits from finding the ‘sweet spot’ in solar installations – with maximum reduction in peak use but minimum network investment costs required – will be of the greatest benefit to shareholders.

Given network operators generally have monopoly control over assets, there is little incentive for investment or innovation in this area, with RenewEconomy recently publishing that network operators are charging more for providing less.

In this case, government, regulators or market operators might be required to amend rules – or explicitly direct network operators – to reduce the likelihood of network ‘push back’.

There are also practical steps that can be – and are being – made to help network operators accept more solar onto their networks.

For instance, although politically unfavourable, the latest increases in electricity tariffs in Western Australia saw a doubling of the daily supply charge instead of the consumption charge, which will reduce the loss of revenue to network operators associated with solar.

Western Power is pushing for rules to be changed to allow it to use batteries, initially to reduce costs by providing stand-alone systems but with the potential for use as network protection down the track.

And Horizon Power is doing ground-breaking trials to understand how cloud cover interacts with solar output and network reliability.

It’s worth noting, however, that my interviews suggested that one of the four motivating factors is particularly crucial to network operators changing their approach to small-scale solar: culture.

I was told that individuals within network operators interested in promoting renewable energy were able to influence wider organisational culture and were vital in getting projects off the ground.

And, where a network operator is government-owned, this shift in culture can start at the top – with a Minister committed to direct utilities to solve the issues associated with renewable energy.