Australia’s network operators have joined forces with two leading consumer groups to argue they should be allowed to disconnect remote and regional communities from the main grid, and instead provide them with renewables based micro-grids and stand alone power systems.
The move could save billions of dollars in costs to all energy consumers, and remove one of the biggest cross subsidies that supports the country’s ageing and fossil fuel focused centralised grids.
It will also likely result in consumers getting cleaner, safer and more reliable electricity, and over the longer term herald a complete rethink about the way energy is provided across the country.
Remote and regional communities are currently supported by billions of dollars in cross subsidies – paid for by other consumers – to deliver poles, wires and other infrastructure over thousands of kilometres.
Western Power estimates it can save nearly $400 million just by taking 2,700 consumers off the grid, and operators with bigger networks in other states have pointed to even bigger savings.
“This is as close to a ‘no brainer’ as we can get,” says Andrew Dillon, the interim CEO of Energy Networks Australia, which has teamed up with the Alternative Energy Association and the Public Interest Advocacy Centre to try to encourage regulators to come to the party.
The issue is the legacy of the massive “rural electrification” program of more than half a century ago, when state and federal governments were determined that all consumers should have access to electricity and be connected to the grid.
It was an admirable goal, and deserving of a modern economy, but the cost of stringing poles and wires across thousands of kilometres was, and remains, enormous.
The cross-subsides in Queensland and Western Australia remain more than $1 billion a year, while under what is known as “postage stamp” pricing, the service inflates the cost of networks for all consumers in other states like South Australia and NSW, likely to similar levels.
New technologies such as solar and battery storage now make it possible to build other options – such as stand alone power systems for individuals, or mini-grids for communities and towns – which are not just significantly cheaper, but also safer, cleaner and more reliable.
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The three groups have come out in support of a rule change that is being pursued by Western Power, which operates the main network in the south-west corner of Western Australia, and find a way through the regulatory maze.
They argue that the networks are best placed to effect this transition, because there is no incentive for the consumer concerned: their costs are already heavily subsidised and they would be unlikely to be able to install off grid systems and keep their costs comparable to inner city customers.
The networks, however, argue that they can do this at a much cheaper cost than maintaining, upgrading, or even replacing the elongated networks, and so therefore can reduce the size of the subsidy paid for by all other users.
The problem is that, due to arcane rules, they are not able to do this. Networks are usually not allowed to provide generation and “retail” services to consumers – just the poles and wires – and the Australian Energy Market Commission has been reluctant to change this rule.
The ENA, the ATA and PIAF have joined forces to support Western Power in what will likely be a ground-breaking application to change this rule.
Western Power says it could save $388 million over the next 10 years if it could provide about 2,700 customers with solar, battery storage and back-up diesel generators rather than having to replacing ageing network assets. That is around $140,000 per customer.
It has already done trials with some rural customers in the Ravensthorpe, Lake King, Jerramungup, Lake Grace and Kondinin localities in the south of the state and it says the benefits have been outstanding.
Solar PV arrays were deliberately oversized to give customers greater comfort – and lithium batteries were sized to supply customers for two days if the sun wasn’t shining.
The systems were also robust. In January 2017, a major storm event occurred in the region with storms and flooding washing away major road arteries, isolating communities and causing power outages of up to 24 hours. The SPS sites were unaffected.
Indeed, Western Power argues that the old way of thinking about grids should be discarded in favour of a more “modular approach” – which means some consumers and customers off the grid altogether, and some serviced by a micro-grid with a “thin wire” to the main network.
See our story: WA flags the end of the centralised network.
Other networks – such as Ergon Energy in Queensland (way back in 2014) and South Australia Power Networks (also in 2014) – have also argued that it would be cheaper to take some communities off the grid, or serve them with a micro-grid, but have found little incentive to do so from the regulatory structure.
PIAC’s Craig Memery says it has been clear for nearly five years that stand alone power systems (SAPS) with storage offered a cheaper alternative, even before the latest big fall in solar and storage costs.
The push for such technology gained momentum after the royal commission into the Victoria bush fires identified the dangers of above ground power lines, and Memery says it is clear that SAPS and micro-grids are cheaper than burying the lines.
“We have found a bit of common ground (with the networks), Memery says. “Most networks now acknowledged that it is cheaper and more reliable” to have a stand alone power system.
The AEMC says it is supportive of the idea of off-grid supplies, but its rulings mean it will be all but impossible for the networks to play a role. The networks and the consumer groups say that doesn’t make sense.
They question the AEMC’s apparent inconsistency in its latest ruling, where it claims in one part that “it may be cheaper to provide off-grid supply than to maintain and replace long power lines linking remote customers to the national grid” and could provide other benefits, but in another says consumers risk facing “higher prices or receiving poorer service”.
But it is also part of a broader battle. The AEMC ruling is based on the idea that networks should not be involved in providing anything other than network services to consumers – and so not solar, storage and generators.
This is a battle over territory being fought out with the generators and retailers, particularly in the so-called “ring fencing” rules that makes it hard for the networks to compete in that arena.
That, say industry experts, is a legacy of Australia’s second best option of vertical integration. It would have been smarter to integrate retailers and network operators, because it would be easier to find value in reducing costs.
But there is little incentive for so-called “gen-tailers” to be efficient. That said, the networks have also been rightfully accused of gold plating their investments, in what is seen as yet another regulatory failure in the industry.
The idea of encouraging fringe-of-grid customers to be “independent” is also supported by the Clean Energy Council, which in a separate call to politicians ahead of the Queensland state election, says hundred of millions of dollars could be saved, and reliability improved.
“The decline in the cost of battery storage and solar brings cheaper, safer, more efficient and reliable clean energy opportunities for customers living at the edge of the electricity grid,” CEO Kane Thornton said in a statement.
“The rules of the National Electricity Market prevent Queensland networks from making the best use of new technologies like solar, energy storage and microgrids.”
Dillon says the ENA, along with PIAC and the ATA, is disappointed at the AEMC’s ruling, and will take the issue to COAG energy ministers to find a way through.
“You would struggle to find an issue that as concept has as much widespread agreement,” the ENA’s Dillon says. “We have to find a way to get the regulatory system to work this out.”
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