Beyond the grid: New market structures for distributed energy | RenewEconomy

Beyond the grid: New market structures for distributed energy

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How can we transition the electricity industry to the ‘new normal,’ with increasing uptakes of solar PV and energy efficiency? APVA has a plan.

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Although there has been much talk about the impacts of PV and energy efficiency on energy use and income for utilities (the so-called ‘death spiral’), there has been little in the way of what, exactly, to do about it. In other words: how can we change the way the electricity industry operates so it can transition to the ‘new normal’ as PV and energy efficiency uptake continue to increase?

The Australian PV Association (APVA) has recently completed an ARENA-funded a project which is the first to develop an integrated package of measures that aims to address this problem. The responses by utilities and governments to date have essentially attempted to maintain the status quo, however, ‘disruptive technologies’ such as solar PV, energy efficiency, home energy management systems and storage will likely drive the need for more fundamental changes.

The project involved focus groups and surveys of the general public, interviews with the electricity industry, government agencies and regulators, with all findings presented at a public workshop and through a number of reports which are available on the APVA Website: ARENA and the University of Arizona have funded the collaborative research, with reports published by the CSIRO, the University of Arizona and the APVA.

When disruptive technologies such as PV and energy efficiency are introduced into a well-established industry, they don’t simply integrate seamlessly, but exert change in doing so. Whereas the current electricity system is based on a ‘top down’ structure for consumers who just buy electricity, distributed energy is providing customers with a significant number of alternatives that allows them to actively participate in a system growing from the bottom up. To allow these two approaches to integrate requires a regulatory framework based on equal competition between supply-side and demand-side options at all levels (generation, networks and retail), for both network planning and during the day-to-day operations of the electricity market.

Best practice Integrated Resource Planning (IRP) provides a process that helps DE options to be treated equally with network augmentation. It should become an integral component of network planning so that DE options can be used to decrease network expenditure. The proposed Regulatory Investment Test Distribution (RIT-D) is an embryonic form of IRP, with significant scope for improvement. For example, currently the RIT-D does not need to be applied where the project is related only to the refurbishment or replacement of existing assets. There also appears to be no process to encourage the effectiveness of non-network solutions to be tested in advance. The RIT-D process also includes only economic impacts, excluding any potential social and environmental benefits.

The market arrangements required to then drive uptake of distributed energy on a day-to-day basis can be divided into the following three types:

  1. Those related to the operation of the incumbents

The two most critical are decoupling network operators’ revenue from their sales through the use of a revenue cap, which reduces their opposition to distributed energy options; and mechanisms that allow network operators to participate in the distributed energy market because they are often best placed to know what needs to be done to provide network support.

  1. Those related to the design and operation of the distributed energy market itself

For example, consumers should be able to source their electricity from, and sell their electricity to, entities other than their retailer; and solar access rights should be formalised.

  1. Those that then stimulate the broader distributed energy market and enhance the interaction and operation of all participants

For example information and training, minimum energy performance standards, house energy rating schemes, and feed-in tariffs and white certificate schemes.

To date, most effort has been on the third type of market arrangement, and as a result has been insufficient to effectively integrate distributed energy. Once distributed energy has been used to reduce network expenditure, a proportion of network costs could be paid through a fixed daily charge based on a customer’s monthly demand peak. In this way, each customer’s contribution to network costs would be related more directly to their impact, which will be fairer for all. This contrasts with current suggestions to levy extra charges on PV customers, yet allowing others to increase their demand substantially with no additional cost. The fixed and variable tariff components should be designed to ensure that the various distributed energy options are supported through their ability to reduce both energy use and peaks in demand.

A fully competitive distributed energy market will need to develop over time, however, the required institutional and organisational changes need to begin now and will need to accommodate both the incumbents and new entrants, on an ongoing basis. Distributed energy technology is developing very rapidly and electricity utilities are likely to be left with stranded assets if regulatory processes are too slow to adjust.

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  1. taiyoo 7 years ago

    Very interesting. A step on the way to a distributed energy market could be something like the community net metering that is taking off in the US. The potential for that in Australia is huge, but it is being hampered by the existing market structure. Would love to know the incumbent’s attitude to the DEM.

  2. Matthew Wright 7 years ago

    Energy security think-tank Zero Emissions has almost completed a research project to identify the best structure for pricing on the NEM. Our initial results are that $250 per 1 kV (which we call kW to avoid confusing customers). Options could include hard breakers for customers who refuse / do not want to upgrade to a smart meter. Else shaping can occur with warnings sent as Text messages, In home display alarms, phone calls etc.

    Under such a regime initially an average house would probably go for 4kW -5kW of capacity and pay $1000 to $1250 per year for that capacity during network peaks. Some extreme users of the grid who are today taking advantage of their 20kW connection would be up for full cost recovery and paying $4000 or more so they can run their low efficiency large 3 phase air conditioner during peaks.

    For more info

  3. Tim Buckley 7 years ago

    & Muriel

    Excellent idea, trying to create a solution to better facilitate what is going to happen regardless.

    It is inevitable that we will rapidly see the mass introduction of distributed solar with home storage and smart meters, plus increased smart appliances and a greater attention to energy efficiency. I agree with your approach, but think we need to keep in mind the point Giles has been saying for some time – there are an increasing number of stranded fossil fuel assets and vested interest groups that will seek to get even more taxpayer funded bailouts on the way out.

    The sooner the various state governments take the inevitable write-downs on their electricity transmission, distribution and generation assets, the less gold-plated rent these entities will seek from us, the taxpayers. The state governments sought to milk our electricity bills as additional sources of taxes – they need to accept they have been caught fibbing, again, write these assets down and move on; rather than trying to stick us – electricity consumers, taxpayers and voters, with ever larger fixed connection charges for assets that are increasingly obsolete. Telstra’s monopoly has been broken – Origin, AGL and TRUenergy’s oligopoly is next. Origin was paid to take NSW fossil fuel generation capacity off the government – I trust our beloved politicians wont use more of our taxes to pay Origin a second time to close these stranded obsolete assets down in a few years time.

    Tim Buckley – Arkx Investment Management

    • ID635 2 years ago

      Didnt Arkx Investment Management go bust?

      Seems your opinion that “rapidly see the mass introduction of distributed solar” was a bit off..

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