Solar industry says networks not adapting quick enough

Solar industry says networks can see change coming – in the form of more onsite solar generation, battery storage, EVs and smart technology – but are not adapting quickly enough. They still want to lock in old business models, and load costs on to consumers.

It’s the big question in the energy industry. Energy utilities can see the new technologies – distributed solar production, battery storage and electric vehicles, and know that change is upon them. But can they adapt quickly enough? Do they want too?

The Australian Photovoltaic Institute says the answer to those questions, on current evidence, is no. The utilities are still in love with their poles and wires, and want the consumers to pay for them, even if they are not really needed.

In submissions to the Australian Energy Regulator, the APVI applauds network operators such as Energex, Ergon Energy and SA Power Networks, for acknowledging that consumers are choosing to manage their own supply and use new technologies – including mobile phones and energy management systems – and for looking at how these trends should be absorbed into their business plan.

But it also warns that their efforts on this front are “very limited” and too slow. They are “unlikely to keep up with the pace of change over the next five years.”

The reasons, says the APVI, are simple. There is not enough market incentive to drag the networks away from their traditional reliance on a regulated asset base, where the utilities get regulatory approval for spending money on their poles and wires, and then lock in those costs to the consumers.

That has brought the utilities – both private and state owned – billions of dollars in revenue. But it has also put them – and consumers – in a Catch 22 situation, some say a “death spiral”: Network costs now account for half the average consumer bill, and it is this huge cost of delivery that is making new technologies, and the consumer revolution, even more attractive.

“This approach locks Australia into old technology and old business models which will keep electricity prices high, erode the competitiveness of existing businesses and limit the opportunities for development of new technologies and new businesses,” the APVI’s Renate Egan writes.

And, the APVI notes, it will leaves customers with a legacy of sunk costs which they will have to pay for, whether or not they use them or want them.

That makes the current regulatory process even more critical. Decisions made by the regulator now will lock in spending for the next five years, a period when battery storage technology and electric vehicles, not to mention all the “smart” apps – both on the phone and in home appliances and in energy management systems – make rapid progress and cost reductions.

The APVI says that significant reductions in electricity use and demand peaks, changes to customer preferences and the availability of these new technologies should provide lower cost, lower risk and more reliable solutions to long grids.

Instead, the networks are still planning to spend billions more strengthening and increasing the cost of these grids.

SA Power Networks, for instance, having underspent its 2010-15 capex allocation, now proposes to increase its expenditure in the 2015-20 period by 50 per cent.

Given its relatively old asset base and the face that 70 per cent of its grid services 30 per cent of its customer base, and presumably an even lower percentage of its load, the APVI suggests there is an excellent opportunity to look at alternatives. These include stand-alone power systems, mini and micro-grids, grid storage systems, demand management (DSM) and energy efficiency (EE) drives as options to rebuilding or strengthening.

SA Power Networks has indicated it is prepared to look at micro-grids. But the APVI says it is not ambitious enough. It notes that energy efficiency is not even mentioned.

It poses similar questions of Ergon and Energex.

The APVI argues that given the consumer technologies – which will deliver what some people describe as the “democratisation of energy” – the networks can no longer be viewed as a ‘natural monopoly’ and should be open to third party competition.

“The next 5 years will be crucial, given the age of Australia’s grids and the rapid technology and climate changes underway,” it says.

“(The networks) face direct competition from distributed generation and distributed storage. Trying to make consumers bear the cost of any efficiency transition will simply make the networks less competitive.”

It is critical of numerous aspects of the submissions made by the networks to the AER. The most interesting of these are:

The networks can’t be trusted on forecasts, so why lock in 5 years of spending based on dodgy numbers?

The APVI provided this graph to show how wrong the networks got their predictions last time round, and there is no telling they will be right this time.

“Energex’s inability to forecast accurately extends to their projections for demand, energy, customers and required capital. Table 3.2 (below) of the Energex proposal demonstrates poor forecasting year after year,” it says.

Given this, it asks what gives the AER any confidence that their forecasts for the next determination period, including those for required capex and opex, are likely to be credible?

“In particular, the current process places all the risk (i.e. cost) of incorrect forecasts onto the consumers, with the network business merely passing on costs whether or not the investments are sound.”

It suggests “progressive” assessments of demand scenarios that would avoid locking in un-necessary spending that would simply inflate consumer bills.

The APVI questions why consumers should have to cross-subsidise major mining projects. Ergon Energy,for instance, wanted to spend more on its grid, and pass on those tariffs to consumers, on the basis that demand will rise in central and south Queensland.

“This cross-subsidisation should not be necessary since new customers must pay for all new infrastructure and, if tariffs to cover on-going operation are properly cost-reflective, the new customers should also bear any extra costs required to cover the cost of that new infrastructure.” In other words, slug the mining projects, not the homeowners.

It also says the networks need to build in a greater acknowledgement of the benefits of solar PV. Energex, it noted, had acknowledged a 335MW reduction in system peak demand from PV, yet it claims elsewhere in its submission that a “typical domestic substation with a significant quantity of residential solar PV systems does not affect peak demand”.

This contrasts with data provided by Ausgrid, which indicates that the amount of PV capacity available on different distribution network peaks varies from 11.8% to 48.5%.

And, the APVI notes, solar PV systems are getting cheaper and “it is likely that within the next 5 years distributed batteries will be as common as PV systems are now and will have spread into the commercial sector as well. “

That should be incorporated into forecasts of demand peaks, as it could significantly decrease the spending requirements, and the cost to consumers.