The chair of leading Melbourne-based energy tech company GreenSync has warned that a major shake-up of the current National Energy Market status quo will be required as the grid evolves to a smarter, more stable distributed renewables-based system.
And not every participant will make it out alive.
Neil Gibbs, who is also the founding chair and principal at energy industry advisory firm Marchment Hill Consulting, sees an electricity network that works from the customer up, and where every asset that can contribute to the system – behind or in front of the meter – can participate in the system.
“The central thesis of GreenSync’s position is that everything that can be digitised and controlled – i.e. things that exist beyond the meter – should be considered as part of the system, because they contribute, or can contribute to the system,” Gibbs tells RenewEconomy.
“That is what our deX (the Decentralised Energy Exchange GreenSync launched in September 2017) is intended to do. It’s intended to embrace those assets, those capabilities, bring them into the system, reward people for their investment in those system.”
But like the CEO of the Australian Energy Market Operator, Audrey Zibelman, Gibbs also sees a rather old and clunky obstacle in the way of this goal: the current rules and settings of the NEM.
In particular, Gibbs argues that the current market structure – where bulk electricity by is sold by generators to electricity retailers on the wholesale market, and then to customers on the retail market – is at odds with how the modern NEM needs to work.
More specifically, it is at odds with demand response: the side of the market that energy industry experts including Zibelman – and companies like GreenSync – believe will be crucial to achieving that magic trifecta of affordable, safe and reliable electricity.
And one of the keys to removing that obstacle, says Gibbs, could lie in removing a layer of the current market structure.
“If you’re a network and you’re trying to get a really specific signal to a customer, it’s effectively all but impossible to do in the current arrangements,” he says.
Currently, says Gibbs, “you have to offer a network-wide price, and you’ve got to offer it to all of the retailers, and they do whatever they do to pass it though, and the signal is somewhat muted by their own needs.
“What the deX allows us to do, and what the networks want to do, is have a direct relationship with the energy users. Which is contentious for some of the more antiquated retailers,” he said.
“What we need to see is an unfiltered, unadulterated price signal from networks to customers to say: ‘Your location, it’s worth something to us. If I can just get you to tweak your air-con or do whatever for a particular period of time, then I’m prepared to pay you an incentive to do so’.
“(But) not through the retailers current systems. Because they cannot send a locationally specific, time specific message directly to an individual customer on a single feeder through the retailers. They can’t do that.
But it’s not just the retailers’ role in the market we should be rethinking. Gibbs notes that there are complications and conflicts of interest up and down the supply chain that need to be addressed.
The so-called gen-tailers, for example, with a foot in each market camp, have their own set of problems.
“Gen-tailers recognise that …their customers are open to a more sophisticated energy proposition rather than just a kWh x dollars… and they’ve wanted to move.
“The complication that they experience is that a significant proportion of their enterprise value is vested in their conversion of fuel into energy. So that’s an internal tension.
The networks, meanwhile, “absolutely, intellectually get what we’re trying to do,” Gibbs says. “They really get that there’s better ways to provide service to customers than just building more assets.
“Having that recognition is fine, but creating behaviour change …. there’s a very deep culture of building things to solve problems,” he added.
Gibbs refers here to the well documented network tendency towards “gold-plating” poles and wires, rather than seeking non-network solutions for problems of constrained supply, or congested networks.
“We would like the networks… every distribution network, to use something like the deX platform to register where (customers’ behind the meter) assets are,” he told RE.
“Because at the moment, what they have to do to manage their risks associated with back flow and everything else is to say no; you can connect (an) asset … but it has to be small, and you can’t export.
“And so they’ve got this really unfortunate policy dilemma where they provide a singular connection standard for all customers, irrespective of the actual capability of the local network.
“So if you are on a completely constrained network element you will get the same network application and approval process as a person who’s on a network element that desperately needs more power.”
And this is where network stability and reliability can become compromised.
“If we play back what happened Australia Day weekend,” Gibbs says, referring to the outages in Victoria when the state’s “poles and wires” system (mostly substation fuses) was overwhelmed by record demand, driven by heatwave conditions.
“If I was a network, and I was subject to some adverse commentary in the press as a result of that, and forced to pay money as a recompense to those people affected, I’d be thinking very, very long and hard about saying, ‘Hang on, I never want that to happen again’.
“I want to be the business that offers customers a small incentive, financially, in known locations … because this is the point … those fuses fail in locations where they know the spare capacity is low.
“So I think the networks will, absolutely, flip that dialogue entirely.”
But Gibbs says he is starting to see evidence of that NEM dialogue “flip” happening on some parts of the grid, already – particularly in Victoria.
“By summer next year, I expect that some of (the networks) in Victoria, if not all, will be saying to customers ahead of an event like that: ‘here is a signal, a price signal, to avoid power consumption at this period of time. I would like to pay you some money to do that’,” he said.
“Now surely that’s a better dynamic isn’t it: ‘I’m a good guy, I get paid rather than beaten up in the press. I’d be prepared to pay the same money, maybe even more, if I come out of it as the guy that offered customers an incentive’.”
And while that is precisely what some of the more progressive retailers out there are trying to do – such as Powershop, with its Curb Your Power program and its new battery storage based VPP – Gibbs says that because of the current market structure, the outcome is not quite the same.
“For a retailer to offer a service in that manner to solve a network problem, it gets complicated, because they have to trade off their wholesale risk portfolio position and the incentive that they can afford to offer to change that,” he said.
“A network might want to pay $10 to achieve an outcome, but the retailer might say, actually, because of our hedge position, we don’t mind the price running up, driven by demand. So $10 won’t do it for me,” he said.
“What we would like to be able to do, and what we can do, is send location based pricing signals directly to customers to do something that’s in sync with market needs. Whether that’s a network need, a wholesale market need or whatever other need.”