By Giles Parkinson, reneweconomy.com.au
Australia’s major utilities are being advised they need to give fair treatment to local energy generation – such as rooftop solar and battery storage – if they are to avoid the so-called death spiral that threatens their business models.
A new report from the Institute of Sustainable Futures (ISF) at the University of Technology in Sydney suggests local generation needs to be adequately rewarded to prevent mass defection from the grid from consumers unhappy about their treatment from utilities.
The ISF is proposing two possible tariff alternatives which they plan to test in 2015 – one is a local generation charge, and another is a ‘virtual private wire’, a bit like ‘virtual net metering’, where a group of consumers share the output of a single generator.
The proposal by the ISF is significant because there has been a massive pushback against the utility response to solar and storage, which has been based around lifting fixed tariffs, accusations that solar households are ‘free-riding’ on the grid, and paying minimal amounts for electricity exported back to the grid.
This latter issue has been the most contentious. Despite numerous attempts to obtain a ‘fair value’ for solar, the desultory tariffs now on offer have caused solar advocates and other analysts to say they will simply accelerate what the networks are presumably trying to avoid – mass defection from the grid.
Solar households currently get paid little for any excess electricity they generate – 5.5c/kWh in some areas, a voluntary payment in others.
This means that consumers are now motivated to consume much of their solar power as they can on site, or to install batteries to store it for use later.
This is expected to accelerate dramatically when gross feed-in tariffs expire in NSW and Victoria, and there is concern that when battery storage costs fall far enough, and/or consumers get irate or motivated enough, they will simply disconnect.
The response by utilities to hike fixed charges might address some of their short-term revenue problems, but ISF warns that it could accelerate grid defection and so make matters worse in the long run.
High daily access charges also raise equity issues as low use, because low income households pay a disproportionate amount compared to the services they receive.
Most of the problem lies in the cost of delivery of Australia’s supposedly ‘cheap’ coal-based generation. Huge network costs – driven by massive investments of $45 billion in the last five years, means the cost of delivery accounts for more than half household bills, and just the network costs are being undercut by rooftop solar.
The ISF says up to one-third of the $45 billion network investment was to meet peak demand growth forecasts that have not eventuated (see graph below) and the current charging structure does not produce optimal outcomes.
It says there is little incentive to reduce peak loads, there is no flexibility to cater for partial use of the distribution system, and the potential benefits of local energy and use are not rewarded.
‘Electricity consumption from the grid, once thought to have an inevitably upward trajectory, has been going down for more than five years,’ the ISF writes in a new proposal.
‘If grid defection becomes a reality, it could precipitate an untenable situation for network operators, where rising prices push customers to reduce consumption or even disconnect from the grid, which increases prices and further drives down consumption.
‘Those customers who remain grid-connected face higher and higher prices as they pay for legacy infrastructure, built to serve a larger customer base and meet now out-dated demand forecasts.’
To try to address this, ISF is proposing two new possible tariff systems that could provide a solution, and which will properly reflect the value of local generation to the network.
Under the ‘local generation credit’ system, a credit is paid according to how and when a generator exports back to the grid.
Under the ‘virtual private wire’, the calculation of the credit is only carried out on the portion of electricity exports that are used by local customers.
The export is ‘netted off’ at the customer’s site on a time-of- use basis, and the amount used at the customer’s site forms the basis for the calculations.
It has various methodologies to calculate those tariffs – based around volume or current network tariffs- which it is discussing at workshops to be held this week.
The ISF says network charges need to be restructured to ‘recognise the value of local energy’ and to recognise the actual proportion of network utilised. This, it says, will reduce the incentive to maximise ‘behind the meter’ generation or actually disconnect from the grid.
Providing a level playing field for local energy may also prevent customers from disconnecting from the grid, which has multiple benefits.
Firstly, it will prevent the upward pressure on electricity prices for customers remaining on the grid.
Secondly, grid electricity services are likely to be more reliable than stand-alone systems in terms of maintenance down time, voltage, and power quality.
Finally, grid connection allows customers the ability to sell exported energy (‘local exports’) or provide other services such as voltage regulation.
ISF says that local generation needs to be valued for the benefits it can bring to the network in providing energy when it is most needed, and to reduce the peaks. It sees the networks evolving into something like this (click to enlarge).
But it notes: ‘The most important benefits for network operators from enabling local energy are likely to be in the medium to long term, in ‘future proofing’ their business model.’