Building a level playing field for local electricity generation
The electricity market is changing rapidly as technologies like solar panels and battery storage improve and become more affordable. Many consumers are interested in not only using electricity, but trading with the grid and with each other, becoming ‘prosumers’ who generate some or all of their own electricity and sell their excess electricity back into the market.
Local energy generation and storage networks such as community-owned solar power, battery technology and even larger generators like cogeneration plant can distribute energy across communities. These generators are becoming more popular and improving opportunities for local electricity generators to distribute and sell electricity locally using cost-reflective pricing arrangements could unlock substantial new clean energy potential.
For example, small to medium businesses (such as local councils or universities) may want to generate electricity at one site and use it at another site nearby. Network businesses are currently unable to offer a tariff to reflect such partial use of the network, and in general, retailers do not currently offer the ‘netting off’ service for multiple sites as standard. This is a disincentive to local generation projects. Current arrangements mean that local generation is sized to match the lowest onsite electrical load in order to minimize grid exports, as there is little financial benefit to exporting to the grid. This affects economies of scale and operating efficiency.
Unfortunately, the incentives currently in play encourage going off the grid through building ‘private wires’ to avoid having to use the existing electricity network. As less electricity flows through the network, if the regulations stay the same the relative costs of network energy will rise to other customers. This will only serve to incentivize further defection from the network and reinforce the cycle. This has often been referred to as the ‘Death Spiral’.
The Institute is conducting a project that brings together a partnership of consumers, researchers, electricity providers and government to help level the playing field for local energy generation and prepare for the electricity grid of the future. This project aims to facilitate the introduction of reduced local network charges for partial use of the electricity network, and the introduction of Local Electricity Trading (LET) between associated customers and generators in the same local distribution area. Five ‘virtual trials’ of local network charges and local electricity trading are being undertaken in New South Wales, Victoria and Queensland and are nearing completion.
This month the Australian Energy Market Commission (AEMC) started consultation on a request for a rule change that relates closely to the expected findings from this project.
The request is to introduce a payment from distribution networks to embedded generators, which reflects any benefits embedded generators may provide to the network, and acknowledge a partial charge for partial network use. Embedded generation is defined as any generation unit that is connected to the electricity distribution network, rather than to the high-voltage transmission network.
The five virtual trials of local network charges and local electricity trading being undertaken by ISF will provide case study evidence for a local network charge methodology, and economic modelling of the effect on consumers. The project is the first quantitative testing of the mechanism in the Australian market, and results are therefore highly relevant to the rule change determination.
The Institute has provided a submission to AEMC requesting an adjustment to the consultation time frame to ensure the AEMC and other stakeholders can take account of the results from the ISF project.
The Institute’s submission also suggests the assessment framework should be modified to include:
- Whether consumers should pay a reduced charge for partial use of the electricity network, and whether a Local Generation Network Credit is a suitable implementation method;
- Whether a Local Generation Network Credit will help maintain utilisation of the distribution network, and the consequent effects on the long term costs for consumers; and
- Potential incentives for inefficient duplication of network infrastructure under the current National Electricity Rules, including costs borne by parties other than network businesses.
The AEMC is holding consultation workshops in February and March 2016, ISF will be presenting at the March workshop in Sydney. The schedule for the workshops can be found on the AEMC website.
More information about ISF’s Facilitating Local Network Charges and Local Electricity Trading project and the Institute’s submission to the AEMC.