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Facilitating Local Network Charges and Local Electricity Trading

ISF's work on Energy Futures

Levelling the playing field for local energy, delivering better value for all electricity consumers

Facilitating Local Network Charges and Local Electricity Trading

Headline project results

Virtual trials

Results of five virtual trials of Local Network Charges and Local Electricity Trading indicate there is potential for distributed generation to meet local consumption, which is unlikely to be realised under current market conditions. Cogeneration in particular is likely to be undersized without incentives to export, even when such exports would be most beneficial to the grid. The Willoughby trial results demonstrate that even a relatively low Local Network Charge can send a meaningful signal to operate dispatchable generation when the network is most likely to need support. 

Proponent total energy costs under each scenario

Proponent total energy costs under each scenario.

Offering a Local Network Charge for the cases investigated would keep kWh on the grid in an era of increasingly locally derived supply. A Local Network Charge would maintain the network charges paid by the proponent, relative to a significant increase in behind the meter consumption using a private wire approach, even taking into account payment of the Local Network Charge itself. The proponent and other customers are better off, as money is not wasted on infrastructure duplication.

Download comprehensive virtual trials results

Economic modelling

The results of the economic modelling show that over the long term a Local Network Charge (modelled as a Local Generation Network Credit – LGNC) has an overall positive economic benefit of approximately $1.2 billion, approximately 59% lower than the cost of network expansion under Business as Usual. The table below shows the net present value (NPV) of the cumulative network investment under each scenario, and the NPV of cumulative LGNC payments in the LGNC scenario.

The research found that benefits were maximised by restricting the LGNC payments to systems between 10kW and 30 MW, and this range was used in the modelling.  The inclusion of smaller generators had a large cost attached, and is unlikely to be a significant incentive for these systems as the annual payments would be small compared to minor variations in the cost of PV systems.

Cumulative economic cost or benefit of an LGNC payment

Cumulative economic cost or benefit of an LGNC payment.

Impact on customer bills

Over the short term (2020) there is no impact on the residential sector, a modest increase of $2 per annum on average in the small commercial sector, and an increase of $25 on average in the large commercial sector in the LGNC scenario relative to BAU. By 2030 all consumers realise modest savings. The LGNC scenario as modelled represents a system wide economic saving to all consumers, and therefore does not represent a cross-subsidy between different consumers.

Impact on peak demand and network utilisation

Peak demand increases more slowly under the LGNC scenario. The largest reductions in peak demand growth are on the transmission and high voltage networks where peak demand is predicted to increase by 22-23% by 2050 under BAU but by only 8-11% under the LGNC scenario. This represents reductions in peak demand of over 50%.

Download comprehensive economic modelling results

Economic impact analysis of local generation network credits summary

Economic impact analysis of local generation network credits in NSW: full report

What is the problem?

The current charging structure in the National Energy Market (NEM) in Australia reflects the historic reality of one-way flows of electricity from large centralised energy generators to consumers. This model has little flexibility to cater for today’s prosumer, who is interested in partial use of the distribution system, or to incentivise behaviour that can reduce electricity costs for everyone. Local network charges and Local Electricity were investigated in this project to further our understanding and help resolve these problems identified with the current market:

  • Inefficient sizing and operation of distributed generators,
  • Lack of incentive for dispatchable generators to operate at required (peak) times,
  • Potential under-utilisation of the grid, with consequent rise in consumer charges, and
  • Perverse incentives to duplicate infrastructure.

What is the solution?

This project brought together a partnership of consumers, researchers, electricity providers and government to research two mechanisms to support local energy – Local Network Charges for partial use of the electricity network, and Local Electricity Trading (LET) between associated customers and generators in the same local distribution area. The combination of these two mechanisms aims to offer desirable alternatives to customers who might otherwise choose to disconnect from the grid altogether or keep all their generation “behind the meter”, reducing the amount of electricity they take from the grid. This could reduce the overall network costs in a more distributed energy future.

The project provides case study evidence from five ‘virtual trials’ of local network charges and local electricity trading, in NSW, VIC, and QLD; methodologies for calculating local network charges and economic modelling .

Trial Participants, locations and technologies

 

Diagram of trials and partners

LGNC Rule change proposal

ISF worked with electricity sector stakeholders on making regulation fit for the future, and in particular through this project, on the Local Generation Network Credit (LGNC) rule change. On 23rd September 2016 the AEMC released draft determination to reject the LGNC Rule Change. 

ISF hosted a webinar for organisations interested in making a submission on the AEMC’s draft determination on local generation network credits on Wednesday 26th October 2016. The presentations from the webinar are available for viewing: 

Section 1 Background and trials results (19 minutes) 
Section 2 What effect does an LGNC have on all consumers (8 minutes)
Section 3 Commentary on the draft rule change determination (17 minutes)

The draft ruling is a missed opportunity

The AEMC’s draft ruling unfortunately did not address the issues raised in the rule change proposal. It did nothing to change the current incentives to avoid using the grid as much as possible, and did not incentivise the benefits that distributed generators can offer. This was a missed opportunity for the Australian electricity sector to be on the front foot in developing an electricity grid fit for purpose in the 21st century.  For further background a summary of the issue is presented in this media article

Download the ISF submission on the rule change proposal: 

Resources

Project summary

Presentations

Briefing papers and submissions:

Trials results

Trials summary report

One to many LET trial report

Economic modelling results

Local Network Credit methodology

Other project papers and submissions

News

Media releases

Articles

What are Local Network Charges?

 

local network charges

Local network charges are reduced network tariffs for electricity generation that is used within a defined local network area. In most circumstances, the tariff will reduce the network charge portion of electricity bills for local generators to the extent that the generation reduces long term network costs. This recognises that the generator is using only part of the electricity network, and reduces the network charge accordingly.  To date reduced network tariffs have been applied most systematically in the UK.

What is Local Electricity Trading?

Local Electricity Trading

Following a period of research and consultation in 2015, we have decided to use the term ‘local electricity trading’ to describe the concept previously referred to as virtual net metering (VNM). Feedback demonstrated that although VNM has some recognition within the energy sector, it is not widely understood and the term does not convey the meaning of the concept.

Local Electricity Trading is an arrangement whereby generation at one site is “netted off” at another site on a time-of-use basis, so that Site 1 can ‘sell’ or assign generation to nearby Site 2. This will reduce the combined energy and retail portion of electricity bills for local generation.

Contact

To find out more about the project contact:

Jay Rutovitz, E: Jay.Rutovitz@uts.edu.au

About the project

One year project: 2015-2016

ISF Team

Jay Rutovitz, Ed Langham,  Alison Atherton, Lawrence McIntosh, Sven Teske, Scott Kelly, Jenni Downes

Funding Partners: The Australian Renewable Energy Agency (ARENA) provides funding support. The project receives additional funding from Ergon Energy, Moira Shire and Swan Hill Councils, Wannon Water, City of Sydney, Byron Shire Council, Willoughby Council and UTS and is supported in-kind by AGL, NSW Government Department of Industry, Powercor and Total Environment Centre.

Project partners

Project lead

Project sponsor

 

ISF logo

 

ARENA logo

Project partners

Swan Hill logo
Moira Shire logo
Willoughby Council logo
Ergon Energy logo
Byron Shire logo
Wannon water logo
Total Environment Centre logo
Renewable Energy Advocate logo
Citipower logo
City of Sydney
AGL logo