EDITORIAL: The Distributed Energy Revolution

If millions of Australian households and businesses continue to invest in their own solar and battery systems, this vast array of small scale energy assets known as Distributed Energy Resources (DER) could create enormous disruption to the electricity system.

By: Ivor Frischknecht

While this creates opportunities for consumers, it also creates challenges for incumbents – the market, its operator, regulator, generators, retailers and networks. If utilised to our collective advantage, DER could make the system more resilient and affordable, but it could also make the system more unstable and expensive.

With forecasts that up to 45 per cent of our electricity will be generated by consumers within two decades, DER is set to transform our energy system… for better or worse.

A revolution is underway in the energy sector. The transformation is not just happening at grid scale, but also on the “customer side of the meter” in households and businesses. In the decades to come, it is increasingly clear that as well as being renewable, the future of Australia’s energy generation is going to be small-scale and highly distributed.

While much of our current energy debate is focussed on the transition of grid scale generation from coal to wind and solar farms stretching across the countryside, and on grid scale storage like big batteries and pumped hydro, Australian households and businesses have been busily changing the way they use energy.

Ten years ago, there were just 14,000 rooftop solar units across Australia.

Today, 1.8 million Australian households have solar panels on their roofs.

In the last decade, Australians have embraced rooftop solar so enthusiastically that we are now the biggest rooftop solar adopters per capita in the world.

And that is only increasing. Rooftop solar installations hit a new record in the March quarter with a monthly average of 127MW installed, up 56 per cent from the same time last year. Rooftop solar installations are running at an annualised rate of more than 1300MW.

An estimated 1 GW of rooftop solar was installed across Australia last year. For the first time, rooftop solar throughout Australia generated over 1000 GWh in a month –  December last year.

The uptake of rooftop solar PV among commercial and industrial customers is also increasing apace with business volume recently outstripping residential customer capacity.

At present, rooftop solar generation accounts for just over 3 per cent of our generation.  By 2050, it is estimated up to 45 per cent of Australia’s electricity will be generated from solar PV on rooftops. According to AEMO’s forecasts, 25 to 40 per cent will be coming from rooftops by 2040.

ARENA CEO Ivor Frischknecht with UNSW Scientia Professor Martin Green

However, deployment of solar PV is not uniform across Australia. AEMO predicts that by 2025 at certain times of day South Australia may be entirely powered by rooftop solar. While it is exciting to see this high penetration of renewables, this presents significant operational challenges that need to be overcome to ensure affordable, reliable, stable electricity.

A growing number of Australians are also adding home batteries, which Chief Scientist Alan Finkel called “the next logical step”.

In 2017, the number of residential battery systems installed trebled from the previous year. Almost 21,000 battery systems were installed in Australian homes in 2017.

As the price of residential batteries falls and batteries become more efficient, more Australian households are expected to adopt them – particularly those that already have solar on their roofs.

While grid scale generation and storage will always be needed, this increase in DER represents a huge disruption for the National Electricity Market to grapple with.

On the other hand, it also represents a huge, untapped opportunity to make these DER work for the system, rather than against it.

AEMO faces the challenge of balancing supply and demand, and power flows system-wide. In the past it was relatively easy to predict household demand, but the task of predicting household demand becomes harder if millions of households have solar and batteries that the market operator has no visibility over.

In their Open Energy Networks consultation paper, AEMO and Energy Networks Australia warned that customers will suffer if no action is taken. The quality of electricity may degrade, which in the case of voltage spikes could shorten the lifespan of electrical appliances or cause them to trip off. If households face constraints over the amount of electricity they can export back to the grid it will take longer for them to pay back the cost of installing solar and batteries.

In some parts of Australia it is normal not to allow households or businesses to export surplus solar energy to the grid. In some areas, permission to install solar PV could be denied altogether if their street is overloaded. Power bills could rise if distributors makes investments to enable more DER to connect. Thanks to the national accreditation scheme for rooftop solar, we can track where rooftop solar is installed but we have no visibility over how much electricity is being generated. Rooftop solar is not currently monitored or coordinated, so we can’t optimise its output the way we can with grid scale assets.

Batteries present an even greater challenge. With home batteries, there is no accreditation scheme so we don’t have visibility on how many batteries are installed, where they are located, or what their state of charge is. Except through trial programs, we also cannot control their dispatch, which limits their usefulness to the broader grid.

Apart from solar and batteries, there are other technological innovations that are coming that will change the way we use electricity in our homes and businesses. More Australians will be driving electric vehicles that they charge in their homes. The Internet of Things will allow appliances to be automatically optimised for energy efficiency, and smart thermostats and smart pool systems will become the norm. There are already sophisticated home energy management systems able to respond to signals from the grid to optimise their energy use.

One day not too far from now, millions of Australia homes might have solar on their rooftops, a battery system, a charging station for an electric car, smart appliances and an energy management system that are all connected and collectively able to be harnessed.

If we orchestrate them collectively, these small scale assets would reduce the need for network infrastructure, and consequently cut our electricity bills.

Energy Networks Australia’s Electricity Network Transformation Roadmap released last year with CSIRO, estimated that this could be worth $1.4 billion in avoided network investment, which would result in lowering household electricity bills by $414 a year.

These small scale assets would displace the need for some grid scale power stations and storage. Virtual power plants (VPPs) involve aggregating and coordinating individual rooftop solar, batteries and other DER assets so they can combine to provide dispatchable power, just like a peaking power plant.

However, if we don’t enable these assets to be monitored and optimised, it creates the potential for a future Australian electricity system with limited centralised visibility, more instability and the need for new network infrastructure to balance this. This may in turn lead to even higher energy costs than Australians are already paying.

While those lucky enough to afford their own rooftop solar and storage would experience cheaper energy costs and would be largely self sufficient in the grid, this could be at the expense of others who cannot afford their own solar and storage who would bear the cost of network upgrades built into their power prices.

All of this can be avoided.

There needs to be a massive enablement of rooftop solar, batteries and controllable loads so they deliver benefits back to the system as a whole, with participation on a voluntary basis.

This will include more ways to sensibly manage demand, including better incentivising the use of demand side resources as happens in other markets from Texas to Taiwan.

If consumer energy assets can be orchestrated and optimised so as to work harmoniously, distributed energy resources could save consumers money on their power bills, reduce the need for network infrastructure, help deliver grid stability services and inject dispatchable power back to the grid when and where it is needed.

To deliver this, there are certainly technical challenges to overcome. However, this shift to distributed energy also creates commercial issues and regulatory challenges.

We need incentives for people to allow access to their solar and battery storage devices and appliances. We need new business models to drive this innovation so it is seamless and automated. We need new market rules to allow these unregulated assets to be properly valued as part of the energy mix.

Retailers could become the future orchestrators of consumer energy, but at the moment their business model is to sell electricity to customers.

Networks also have an important role to play, but existing networks make money through regulated returns from expenditure on grid infrastructure.

In the US, cable companies are becoming new consumer energy enablers. In Australia, it is conceivable that this “energy enabling” might be done by startups, telecommunications companies, or it could be a service offered by tech giants who are moving into home automation technologies.

AEMO and Energy Networks Australia’s Open Energy Networks report proposes measures to improve the way distributed resources are integrated. Along with recommendations to remove barriers to DER providers and VPPs being involved in the central dispatch process, AEMO suggests DER monitoring and management standards should be developed.

Already, ARENA is supporting a wide range of studies and pilot projects that look at how to optimise consumer energy.

These include:

  • AGL’s VPP in Adelaide involving aggregating 1000 batteries in households and businesses;
  • Simply Energy’s VPP which involves installing batteries in 1200 households to deliver 6MW of capacity, along with 2MW of demand response from commercial businesses;
  • A feasibility study into a “virtual microgrid” run by LO3 Energy in the Latrobe Valley which would consist of a local energy marketplace of 200 dairy farms, 100 households and 20 commercial and industrial businesses;
  • ARENA and AEMO’s three year trial of demand response involving 10 pilot projects across NSW, Victoria and South Australia;
  • And, Sydney boutique energy retailer Pooled Energy’s trial which involves controlling and optimising the energy usage of 5000 backyard swimming pools.

In March, ARENA also announced a $12.5 million DER funding initiative. Under this initiative, ARENA has called for pilot projects to look at improving network hosting capacity and for studies to look at improving orchestration and integration of high levels of consumer energy.

It is too early to say which new business models or new technologies might ultimately be the best way to enable and integrate distributed energy, but one thing is certain: we cannot afford to ignore the customer side of the equation.

Even the phrase ‘behind the meter’ is antiquated, as it draws a line between the customers and the rest of the energy system. It frames the whole electricity system from the perspective of the traditional industry players – the retailers, networks and generators – instead of from the customer’s point of view.

After all, what’s behind the meter all depends on which side of the meter you are standing on and which way you’re facing. From the Australian household’s point of view, the whole electricity system is ‘behind the meter’ – not the other way around.

In a future where the customer side of the equation has a bigger role to play in delivering supply and managing demand, our current industry-centric view of the system has to change.

Instead, we need to think about the energy system holistically – and that includes finding ways for household solar, batteries and appliances to be utilised for the benefit of the system as a whole.

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Ivor Frischknecht