Australia: Network lobby proposes special tariff to keep households on grid

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A new report commissioned by the Energy Networks Association predicts that by 2050 some 10 per cent of consumers – or 1.25 million households – will leave the grid because solar and battery storage will offer a cheaper solution.

It believes that by offering a “stand alone power system” discount, it can provide an incentive for most of these to stay, thereby avoiding added costs to other consumers, who would be required by networks to pick up the revenue lost from households leaving the grid.

The way the SAPS discount might work is by requiring those with significant solar and battery storage arrays to disconnect from the grid at times of “critical peaks” – effectively acting as a load shedding feature on the grid and trying to avoid those pricing surges that are passed on to all consumers.

There is no doubt that the threat of mass defections is an issue that troubles network owners, because if people do leave the grid, they will no longer be contributing to the networks’ regulated asset base, thereby forcing those networks to recoup their revenue from remaining customers.

That, in turn, leads to more defections, more price rises, and chaos and the so-called death spiral ensues.

Of course, many think that the value of the regulated asset base has been massively inflated, possibly by a factor of two or more, through “gold plating”. But the network lobby has rejected any calls for write downs, and indeed has even canvassed penalties to consumers who do leave the grid.

This new tariff proposal indicates a slight evolution from that thinking, as it appears to want to find a means to tap into the solar and storage resource of those households, and presumably use those assets and reward them for their ability to help meet peak demand, defer grid spending and provide grid security.

However, the forecast of a 10 per cent defection rate by 2050 contrasts sharply with recent work by the CSIRO through its Future Grid scenarios, which suggested that one-third of consumers could leave the grid by 2040 unless the network operators changed their business models.

This is the modelling done by Energeia. It shows that under Scenario 1, with no change to tariffs, grid defections begin in the early 2020s, reach around 1 per cent by 2026 and 10 per cent by 2050. But by offering a variety of tariff proposals, including a 5 per cent discount on “residual” network costs and giving centralised control to their storage, it estimates that the number of customers choosing to go off-grid falls to almost zero.

Energeia reasons that the ability to sell excess PV to the grid, save money via the SAPS solution (by needing less battery storage), and enjoy “higher combined reliability” will be attractive enough to keep solar households on grid.

Interestingly, the modelling shows that there would be 4 million stand alone power systems in Australia by 2050, but they would almost all be connected to the grid. Without the “special discount”, it suggest 1.25 million households might quit the grid.

(I’m not sure that fully captures the motivation or the economic factors that will inspire people to go off-grid. A 5 per cent discount would only represent $25 a year on a $500 fixed network fee. And while we recognise that it would be a better outcome if most remain connected to the grid, the network providers might need to offer something a little more compelling to keep consumers connected).

Energeia estimates this would result in $1.2 billion in savings for the potential off-grid customers and deliver $1 billion is savings overall to connected customers by 2050.

The ENA is at least prepared to acknowledge that there is some $1.7 billion to be saved by providing stand alone power systems – mostly centred around solar and battery storage – to some 27,000 “new” remote farms and other “edge of grid” communities.

It wants rule changes that will allow the networks to offer such solutions, rather than being forced to build new poles and wires – the underlying philosophy of politicians and regulators since the dream of “rural electrification” came into vogue in the 1950s and 1960s.

John Bradley, the CEO of the ENA, says providing solar and battery storage based stand alone power systems to these 27,000 new rural farm customers could save $700 million rather than building more poles and wires.

“By 2050 these customers could be supplied more cheaply and reliably with stand alone systems using 2GW of solar PV or more than twice Victoria’s solar PV capacity today and 7.5GWh of battery storage,” Bradley said in a statement.

Grid companies could save customers over $1.7 billion in costs and provide more reliable service to rural customers if they can make smarter use of off-grid technology

However, the modelling from consulting firm Energeia presents a surprisingly bleak view of the economics of micro-grids and stand alone power systems for customers in remote areas – suggesting only that farms more than 3km from a grid connection, and bigger farms more than 8km from a connection, would find staying off grid economically attractive.

It suggested that even small mines around 500km away from the nearest connection point would look to linking with the grid rather than go for a microgrid.

And it doesn’t seem to think that remote townships will even find it cost effective to cut their links to the grid by 2050, under any scenario.

“Energeia’s modelling found that Australia’s moderately sized communities (over 500 residents) at the fringe-of-grid, are generally unable to be cost effectively served by a microgrid by 2050 without specific local extenuating circumstances including significantly lower than average levels of reliability or significantly higher than average costs to serve,” it notes.

This conclusion appears to differ from a recent Energeia study that suggested that at least 40 Australian towns could, and probably should, quit the main electricity grid, because they would be saving money for themselves and for other electricity consumers.

That study found that it will be more cost effective within a few years to actually cut the main link and provide the power with local generation, principally solar, and battery storage. The new study, however, suggests that those technologies will not be cost competitive until after most grids are upgraded over the next 20 years.

It is not the first time that the ENA has elicited a contrasting response from the same consultant. In August it released a report from Jacobs suggesting no large-scale solar plants will be built in Australia from now to 2030. Two months later, the Queensland government released a report from Jacobs into its 50 per cent renewable energy target plans that suggested more than 5,000MW of large-scale solar could be built in that state alone by 2030.

The Energeia study on the viability of micro-grids seems to contrast with the views of some individual network operators, such as Ergon in Queensland and Western Power in Western Australia, who admit that many customers, and some communities, in remote and not so remote locations would be a lot cheaper to serve if they did not have to rely on poles and wires.

Regional consumers in both those states enjoy a significant cross-subsidy from people in the city. In both states, that subsidy ranges from $300 million to $600 million a year. In WA it amounts to one-third the cost of electricity.

This article was originally published on Renew Economy. It was reproduced with permission.