Energy Action : Efficiently Integrating Distributed Energy Resources Such As Rooftop Solar into the Grid

In March 2021, the Australian Energy Market's Commission (AEMC) released a draft rule change determination on a major but potentially controversial set of reforms. The reforms aim to assist with more efficient integration of distributed energy resources (DER) such as small scale solar and batteries into the grid. Consultation on these reforms closes in mid-May, and a final decision is due to be released in late June 2021.

The draft determination is in response to three interrelated rule change requests from South Australia Power Networks, St Vincent de Paul Society Victoria, the Total Environment Centre and the Australian Council of Social Service.

Why make a change?

The Australian electricity market is undergoing a significant transformation, driven by changing technologies, emissions reduction requirements and consumer preferences. Currently, 20 per cent of consumers benefit from the power generated by some form of distributed energy resource; this compares to less than 0.2 per cent in 2007.

This growth is expected to continue with the Australian Energy Market Operator (AEMO) forecasting rooftop solar capacity across the market to more than double or even triple by 2040. This increase will exceed the installed capacity of the largest thermal generator in the market.

The current electricity distribution network was designed and built before the growth in distributed energy technologies and was centred on the assumption that electricity would flow 'one way' from generators to consumers.

The reality is that with the growth of distributed energy resource and consumers wanting more control over how and when they consume and produce their energy, many parts of the network are already experiencing growing 'two way' flows of electricity. This is expected to increase over time significantly and will challenge many networks ability to safely and reliably deliver electricity to their consumers and raises medium to longer-term planning and investment-related issues. Some customers are already being prevented from exporting electricity due to constraints caused by these issues.

The AEMC has suggested that to maximise the benefits for owners of distributed energy resources and all energy consumers requires change. The change is in the regulatory framework and market incentives to better enable efficient integration of these technologies into the grid. Some of the rule change proponents also argued that the current regulatory framework embeds cross-subsidies between customers who are installing solar and those that do not.

They note a disproportionate number of vulnerable customers unable to install solar, which only exacerbates the impact of the cross-subsidy.

What are the changes?

There are four components to the draft rules as well as safeguards to ensure consumers and jurisdictional government perspectives are included in the approach to implementation:

1. Exporting electricity will become a new service provided by distributors:

The regulatory framework only requires distributors to provide consumption related services. They currently do not have to offer export-related services, which is why they can refuse a connection for some solar customers or prevent them from exporting electricity.

2. Develop export service-related incentives for efficient investment and operation of the network: This is to encourage distributors to deliver export services that customers value and develop the appropriate incentive and penalty regime that includes export services and consumption services.

3. Enable two-way pricing for export services: The current regulatory framework prohibits distributors from charging consumers based on exports, with only fixed or consumption related charges allowed. The AEMC is not mandating export charges or the form or level of any charges; the draft rule change only removes the prohibition. The rationale is to enable distributors to provide price signals to consumers to more efficiently use the network. This aspect of the rule change is the most controversial, with some calling it a tax on solar, whilst others see it as essential to assist vulnerable customers. Actual pricing approval would still follow the same process, where distributors submit proposals to the Australian Energy Regulator for review and approval.

4. Flexibility in the pricing related implementation model: the draft rule change will enable distribution businesses to tailor their pricing model based on their customer's preferences, their system capabilities and to vary by jurisdiction.

What are the possible customer impacts of an export charge?

The AEMC modelled the potential impact on residential customer bills if networks introduced an export charge. Their modelling was based on simplifying assumptions, indicative only, and is not necessarily the approach that networks would use. It highlighted the following:

• Most retail customers would experience a small cost-saving, reflecting that the costs of augmenting the network to enable better exports would be paid by customers using that service.
• Customers with batteries could experience more significant benefits - reflecting their ability to respond to any export price signals more flexibly.
• Solar only customers would experience a reduction in their net benefits related to their unit size. Customers with a large system (over 6-8kW) would see a reduction in their feed-in tariff benefits of approximately $100 per annum, from their total of $1,200 per annum. Smaller customers with 2-4kW systems would see a reduction of $30 from their total of $645.
• If no regulatory changes were made, the modelling highlighted that a 2-4kW customer only needed to be constrained for 10 per cent of their exports to see a similar reduction of $30 per annum and that if the level of constraint increased to 25%, they would see a reduction of $80 per annum in benefits. Customers with a 4 - 6kW system would see a reduction in benefits of $152 per annum.

In addition, customers who size their solar to match their consumption requirements with minimal expected exports closely would see little change to their expected feed-in tariff benefits.

Conclusion

There is no doubt that there is a need for an improved regulatory framework to more efficiently integrate the significant growth in distributed energy resources. There are, however, clear differences in opinion on the best approach.

If you have any questions or need advice on the impacts and opportunities of this draft rule change on your business, please contact your Energy Action account manager on 1300 964 589.