Towards a reliable electricity system
By Dean Spaccavento, CEO, Reposit Power
Tuesday, 04 July, 2017
The electricity grid is currently going through a transitional period. The rise of distributed power generation is creating challenges as well as opportunities. In the article below, Reposit Power’s CEO Dean Spaccavento talks about how networks and customers can work together to achieve a reliable and secure electricity system.
The electricity grid has fundamentally always been about keeping demand equal to supply. Until recently, Australia’s electricity grid has always had variable demand and controllable supply — otherwise known as electricity generation. As a result, matching demand and supply has been straightforward. However, with the introduction of distributed renewable electricity and advancements in technology, supply has become variable and unreliable.
When the electricity market is calling for new generation, there is an increasing instability in the grid. It is calling for generation of a particular type — generation that can start and stop very quickly, and generation that is power focused, not energy focused. We no longer need to worry about energy generation. Energy comes from the sky for free and it will continue to come from the sky for free in greater volumes, the problem is that it comes whenever it wants to.
The Australia system is transitioning to a power system — with the value on the modulation of power rather than the provision of energy. This change is a result of our electricity grid transitioning from a top-down centralised fossil fuel system with only a single direction of power to a distributed renewable bidirectional system.
In the mid-90s, the Australian electricity system was deregulated to make our economy more efficient and internationally competitive. Networks were split from generators and retailers. The retailers and generators were encouraged to compete to lower costs. The National Electricity Market (NEM), which manages all trade between generators and retailers, was created.
From 2008, large feed-in-tariffs were offered, solar was heavily subsidised and it also dramatically fell in price. This allowed customers to secure energy from a reliable alternative source. Australia also has an added advantage of abundant solar supply. Data shows that a solar panel installed in Australia generates twice the amount of energy per year compared to a solar panel installed in Germany. In 2013–14, and largely in 2016, a number of battery storage solutions entered the market giving households even more choice.
In addition, from 2010 to 2015 there have been price rises in electricity. The price rises were largely because networks built a lot of new assets. The rise in electricity prices prompted customers to look for alternative electricity sources. In some places, the cost of securing energy from solar and storage is lower than the cost of buying electricity from the grid. This has attracted, and continues to attract, households to use alternative electricity sources and manage their own energy consumption.
What happened to telecommunications in the 1990s is happening to the electricity industry now. The various watershed moments in the telecommunications transition can almost be mapped one for one with those in electricity. All this change has led to the ‘internetification’ of the electricity grid and is challenging regulatory mechanisms, the culture inside the networks and the way people have previously thought about the grid. All the while the grid moves, physically driven by changing consumer behaviour, an ageing generation and changes in fuel prices.
We are right at the beginning of this transition. We are seeing that the old way, ie, the centralised and reliably controlled supply model, is still working, but it’s starting to break down. The transition is an opportunity for us to reimagine how the grid works and to make it a lot more efficient and cleaner. We can modernise the grid to make it more resilient to single points of failure and more resilient to weather events. It also provides opportunity for new business models to increase the efficiency of the grid. Reposit is one of those businesses. The company provides customers with an option to participate in the transactional bidirectional distributed electricity system. Customers can participate in the wholesale market and earn GridCredits when they sell their stored energy. It’s an energy storage and trading system that allows households to compete head to head with big energy companies. They are earned when energy is transferred to or from the NEM or network utilities as required by another grid player.
The transition won’t be easy. A major concern of the transition is the speed at which the system is transitioning. If the transition occurs much faster compared to our ability to change the grid, then we are going to have grid security issues. We have already seen security issues in parts of the NEM.
It is also disrupting industry business models. Industry participants must either innovate or see a change of guard. Electricity networks are regulated in a fixed way. The regulation centres on networks investing in capital and assets. This means that they are incentivised to build the network. With the transition to a decentralised system, network management provided by electricity networks is going to become less important. Regulations need to be changed so networks can use decentralised, customer-owned sources of network management while still being able to make a profit. Until these regulations are changed they will be fighting with one arm behind their back to successfully transition their businesses to a new decentralised grid. Several regulation changes have been floated including Option Value and Totex. These are centred on allowing networks to recognise the value of buying services from third parties in a regulated way.
Retailers are fighting an entirely different battle. With the introduction and uptake of solar, they aren’t selling as many kWh as before. Batteries have complicated this situation further by letting customers store their excess energy and use it at night. To remain competitive, retailers need to change the way they make money. Making money from taking a margin on selling a kWh is obviously not going to work as there are not as many kWh being bought, and the costs involved in serving a customer are not decreasing. Industry discussion is centred on retailers moving to a service-based model. Instead of charging per kWh, they charge for a service, for example, providing customers with access to wholesale markets or give what they are asking for. The sooner we understand that this is what is required, the sooner we can make more efficient investment decisions to deliver secure, fast, reliable and cheap energy. But it is going to require a period of transition and, I suspect, that transition will take 10 to 15 years.
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