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Submission to the Select Committee into the
Resilience of Electricity Infrastructure
in a Warming World
by
Sharon Young, Dr Anna Bruce and Associate Professor Iain MacGill*
Centre for Energy and Environmental Markets
UNSW Australia
February 2017
*Corresponding author: Centre for Energy and Environmental Markets, and School of
Electrical Engineering and Telecommunications
The University of New South Wales, Sydney, NSW2052, Australia.
Tel.: +612 9385 4920.
E-mail: i.macgill@unsw.edu.au
1
About CEEM
The UNSW Centre for Energy and Environmental Markets (CEEM) undertakes interdisciplinary
research in the design, analysis and performance monitoring of energy and environmental
markets and their associated policy frameworks. CEEM brings together UNSW researchers
from the Australian School of Business, the Faculty of Engineering, the Institute of
Environmental Studies, the Faculty of Arts and Social Sciences and the Faculty of Law,
working alongside a number of Australian and International partners. Its research focuses on
the challenges and opportunities of clean energy transition within market oriented electricity
industries. Key aspects of this transition are the integration of large-scale renewable
technologies and distributed energy technologies – generation, storage and ‘smart’ loads –
into the electricity industry. Facilitating this integration requires appropriate spot, ancillary and
forward wholesale electricity markets, retail markets, monopoly network regulation and
broader energy and climate policies.
CEEM has been undertaking research into these challenges for more than a decade, with a
focus on the design of markets and regulatory frameworks within the Australian National
Electricity Market, and State and Federal energy and climate policy. More details of this work
can be found at the Centre website – www.ceem.unsw.edu.au. We welcome comments,
suggestions and corrections on this submission, and all our work in the area. Please contact
Associate Professor Iain MacGill, Joint Director of the Centre at i.macgill@unsw.edu.au.
www.ceem.unsw.edu.au
Submission on Resilience of Electricity Infrastructure in a Warming World – February 2017
2
1 Introduction
CEEM welcomes the opportunity to contribute to the work of the Senate Select
Committee into the Resilience of Electricity Infrastructure in a Warming World.
The committee’s inquiry “.. into the role of storage technologies and localised,
distributed generation to provide Australia’s electricity networks with the resilience to
withstand the increasing severity and frequency of extreme weather events driven
by global warming; recommend measures that should be taken by federal, state
and local governments to hasten the rollout of such technologies; and any other
relevant matters.” is extremely timely for many reasons. These include:
the growing severity and number of extreme weather events being
experienced in Australia
the very adverse impacts some of recent events have had on the operation
of the Australian National Electricity Market (NEM),
the extraordinary progress over the past decade in the technical
performance and costs of key distributed energy technologies including
photovoltaics (PV), ‘smart’ end-user equipment and buildings and, more
recently, small battery energy storage systems
the growing limitations of current retail market arrangements and network
regulation to appropriately facilitate greater energy user engagement with
distributed energy options, and
an Australian climate and energy policy discussion, particularly Federally,
which has focussed far too much on the direct costs of emission reduction
actions, while largely ignoring the far higher societal costs associated with
unchecked warming, including reduced electricity network resilience.
To summarise, the increased severity and frequency of extreme weather events in a
warming world, are creating new challenges for the resilience of the Australian
electricity system – an industry that is also in the early stages of a low-carbon
transition that will be essential to avoiding every worsening climate change impacts.
Note that large utility-scale renewables deployment raises both challenges but also
opportunities for electricity industry resilience. The highly variable and only partially
predictable output of key renewable technologies, notably wind and photovoltaics
(PV), certainly raises challenges for secure electricity industry operation. These
impacts will depend significantly on the appropriateness of industry arrangements
(IEA, 2016) particularly wholesale spot markets and frequency control ancillary
services (Riesz & Milligan, 2015). However, renewables can increase resilience in
some key ways as well, including reducing the risks associated with future gas prices
and carbon policies in a low carbon global energy future (Vithayasrichareon, Riesz &
MacGill, 2015).
However, as highlighted in this committee inquiry, our distributed energy options
have a particularly important role to play in future electricity industry resilience; both
in decarbonising electricity generation to mitigate climate change impacts on the
electricity system, and in optimising, localising and increasing redundancy to
Submission on Resilience of Electricity Infrastructure in a Warming World – February 2017
3
improve resilience of energy service delivery to energy consumers. In particular,
distributed storage and generation can be located deep in the distribution network
near, or even on the site of energy users, and hence provide resilience where it is
really matters.
Our submission first briefly discusses the broader context for distributed energy
technologies and resilience, highlighting some possible limitations in the framing of
the committee’s inquiry. It then specifically addresses these terms of reference. We
particularly highlight work undertaken by CEEM in relevant areas. We would, of
course, welcome the opportunity to engage further with the Committee and further
discuss any of the points raised here in our submission.
2 A broader context for distributed energy and resilience
Distributed energy covers a wide range of technologies:
While the committee particularly notes the role of storage and distributed
generation, it is useful to take a broader view of distributed energy options. In
particular, a growing range of ‘smart’ end-use equipment with communications and
control capabilities also offer opportunities to improve resilience. Hot and chilled
water systems, space heating and cooling and a range of other end-use equipment
all have inherent energy storage of some form, that can assist in more flexible
equipment operation, while still delivering desired energy services as required. In
many cases, the costs of this ‘storage’ are effectively already largely paid for, with
just minor communications and ‘smarts’ costs to be considered. At a higher level,
‘smart’ building control systems can coordinate a range of such equipment within
particular buildings and precincts. More broadly again, energy efficiency offers
improved resilience as well, by reducing the amount of energy that must be
delivered to provide desired energy services.
Focus on resilience in energy services delivery:
The formal objective of the Australian National Electricity Market is to “... to promote
efficient investment in, and efficient operation and use of, electricity services for the
long term interests of consumers of electricity with respect to price, quality, safety,
reliability and security of supply of electricity; and the reliability, safety and security of
the national electricity system.”
Network resilience has a vital role to play in this, but note that the objective revolves
around the delivery of energy services to consumers. Distributed energy technologies
certainly offer opportunities to improve the resilience of networks, but in particular
contexts they may also offer opportunities to improve the resilience of energy
services delivery to consumers in the absence of a functioning network. Home and
commercial distributed energy systems, with PV and battery storage, that can
continue to operate when the grid fails are an example of this.
As such, distributed energy options can partner with, but also in some circumstances
compete with, existing electrical networks for energy service delivery (MacGill and
Smith, 2017). Given Australia’s extensive, and highly subsidised rural grids that face
particular resilience challenges in a warming world, the Committee could usefully
consider this broader resilience opportunity from distributed energy technologies.
Submission on Resilience of Electricity Infrastructure in a Warming World – February 2017
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3 Committee Inquiry terms of reference
(a) the role of storage technologies and localised, distributed generation to
provide Australia’s electricity networks with the resilience to withstand the
increasing severity and frequency of extreme weather events driven by
global warming;
Distributed energy technologies have proven capabilities to improve the resilience of
networks in some contexts and energy service delivery more generally, as evident by
the demonstration and trial programs undertaken by a range of distribution network
service providers here in Australia (eg. Ergon Energy, 2016; Energex, 2016; Ausgrid,
2017) in Australia and elsewhere. These trials have, however, also highlighted some
of the complexities and challenges involved.
The future role of distributed energy technologies in providing resilience against
extreme weather events remains unclear. In large part, this reflects ongoing
uncertainties about the type, severity and frequency of extreme weather events
Australia is likely to experience. The recently announced ARC Centre of Excellence
for Climate Extremes, involving a number of research partners including UNSW, is an
important initiative in this regard. Still, the fundamental limitations of climate
modelling suggest that there will be ongoing uncertainties regarding our ‘extreme
weather’ future. As such, the roles of distributed energy towards greater electricity
industry resilience must themselves be resilient to such uncertainties. These roles
include of course helping to ensure ongoing energy service delivery during extreme
events that damage electricity industry infrastructure. However, they also include
potential contributions to reducing the likelihood of infrastructure failure or binding
constraints, be they reducing peak network demand, or longer-term issues such as
reducing cooling water requirements of the industry in times of drought.
A range of studies by CEEM and others has highlighted the wider potential of
distributed energy technologies including in reducing network peak loads and
hence improving its ability to accomodate extreme ‘peak’ events through
distributed PV (Haghdadi, Bruce & MacGill 2017), managing specific household
loads that drive peak demand during extreme events (Fan, MacGill & Sproul 2015),
and providing flexibility, which reduces the costs of providing reliable generation
capacity in both conventional and high variable renewable energy systems
(Hungerford, Bruce & MacGill 2016).
The technical performance and costs of our distributed energy options also adds to
the uncertainties of their future roles. The past decade has seen remarkable progress
in both performance and costs, and this seems likely to continue. Still, their
contribution to resilience requires assured performance under extreme weather
events. Again, improved modelling tools for distributed energy, and particularly their
integration into electricity industry arrangements will have value. There are also
interesting opportunities for integrated modelling across extreme weather events
and distributed energy options such as, for example, the impact of widespread
distributed PV deployment on reducing the urban heat island effect (Ma et al, 2017).
The final, and likely key, uncertainty regarding the future role of distributed energy is
the policy, commercial and regulatory arrangements within which these
technologies will be deployed. There are options other than distributed energy
Submission on Resilience of Electricity Infrastructure in a Warming World – February 2017
5
technologies for improving network resilience including expenditure on hardening
the existing network, and creating greater redundancy through network
augmentation. Which options, or mix of options, will be deployed will depend on
these governance arrangements, as discussed further below.
(b) recommend measures that should be taken by federal, state and local
governments to hasten the rollout of such technologies in order to:
The first policy imperative is to do no harm. Unfortunately, recent energy and climate
policy developments and some formal rule change processes (discussed further
below) might actually reduce the deployment of appropriate distributed energy
technologies.
Beyond doing no harm, and while many distributed energy technologies promise to
be highly cost effective and/or are well aligned with emerging consumer
preferences, rapid rollout will require significant deployment support. Such support
(e.g. via Feed in Tariffs and the RET) has been instrumental to the success of PV,
reducing new entrant barriers by building economies of scale and facilitating
learning by experience (both technical and institutional). Such support for distributed
energy technologies would also be justified by the societal value of the abatement
associated with a clean energy transition. Where possible, this support should be
targeted at strategically important capabilities (e.g. flexibility/storage), rather than
specific technologies (batteries), allowing a range of stakeholders to innovate and
cost effective solutions to emerge.
While a range of regulatory reform processes are underway, a number of new types
of transaction and ownership structures are not permitted under current
arrangements (Roberts, Bruce and MacGill 2015; Bowyer, Bruce and Passey 2016). In
addition to support for deployment, strong resolve to progress market and regulatory
reforms will be required in the face of disruption to incumbent business models. While
incumbents such as network businesses have the resources and regulatory scope to
run pilots and technology trials, the creation of ‘safe spaces’ to innovate outside of
the regulatory envelope, yet within time and locational constraints, would permit a
wider range of potential market participants to experiement on key value
opportunities with distributed energy
In addition to support for deployment, new models and approaches to integrate
these new technologies into network planning and operation (Haghdadi, Dennis,
Bruce et al. 2015, Hungerford, Bruce and MacGill 2015), generation investment
(Vithayasrichareon, Mills and MacGill 2015) as well as appropriate market design,
regulation and incentive structures (Riesz and Milligan 2014, Marshall, Bruce and
MacGill 2016, Young, MacGill and Bruce 2016) will all be an important part of
ensuring greater future energy servce resililence. Given the public value of this type
of research, it would be best supported by targetted R&D funding.
As financing is a significant fraction of the cost of implementing capital intensive
projects such as renewable and distributed energy projects, risk is the key cost factor
factor for investors, and hence governments can play a valuable role in reducing risk
Submission on Resilience of Electricity Infrastructure in a Warming World – February 2017
6
to reduce costs. Policy stability and rigor is a key part of this risk reduction, beyond
specific policy measures.
(i) create jobs in installation, manufacture and research of storage and
distribution technologies,
Renewable and distributed energy technologies, due to their relatively small scale,
modularity and distributed deloyment are more employment intensive than
conventional large scale generation. As just one example, there are already more
renewable energy jobs in the US than in coal mining there (Martin 2017). Particularly
in the Australian context, the majority of distributed energy jobs are not likely to be in
manufacture, but within potentially many SMEs engaged in deployment, including
design and installation, O&M, financing, consulting, and innovative new businesses
that harness ICT for energy management. The key driver of job creation will therefore
likely be the level of local deployment, rather than just seeking to develop and sell
distributed energy systems into international markets.
(ii) stimulate household and business demand for storage technologies,
Households and commercial buildings represent key stakeholders and potential
investors in distributed energy options. They are, of course, very well placed to
implement distributed energy systems that improve the resilience of their energy
services.
However, they face a challenging investment context, and broader difficulties in
effectively engaging with the electricity industry. The value of distributed energy
options hinge, critically, on the commercial framework within which deployment
resides; retail market arrangements and network tariffs. These arrangements need, of
course, to balance prosumer preferences against the wider economic impacts of
deployment. However, policy makers and regulators would also seem to be
struggling to reconcile their stated objectives of greater demand-side participation
with the realities of its potentially transformative impacts. In the Australian NEM,
recent developments, notably with supposedly more cost reflective tariffs, may
actually reduce opportunities for energy user engagement, or perhaps direct that
engagement in ways that reduce overall electricity sector effectiveness and
efficiency through grid defection. Certainly, they present and possible future tariffs
don’t provide a means for securing longer-term investment certainty for energy users
(MacGill & Bruce, 2015; MacGill & Smith, 2017).
More generally, the focus on more cost reflective tariffs may adversely impact policy
and regulatory efforts to more directly assist energy users to engage effectively in our
shared energy future. Energy users need assistance as well as appropriate price
signals to capture the distributed energy opportunities on offer. Unfortunately,
existing retailers and network business models aren’t offering the customer centric
‘energy services’ focus required for this. A greater focus on enhancing retail market
competition in desired ‘energy services’ instead of measuring it through price
spreads and customer ‘transfer’ rates would assist.
Submission on Resilience of Electricity Infrastructure in a Warming World – February 2017
7
(iii) anticipate the rapid deployment of localised distributed generation
through changes to market rules,
Australia certainly provides an example of rapid deployment of distributed
generation, with its world leading PV penetration that was achieved in only a little
more than half a decade. In some ways, this was actually facilitated by relatively
slow rule and policy change processes, that are in some ways now being used to try
and reduce PV uptake.
The key governance challenge is to facilitate appropriate distributed energy
deployment by both energy users and other stakeholders such as the network
businesses. Focussing key governance institutions on this task would be aided by
changing the National Electricity Objective to explicitly support technology and
business model innovation to address our urgent climate energy challenges.
There are good reasons for thoughtful, transparent and carefully sequenced rule and
policy change processes. However, Australian arrangements have proved slow in
managing some emerging challenges and opportunities. An important rule design
objective is universality in terms of the rules for different participants. The implications
of rule changes can never be fully known in advance, and hence warrants suitable
caution. One approach to supporting technology and business innovation in this
circumstance is to provide a framework for supporting locationally and temporally
constrained experimentation while providing time to incorporate learnings from such
trials and managing adverse impacts.
(iv) drive the reduction in technology costs through economies of scale,
There are certainly options to reduce technology costs through economies of scale.
These economies do not only arise in manufacturing, but also in supply chains and,
particularly, in the design, installation, operation and maintenance links of the supply
chain. For example, Australia has amongst the worlds’ lowest prices for home PV
systems despite having almost no local manufacturing (APVI, 2016).
More generally, most distributed energy options are highly capital intensive, meaning
that the key cost driver is the cost of finance. And the key cost driver of finance is risk.
Hence, policy makers should focus on reducing the risks of distributed energy
deployment. While the importance of investor certainty is well appreciated for large-
scale electicity industry infrastructure investment, there has been far less focus on
providing greater investor certainty for distributed energy options deployed by
energy users including households and commercial organisations. It is difficult for
energy users to lock in long-term contracts around electricity pricing or network
tariffs. Hence, their investments in distributed energy are at risk from changes to retail
contracts and network tariffs, with few options for securing longer-term
arrangements.
Finally, the focus should really be on value maximisation rather than cost reductions –
resilience is not generally aided by excessive focus on the lowest cost technology
options. Instead, resilience benefits from assessment frameworks that focus on broad
delivered benefits as well as costs.
Submission on Resilience of Electricity Infrastructure in a Warming World – February 2017
8
(v) seize on the opportunities to be a global leader in deploying storage
technologies because of Australia’s high fixed electricity tariffs and
significant penetration of rooftop solar; and
Australia is certainly uniquely placed to capitalise on the knowledge and experience
gained through widespread deployment of distributed generation here. It has the
highest household penetration of PV in the world (MacGill and Bruce, 2016), and has
been identified as an early market opportunity for storage, largely because of the
net metering arrangements now in place for PV that mean self-consumed PV
generation saves the household the retail tariff, while exported PV generation is paid
at a much lower rate, or not paid for at all. Australia’s high retail tariffs are part of this
commercial opportunity. However, the structure of the tariffs is key. High fixed costs
(eg. $/day) and lower consumption charges (eg. c/kWh) reduce the value of both
PV and storage compared to present NEM residential tariffs with primarily volumetric
charges (Oliva & MacGill, 2016). High retail electricity costs, abundant sunshine and
high household PV penetrations will not, alone, necessarily deliver the desired
storage deployment unless appropriate commercial and regulatory frameworks are
in place (MacGill & Smith, 2017).
References:
APVI. (2016). National Survey Report of PV Power Applications in Australia 2015. Australian PV
Institute.
Ausgrid. (2017). Smart Grid Smart City Battery Trials. https://www.ausgrid.com.au/
Common/Customer-Services/Homes/Solar-power-and-batteries/Battery-Trials.aspx
Bowyer, J., A. Bruce and R. Passey (2016). Regulatory and Retail Arrangements for
Community-owned Embedded Networks. Asia-Pacific Solar Research Conference. Canberra
APVI.
Energex. (2016). 2016/17 Demand Management PLan. www.energex.com.au.
Ergon Energy. (2016). GUSS rolls out to edge of grid customers. Ergon Energy -
https://www.ergon.com.au/about-us/news-hub/talking-energy/technology/ergon-battery-
energy-storage-systems-roll-out .
Fan, H., I. MacGill & A. Sproul (2015). Statistical analysis of driving factors of residential energy
demand in the greater Sydney region, Australia. Energy and Buildings 105: 9-25.
Haghdadi, N., A. Bruce & I. MacGill (2017). Impact of Distributed PV on Peak Demand in the
Australian National Electricity Market IEEE Power & Energy Society General Meeting 2017.
Chigago, Illinois, IEEE. Accepted.
Haghdadi, N., J. Dennis, A. Bruce & I. MacGill (2015). Real time generation mapping of
distributed PV for network planning and operations. Power and Energy Engineering
Conference (APPEEC), 2015 IEEE PES Asia-Pacific, IEEE.
Hungerford, Z., A. Bruce & I. MacGill (2015). Review of demand side management modelling
for application to renewables integration in Australian power markets. Power and Energy
Engineering Conference (APPEEC), 2015 IEEE PES Asia-Pacific, IEEE.
Submission on Resilience of Electricity Infrastructure in a Warming World – February 2017
9
Hungerford, Z., A. Bruce & I. MacGill (2016). Potential Value of Shiftable Domestic Hot Water
Load in Facilitating Solar Photovoltaic Integration in the Australian National Electricity Market.
Asia-Pacific Solar Research Conference. Canberra, APVI.
IEA (2016) Next Generation Wind and Solar Power, International Energy Agency, Paris.
MacGill, I. & A. Bruce (2015). Photovoltaics in australia: Time for a rethink. IEEE Power and
Energy Magazine, 13(2): 94-96.
MacGill, I. & A. Bruce (2016, March 29). Fact check: Is Australia the world leader in household
solar power? The Conversation.
MacGill, I. & R. Smith (2017). Consumers or prosumers, customers or competitors? – some
Australian perspectives on possible energy users of the future. IAEE Economics of Energy and
Environmental Policy. forthcoming (March).
Marshall, L., A. Bruce & I. MacGill (2016). Distributed Energy Resources and the Australian NEM
– a good match? Asia-Pacific Solar Research Conference. Canberra, APVI.
Ma, S., M. Goldstein, A. Pitman, N. Haghdadi, & I. MacGill (2017). Pricing the urban cooling
benefits of solar panel deployment in Sydney, Australia. accepted for Nature – Scientific
Reports. #SREP-16-32006A.
Martin, C. (2017). U.S. Wind, Solar Power Tout Rural Jobs as Trump Pushes Coal, Bloomberg.
Oliva, S., MacGill, I., & Passey, R. (2016). Assessing the short-term revenue impacts of
residential PV systems on electricity customers, retailers and network service providers.
Renewable and Sustainable Energy Reviews, 54: 1494-1505.
Riesz, J., & Milligan, M. (2015). Designing electricity markets for a high penetration of variable
renewables. Wiley Interdisciplinary Reviews: Energy and Environment, 4(3), 279-289.
Roberts, M. B., A. Bruce & I. MacGill (2015). PV in Australian Apartment Buildings–Opportunities
and Barriers. Asia Pacific Solar Research Conference. Brisbane. APVI.
Vithayasrichareon, P., G. Mills and I. MacGill (2015). "Impact of Electric Vehicles and Solar PV
on Future Generation Portfolio Investment." IEEE Transactions on Sustainable Energy 6(3).
Vithayasrichareon, P., Riesz, J., & MacGill, I. F. (2015). Using renewables to hedge against
future electricity industry uncertainties—An Australian case study. Energy Policy, 76, 43-56.
