In brief 10 min read
Technology notoriously moves faster than policy and law makers. In the energy space this has resulted in the development of distributed energy resources technologies and new business models that weren’t contemplated by the current regulatory regime, and which can pose safety and security issues to the South West Interconnected System. The Western Australian Government has addressed these and other issues through various work streams delivered (and anticipated) in 2020, paving the way for a new-look energy future.
Western Australia has seen significant developments in energy legislation, policy and planning in 2020, with key developments being:
- The Economics and Industry Standing Committee released a report considering the emergence and impact of microgrids and associated technologies, making recommendations for how they would best contribute to Western Australia's energy sector transformation.
- The State Government subsequently released a five-year policy plan to integrate distributed energy resources into the South West Interconnected System in a safe, reliable and efficient manner.
- Amendments to the Electricity Industry Act 2004 (WA) (the Act) allow Western Power to deploy standalone power systems (including microgrids) and distribution connected storage as part of its covered network, and recover the costs through regulated network tariffs.
- Amendments to the Act enable the development of a 'light coverage' framework for Pilbara networks.
Since the end of the Second World War, the demand for electricity in Australia has risen in parallel to economic growth. In 2014 the economy continued to grow, however the demand for electricity started to fall. This unprecedented decline was caused partly by the development of increasingly energy efficient appliances and machinery, and the increased uptake in distributed energy resources (DER). DER bring great benefit to consumers by allowing them to increasingly control how their energy needs are met, but also pose challenges and uncertainty for regulators and law makers who have struggled to keep up with rapid technological advances. DER can also threaten the stability of the network, and potentially the long-term existence of the traditional transmission and distribution infrastructure. This ultimately challenges the electricity market and generation landscape as we know it.
DER and microgrids have now become key components in the Western Australian energy mix and have fundamentally changed the way we produce and consume energy.
Where the South West Interconnected System (SWIS) was traditionally reliant on utility-scale thermal generation, DER and microgrids have now become key components in the Western Australian energy mix and have fundamentally changed the way we produce and consume energy.
The Western Australian Government has invested significant resources to addresses the benefits, opportunities and challenges posed by this rapidly changing landscape through the Economics and Industry Standing Committee (Standing Committee) and the formation of the Energy Transformation Taskforce (Taskforce).
Access regulation in the North West has long been a focus of the State Government, with changes now being implemented to the Electricity Networks Access Code and the pending introduction of the Pilbara Networks Access Code.
DER are small-scale devices that can either store, generate or use electricity, and form a part of the local distribution system serving homes and businesses. DER technology is classified as either behind-the-meter or in-front-of-meter.
Behind-the-meter DER operate for the purpose of supplying some or all of a customer's electricity needs, and may be capable of demand management and supplying electricity back into the grid. Behind-the-meter DER technology includes rooftop solar PV, electric vehicles, residential batteries and smart appliances. In-front-of-meter DER technology is connected directly to the grid and can include some types of renewable generation (eg small-scale solar and wind farms) and grid-scale/community batteries.
The size and type of DER installed by customers is typically driven by the capital cost and payback period of the DER technology compared to costs of traditional alternatives. This is largely dependent on the underlying tariff paid by the customer (and any rebates received from the government). For this reason, uptake of electric vehicles and personal battery storage remains low but is expected to rise as the cost of the relevant technology decreases.
However, with an annualised average of 8.8 hours of sunlight per day and the highest number of cloud-free days of all Australian capital cities, the SWIS has ideal conditions for rooftop solar PV. Customer investment in rooftop solar PV has reached $1bn over the last 10 years and almost one in three houses have rooftop solar, which now represents 1,100 MW of installed capacity – three times larger than the single largest generator in the SWIS. By June 2029, SWIS rooftop solar PV is forecast to have a collective generation capacity of 2,546 MW.
The traditional regulatory framework does not contemplate integration of DER.
The traditional regulatory framework does not contemplate integration of DER. It has been recognised that changes to policy, market and regulatory arrangements have been needed for some time and are vital to ensure increasing DER penetration does not threaten the secure, safe and efficient operation of the SWIS.
On 4 January 2020 the WEM experienced its lowest trading interval demand on record, being 1,141MW. Prior to the vast uptake of rooftop solar PV, no one would have ever anticipated that an all-time market low could occur around midday on a summer's day. However, the vast uptake of rooftop solar PV has resulted in demand from traditional generation sources dropping significantly during warm sunny days with little cloud cover, when solar installations are generating at full capacity and air conditioners are not needed.
Interestingly, the WEM's second-highest trading interval demand occurred just one month later on 4 February 2020, being 3,971MW.
These vast extremes are representative of challenges faced by the market, and it's clear change needs to happen quickly to address the impacts of the so-called the duck curve, which are forecast to result in blackouts from 2022.
To assist the State to respond to the opportunities, benefits and challenges posed by DER, the Standing Committee undertook an inquiry into the emergence and impact of microgrids and associated technologies in Western Australia (Inquiry). The Inquiry’s Terms of Reference were broad and included the potential for microgrids and associated technologies to contribute to the provision of affordable, secure, reliable and sustainable energy supply in Western Australia. In doing so the Inquiry assessed enablers and barriers, including regulatory barriers.
Themes across the Inquiry's 73 findings and 21 recommendations included the need for strong planning and regulatory reform. Key for consumers is the need to ensure access to affordable electricity, while ensuring operational security and stability. In the Committee's opinion, this will require system and network operators to have 'appropriate levels' of sub-transmission visibility and the authority to control microgrids and associated technologies (ie the ability to turn off).
Not surprisingly, traditional tariff structures were also identified as increasingly problematic, benefiting customers with behind-the-meter DER technology due to payments being largely associated with energy consumption and not network costs.
Western Power has a vital role to play in integrating DER technology into the SWIS, which has been facilitated by amendments to the Act, discussed below.
Progressed in parallel to the Inquiry, the Taskforce's Energy Transformation Strategy is designed to ensure delivery of secure, reliable, sustainable and affordable electricity in Western Australia. The Energy Transformation Strategy comprises three components over a two-year work program.
The first component, released on 4 April 2020, is the Distributed Energy Resources Roadmap, which provides the State's vision for 'a future where DER is integral to a safe, reliable and efficient electricity system and where the full capabilities of DER can provide benefits and value to all customers'.
The Roadmap comprises four key themes:
- Technology integration: The DER Roadmap envisages a future where DER is no longer a passive market participant, invisible and unmanageable by the system and market operators. Rather, there is scope for DER to be an active market participant that can be seen, controlled and place aggregators and customer DER at the centre of the value chain. A register of DER installations in the SWIS is a vital component in providing visibility of DER across the SWIS, and allows it to be considered in operational models.
- Tariffs and investment signals: There is a demonstrated need to resolve issues that have arisen as a result of the uniform tariff for small customers in the SWIS. There are currently minimal incentives for customers to use energy outside the morning and evening peak periods, contributing to the duck curve. Further, customers with behind-the-meter DER pay lower bills, cross-subsidised by those customers that have not installed DER as the uniform seeks to recover costs through energy use with little regard to the fixed costs associated with the network (often also criticised on the basis that wealthier consumers are the ones who have been first movers in rooftop solar PV). Tariff structures will seek to affect how customers invest in DER and encourage behind the meter storage (ie residential batteries). There will be a fine balance to strike when managing the risk and reward of such tariffs, particularly where investments have been made by consumers based on an understanding of the pay-back period calculated on a flat tariff regime.
- Customer protection: DER is likely to lead to an emergence of new business models. This will require customer protections, licencing and regulatory arrangements to be appropriately applied in situations where customers may be part of an embedded network or microgrid. Access to data and privacy concerns are critical to unlock these new business models, especially as Western Power rolls out new smart meters for all new connections and as part of its routine meter replacement program.
- DER participation: The Roadmap strives for a decentralised model of supply and envisages a future where customers are 'active participants' in the power system, driving down the need for traditional generation capacity. Existing processes regulating Western Power's network investment decisions have favoured traditional investment over innovative DER solutions. Updates to the Electricity Networks Access Code have been introduced to facilitate better procurement of non-network DER solutions (eg third-party provided community storage). New regulatory provisions are necessary to enable AEMO to manage and dispatch DER. A virtual power plant will soon be piloted to test the capabilities of DER aggregation and its future role in providing a range of services to the market.
The remaining two components of the Energy Transformation Strategy are still being developed.
The Whole of System Plan will focus on the future needs of the SWIS, identifying and guiding investment in the power system and assisting in the transition to a lower-emissions power system. It will provide guidance to industry, regulators and policy-makers.
The Delivering the Future Power System will aim to modernise the way the SWIS is regulated and managed. This will include the implementation of a constrained network access model, expected by 2022 (which has been under discussion for many years) and changes to the reserve capacity mechanism. A move from Synergy dispatching on a portfolio basis (across all its generation facilities) to a facility-by-facility basis will improve the transparency of dispatch decisions, allowing the market to better respond to new investment opportunities, thereby promoting competition.
Western Power's role in planning, investment, operation and maintenance of the distribution network to ensure security, safety and reliability of supply will continue. However, the challenge will be for Western Power to transition into a more active distribution system operation role, utilising available technology advances to optimise the use of renewable generation on the existing distribution network. Changes to the regulatory framework commenced in April 2020 included changes to the Electricity Industry Act and allows for standalone power systems and distribution-connected batteries to comprise part of the SWIS. This will provide Western Power with the ability to use renewable energy to address reliability challenges experienced by regional and remote customers, with standalone power systems being a key tool in Western Power's future autonomous network.
The April 2020 amendments to the Act also provided for the development of a 'light regulation' regime to apply to electricity networks in the Pilbara. The regime will be implemented through the development of the Pilbara Networks Access Code and Harmonised Technical Rules. The proposed Pilbara Electricity Objective underpinning this regime is to promote the efficient investment in, and efficient operation and use of, services of Pilbara networks for the long-term interests of consumers of electricity in the Pilbara region. Delivery of the regime is expected mid-2020, with some key aspects still to be made available for public consultation.
- Time of use and demand-based tariffs will be trialled in the Perth-metro area, intended to encourage efficient use and shared benefits of DER with all customers.
- Immediate deployment of community power banks in 10 locations to address immediate network needs. Widespread deployment will follow in 2021-2024.
- Work has commenced on the licensing and regulation frameworks for new business models.
- Consultation on amendments required to the Electricity Networks Access Code 2004 to facilitate changes will soon commence.