Giving new meaning to 'going off grid': can alternatives to utility scale generation solve the energy transition?

By Melissa Keane, Skye Kirby, Madeleine George, Jun Chong
Energy Private Capital Private Equity Renewable Energy

Challenges facing the energy transition present opportunities for consumers and investors 7 min read

Energy consumers and investors in Australia are understandably frustrated by the delays to transmission buildout and renewables development and the impact of these delays on our trajectory towards net zero.

However, challenge presents opportunity, and the emerging alternatives to both utility scale generation and major transmission provide both consumers and investors with cause for optimism.

Canny consumers and businesses are looking for ways to reduce their energy bills and, in doing so, contribute to the energy transition, either by generating their own supply, reducing their demand or both.

As canvassed in our recent Insight, innovative investors are looking to capitalise on this trend and invest in alternatives that do not rely on the main grid, but which can be scaled up to mimic traditional large generation assets (and generate commensurate returns).

While the market bodies are busily pushing these alternatives up the reform agenda to ensure the regulatory framework adapts to encourage this investment, the resulting commentary has shone a light on the complex terminology once we move beyond the elementary 'generator' and 'load'. Consumer energy resources or distributed energy resources? Is that different from distribution connected assets? DER or DSR? Behind the meter, microgrids, VPPs and SAPS—it is a brave new world with a raft of new words to match.

This Insight offers a 101 on some of the most popular alternatives to utility scale generation: what they are, how they shift reliance away from the grid, and some real-life examples of investors embracing these new ideas.

Key takeaways

  • Despite the delays to transmission buildout and development of renewables, consumers and investors are looking to 'off grid' alternatives for their energy supply and investments.
  • The terminology in this area is complex and terms are often confused or used interchangeably.
  • Popular alternatives include supply-side and demand-side solutions, as well as private networks and connecting directly to the distribution network.
  • These alternatives are receiving increasing attention from policymakers—the AEMC's view is that consumer energy resources could contribute 20% of the energy solution in Australia.
  • Moving away from traditional utility scale projects requires different investment models, which we explore in our recent Insight.

What are the 'off grid' alternatives?

Broadly speaking, the alternatives to utility scale generation can be grouped into four buckets, each of which serves to reduce reliance on the high voltage transmission network owned and operated by TNSPs.

Supply side

Supply side alternatives allow a business or consumer to go off grid to some degree by generating and/or storing their own power.

For businesses, this might include a private generation or storage facility located on their side of the meter, alongside their existing operations (hence the behind the meter moniker, also referred to as co-located assets).

For consumers, this includes rooftop solar panels, EV charging stations and community batteries, and is often referred to as consumer energy resources (CER) or distributed energy resources (DER). These consumer-led resources can be aggregated to provide a coordinated response, known as a virtual power plant.

Demand side

These alternatives, referred to as demand response or demand side response (DSR), are also a form of CER/DER but instead involve a business or consumer reducing or flexing its demand (load).

The reward is potentially twofold: in addition to spot price arbitrage, additional incentives are available in recognition of the fact that demand reduction provides a stabilising service to the grid.

Distribution connection

These alternatives involve generation or storage assets connecting directly to the lower voltage distribution network instead of the transmission network. One example is the Birdwood Distributed Energy Platform. Embedded networks service consumers by way of private network (such as in a shopping centre or apartment building) that is connected to the distribution network.

Private networks

These alternatives are effectively mini networks that are owned and operated for the benefit of a single or defined group of users, reducing their reliance on the transmission network. These include microgrids (which form part of the main grid, but which can operate independently), and standalone systems (SES/SAPS) which operate entirely independently of the main grid.

To explore any of these concepts in more detail, click on the interactive definitions and examples below.

Recent regulatory developments

While none of these solutions are new, they are receiving increasing attention from market participants and policymakers in light of the challenges facing the transmission buildout and uptake of renewables:

  • In November 2023, Australia's State and Federal Energy Ministers agreed to develop a 'National CER Roadmap—Powering Decarbonised Homes and Communities', to unlock consumer benefits and deliver national reforms for the efficient, effective and fair integration of smaller scale energy resources.
  • The 2024 ISP noted that the uptake of CER is increasing faster than initially predicted, with AEMO forecasting 18GW more rooftop solar capacity by 2050 compared to the 2022 ISP forecasts. In the first quarter of 2023, rooftop solar contributed more to the NEM's total electricity generation than utility scale solar.
  • Anna Collyer (chair of the AEMC) has suggested that CER could form at least 20% of the energy solution in the NEM, reducing the need for utility scale solutions and saving Australians as much as $6.3 billion. The AEMC is progressing a suite of CER market reforms that seek to facilitate better integration and management of CER through flexibility, trading and participation in the NEM-scheduling processes. Draft determinations for the relevant rule changes are expected to be published in the coming months.
  • The Energy Security Board (ESB) presented a report to the Energy Ministers in November 2023 on 'Consumer Energy Resources and the Transformation of the NEM'. The report urges governments, market bodies and industry to deliver on six priorities as CER policy is at a 'critical juncture': these include redefining the functions of Distribution Network Service Providers to ensure clear accountability, developing a future-fit framework for CER standards and addressing consumer protections.
  • The embedded networks regulatory landscape is dynamic and subject to ongoing change across the States. The AER regulates who can operate embedded networks and, in November 2023, released its 'Review of the AER exemptions framework for embedded networks'. The AER is considering reforms that will impose new reporting obligations, require future embedded network service providers to demonstrate customer benefits and limit future exemptions under the Network Guidelines.

We will continue to track the level of interest in these 'off grid' alternatives to utility scale generation, explain any new investment models as they emerge and keep you up to date with the associated regulatory reforms.

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Key industry definitions and examples

Definition Example(s)
Consumer energy resources / distributed energy resources are consumer-owned devices that generate or store electricity and include flexible loads that can alter demand in response to external signals.
  • Consumer energy resources (CER) include rooftop solar, batteries, electric vehicle chargers and controlled loads such as water heaters and air conditioners. Typical household solar batteries have a power capacity of about 10 kilowatts (kW).
  • Distributed energy resources (DER) include larger assets such as community batteries connected to the distribution network, typically ranging from 100 kW to 5 megawatts (MW).
Behind the meter
Definition Example(s)
Behind the meter refers to the energy systems located on the customer's side of the utility meter. Any generation or storage facility co-located with a load centre on the customer's side of the meter.
Industrial zone microgrids
Definition Example(s)

A microgrid is a small 'subset' of the electricity grid that provides energy generation and storage at a local level and can operate independently of the grid during power outages.

  • Peel Business Park (Nambeelup Kaadadjan) developed by Zenith Energy—generation and storage assets with a capacity of 3.7MW.
  • APA recently acquired assets in the Pilbara region which appear to have characteristics of an industrial zone microgrid.
Standalone Energy Systems (SES) / Standalone Power Systems (SAPS)
Definition Example(s)

SES / SAPS are off-grid systems that operate independently of the main network and are fully self-sufficient.

Western Power is set to invest in 4000 SAPS in the South West Interconnected System to provide customers in regional areas with reliable power.

Embedded networks
Definition Example(s)

Embedded electricity networks are privately owned and managed networks that generally buy electricity in bulk and on-sell it to customers inside the network.

Common in apartment blocks, retirement villages, caravan parks and shopping centres.

Virtual power plant (VPP)
Definition Example(s)

VPPs broadly refer to the aggregation and coordination of CER / DER to support the stability of the grid.

Enel X Australia VPP with a capacity of 95MW (comprising three separate VPPs each 50MW, 20 MW, and 25 MW) was successful in the LTESA firming infrastructure tender in NSW.
Demand response or demand side response
Definition Example(s)
Demand response is the voluntary reduction or shift of electricity use by customers that helps to keep the grid stable and balances supply and demand. Enel X Commercial Refrigeration Flexible Demand Project—440 stores across the grocery, supermarket, convenience and beverage sectors are using refrigeration assets through Enel X VPP to participate in flexible demand programs with the aim to deliver 15.5MW of flexible demand.
Community batteries / Neighbourhood batteries
Definition Example(s)
A community battery (or neighbourhood battery) is an energy storage model that provides local neighbourhoods and the wider community with access to stored energy. Typical household solar batteries have a power capacity of about 10 kilowatts (kW), while neighbourhood-scale batteries range from 100 kW to 5 megawatts (MW).

Yarra Energy Foundations' North Fitzroy community battery (110kW/284kWh).

Distribution network connection
Definition Example(s)
Connection of generation or storage assets (including CER/DER) directly to the distribution network. Birdwood Distributed Energy Platform—a partnership between Aware Super and Birdwood that will comprise scalable, decentralised energy technologies like small-scale solar and batteries that are connected to the distribution network.