10 minute read

How do we best integrate household batteries and solar into our energy market system?

Elizabeth Molyneux
Elizabeth Molyneux
23 December 2020

For over 100 years, the supply of electricity to peoples’ homes and businesses was simple. Large coal, gas-fired, and hydro generators produced electricity that was transported along the transmission lines (often seen running parallel to major highways and freeways) into the distribution network (poles and wires we see in our local streets) and then into our workplaces and homes.

Over the past 15 years, however, we have seen the development of a broad range of new electricity generation technologies across the world that have changed the way in which we generate and store energy in our homes and businesses.

To large extent, individual Australians have led this transformation - in the innovation of cost efficient solar photovoltaic (PV) technologies and in customers’ world-leading rate of uptake of rooftop solar.

According to the Clean Energy Council, more than 2.3 million households now enjoy the benefits of rooftop solar across Australia. Australia is also emerging as the world leader in energy storage uptake, with some 22,661 small-scale batteries installed in 2019 taking Australia's household storage capacity past 1 GWh for the first time. And while electric vehicle (EV) sales in Australia have been modest relative to global trends, government policies have the potential to facilitate increased uptake in Australia commensurate with overseas markets.

Solar PV and home batteries now mean that many of us have a choice of whether we buy electricity through the traditional centralised source or generate it ourselves in our homes or workplaces. These local energy sources (solar, batteries and electric vehicles) are commonly referred to Distributed Energy Resources (DER).


solar-070121
Australia’s connected customers increasingly draw upon a range of DER to optimise self-consumption and realise financial benefit from participating in Australia’s energy market system


This change is being shaped by forces of customer demand, how communities act, and how technology evolves – three forces that we at AGL believe will continue to determine the shape of the Australian energy market and will inform how we choose to act and invest.

With each change and step forward, the role of the energy consumer in the management of the energy network is becoming more important... and that is a good thing. But more is needed, and the reforms that the energy market regulators are currently considering have the ability to drive this faster and increase the control that the consumer has over when and how they use and store energy. And with this, ensure that the future reliability and affordability of the energy network is improved and maintained.

Just as reductions in the cost of household solar installation contributed to huge uptake, we believe that the anticipated reduction in the cost of battery storage technology will see more and more households install batteries to complement their solar generation capacity. This will allow these consumers to store the energy their solar panels generate during the day when they are at work and the sun is shining, so they can draw it down at night or better still, sell it back into the grid for use by another customer.

The Australian Energy Market Operator predicts that under some scenarios the amount of energy that is generated and stored by households (known as distributed energy resources or DER) will double or even triple by 2040, with most of that growth coming from household batteries. Electric vehicle growth is expected to follow a similar pathway, providing a new source of energy storage and flexible demand into the system.

As more and more households become part of the DER ‘revolution’ they, collectively, have the ability to be a significant contributor to the generation needs of the energy market and in doing so, we have the ability to address the volatility experienced from large solar uptake, by flattening the load profile through the day. This collective of households contributing into the network is known as a Virtual Power Plant, or VPP.

This change is already happening. AGL and others have successfully trialed Virtual Power Plants, working with thousands of households and businesses to coordinate, or orchestrate, their energy assets and demand to provide power to the grid just like a traditional power plant. AGL trials have suggested residential customers can achieve savings greater than ~$600p.a. from adding a battery to an existing solar system even under current arrangements. Orchestrated assets can supercharge the broader benefits of these assets for owners and the system.

The diagram below provides an overview of the three potential value streams that consumers can access from their DER assets, being:


Three potential value streams that consumers can access from their DER assets: Customer - energy affordability & independence; Wholesale & Ancillary Services; Network Support Services.

Yet the current market is not set up for customers to maximise all these potential benefits.

The customer and wholesale value streams are well-known and products and services exist and continue to develop that reward DER owners for these two streams. However, the network value stream is still in its infancy and there is much debate on the best way to unlock this value for consumers.

With network distribution costs making up about 40% of an energy bill, the reform package currently being considered by energy policymakers and regulators must look for ways to reduce the cost of these networks to households and businesses going forward.

Networks receive a regulated rate of return on their assets (i.e. poles and wires). There is a natural and regulatory incentive to resolve problems with the grid by either constraining the output of customer DER (eg previous control load approaches such as shifting electric water heating to evening times)or building new infrastructure to accommodate increased electricity flows or to manage peak demand on their network.

But there are other options that can better reward the wide-ranging contribution of distributed energy resources, so that the value of these assets can be maximized and shared between owners and all consumers.

To unlock this value, we need new arrangements that bring competition and innovation into network decisions, supporting the full range of options for customers to manage their own energy supply at the lowest cost. In many cases, innovative products and services that leverage the capability of new distributed energy resources will provide better value both to customers and to the broader grid than traditional network control responses.

Given the size of the energy transition, these structures need to make sure that customers can participate directly in the energy transition and are getting the most bang for their buck. We need to avoid the significant increases to their bills that were caused by the previous gold-plating of networks, and only competitive businesses that are responding to the needs of customers by providing the products and services they need will provide this with certainty.

According to some estimates, properly integrating and orchestrating DER could save $100 billion in electricity system expenditure over the period to 2050, by allowing the full value to be released and maximised. While the electricity networks will provide the infrastructure for much of the value to be delivered, the full value will only be unlocked by allowing innovative businesses to provide new products for solar, batteries, and electric vehicles to meet their customers’ needs.

The post-2025 energy market design process currently underway is a once in a generation opportunity to reconfigure our energy system and ensure we avoid continued accumulation of fixed costs in a distribution network that won’t be required in a DER future, but that will still need to be paid for by consumers.

This will maximise the benefit for owners, and be a key part of delivering affordable energy to all consumers through the energy transition. We need a system that turns up competitive pressure on expensive networks, promotes rather than holds back the contribution of DER, and supports all consumers.