Is local electricity cheaper?

Is local electricity cheaper? I believe it is, and I believe we need to price the system to move it toward this outcome.

I’ve written about this topic before – Here and Here, so let’s explore.

We have huge centralised systems. In part to exploit the economies of scale. In part because our energy sources have traditionally been concentrated.

We are entering an era of decentralised energy. Sunshine is available everywhere. Wind has been exploited at scales of 50-500MW – still more dispersed than the past model of 4 x 200MW generators all in a single power station.

Tackling climate change is an urgent need so I am not even going to discuss it. I’ll assume 100% renewable energy is the future and show that we can get there cheaply. Let’s get the price signals right, in order to do this faster than we currently imagine.

Lets consider three main price components of our energy.

  1. Generating the energy,
  2. moving it around the system in time (eg storage) and space, and
  3. providing enough backup to have a resilient, reliable supply

The fourth biggest asset in our system is energy efficiency and flexible load, opportunities that the end user has to contribute to reducing the overall cost of the system. (see, for example, Europe’s ‘Efficiency First’ strategy). We have yet to exploit this effectively. I haven’t included it in the costs because we should be able to deliver it tenaciously in a cost-neutral manner (ie with good paybacks and positive cost/benefits)

We also have a system that is capital cost/infrastructure heavy, and becoming more so. About 50% of our costs tied up in assets we have already paid for. So using existing assets might be cheaper than changing our patterns of use in the short term, but we want to design a system that directs new investment into the fleet of assets we want for the future, not more of the traditional, relatively-expensive stuff.

The three price components are interrelated. If I generate locally, I don’t need to move the energy as far. If I have storage to better match supply and demand, it can also provide backup services etc. For now, lets assume that each component is about a third of our costs.

I’ve played with the numbers and come up with the following comparison:

price stack comparison

Generation: Rooftop solar is competitive in cost with the average wholesale market price and large scale renewable energy, located at the best solar or wind resource, is the cheapest of all. Using our rooftops has the added benefit of not using land that might have alternative uses and value. The lowest possible generation costs would come from cheap renewables that can be used instantly and locally. The ‘cheap’ system worth moving toward has diverse cheap sources, many of which are local. And flexible loads that are turning on when there is surplus – surplus generation needs to be well priced, well forecast and well managed for optimal use.

Network and Storage: Our distribution network is priced the same for all regions, despite the fact that significantly more assets are supplied regionally. This is known as postage stamp pricing. It is priced by energy consumption (kWh) so the increasing numbers of solar owners are reducing their network contribution.

The economic case for building transmission assets, by contrast, is developed based on the price differential that can be exploited between regions and the additional capacity benefit. As local energy sources are developed, the investment decisions of 70% of the distribution assets can move to this economic rationale. For much of high voltage system above 11kV there may be a case for no new investment.

The ‘cheap’ system to move toward will be shared local distribution and storage to best utilise local assets plus a thinning high voltage mesh to interconnect regions.

Backup: We have long known that in places with no network, a diesel generator and a fuel tank provide cheap backup. The capital lying idle is cheap, the operating costs are expensive but you only do it when needed and for your essentials. Every system has a failure point and we often build in additional assets to counter for this. Our network will out-compete batteries for some time to come but anyone at the end of an unreliable long network will know that battery + network or genset + network is already a better solution than relying on network alone. We overbuild this backup capacity because the network provides all or nothing. The cheapest future option will be less reliable network supplemented with local supplies and storage sized for high priority loads only.

Local Economy: The electricity system doesn’t value the benefit that can flow to local economies. Enova estimates that is can keep 25% of the money spent on electricity within the local area by being a community owned electricity retailer. Indeed, the move toward rooftop solar has put money back into householder pockets to be spent locally instead of flowing to the shareholders of utilities. The value of local ownership, local installation, generating local jobs and skills, plus additional economic value by relentlessly pursuing energy efficiency and making our loads more flexible all contribute to a local economy.

Fairness: Two sections of our communities are particularly vulnerable to price hikes. Our lowest income quintile and our energy intensive industries.

We need our energy intensive industries as job providers. Small business like food and drink production and manufacturing can spend over 10% of turnover on energy. Industrial scale processing and mining have similar factors for energy intensity. Increasingly energy prices is on the radar of the Board. These businesses have a challenge to adapt to the future and be the first to put their hands up for our cheapest surplus energy.

People on low incomes suffer disproportionately. They are more often renters and the house they live in may be an energy guzzler. They often have health needs and higher than average energy consumption. They don’t have solar. I have collated some of the data in my Renewables for All posts. Since our energy supply is increasingly capital intensive, I am attracted to the idea that we could have fixed tariffs for some people. For example, the book Scarcity shows that you would do better for someone in difficult financial circumstances if they had the option of regular manageable payments and the ability to build up an emergency fund if the cost was a little higher than needed. The challenge would be to design this so the provider was incentivised to kit such households out with cheap rooftop solar, energy efficiency and flexible load management so that the fixed cost was as low as possible over the long term.

Local priorities, governance: The final advantage of local energy is the ability for communities to agree their own priorities and costs, to control the transition of the system and to chase local opportunities. Many of the community energy initiatives around Australia demonstrate how different local priorities can be and the effort communities are prepared to go to.

The Way Forward

What does pricing look like to deliver us a cheaper, more reliable and fairer system?

Congestion pricing tells us we need a ramping price mechanism to usefully incentivise many people to move behaviour throughout the peak and shoulder cost periods. This might apply at the other end of the price scale for surplus energy too.

Behaviour change experience shows that only some people will engage with the data challenge and after developing a few heuristics will move to a set and forget regime.

In pricing debates, the need to provide consumers with simple options is emphasised repeatedly.

Smart home technology is bringing the capacity for control and monitoring down to a cheap and accessible scale. Some of the technology companies in this space emphasise that customers want to retain control.

New technologies open the way for new business models and therefore different pricing mechanisms.

Much work has been done by the regulators, AEMO and others on tariff options but the incentive to deliver value to consumers is stymied by the market structure. Pricing needs to consider  the consumer perspective and alternatives. It needs to see the whole retail/generation/network costs, the cost of network upgrades and connections and the additional costs of energy assets behind the customer meter.

I propose that the energy sector needs to run a co-design process that pushes the boundary on how we think about energy charging for now, for our transition pathway and for our 100% renewable energy future.

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One small change to delight those who walk around our city

red walkEvery few months I get a bee in my bonnet about the settings on the pedestrian signal at a traffic light. Most recently I watched two big groups wait through a whole cycle of lights just outside the Piccadily cinema. They were crossing the skinny part of the street (Childers) so they had oodles of time but because they were in two big groups and the light was red and no one had broken ranks, they collectively ‘wasted’ about 15 people x 70seconds = over quarter of an hour. This cycle is repeated in various forms throughout the city all day every day.

Every year or so, I do something about the bee in my bonnet and try to engage Adelaide City Council. I’ve been doing this for the past 6 years but I haven’t been overly successful.  I’ve learnt along the way so I thought I would document some of the points and continue to advocate for a mini co-design process that would get us a good outcome.

And what a good outcome it could be. Based on an estimate of 10,000 pedestrian movements that could be improved daily, a 30second saving per person equates to 30,000 hours per year saved, happier pedestrians and a more vibrant city. That’s right! Our traffic light design wastes pedestrian time to the equivalent of three+ people’s lives. That’s not how much time is spent standing and waiting[1], just the time unnecessarily wasted.

I won’t go on about the case for change, you can read my documentation and recommendations for Council yourself.

Here are some reasons for a co-design process:

  • the experts need to be involved but everyone I have met won’t drive change in a timely way – a higher force is needed.But also a champion to sit with the process – I’ve offered repeatedly to be the provocateur but I suspect they don’t want me. 😉
  • The experts can’t see the car-centric paradigm that dictates all their current designs. Incremental change would need to be respectful of this current paradigm.
  • there are issues. The end of my street was put on a ‘long green’ and then reversed because the local blind people couldn’t hear the signal.
  • future proofing means you might consider the responsiveness as being important. In future, we might expect our app to highlight to a traffic signal that we are approaching.
  • this appears to be city-centric. The CBD has dedicated walk settings for large numbers of pedestrians but the next level out have many lights, often across low-traffic and skinny streets. This is the main opportunity for improvement.
  • with co-design you can iterate around cheap options and more expensive / longer term alternatives.
  • we need to remember this is a techno-social system so changes need to be backed up with car and walker education.

Finally, I am torn on a path forward. I will give the Council one last opportunity to respond positively but then I need to be more proactive myself with a clear “change-tactic”. I have avoided campaigning to date, after all, this is a little issue, surely not worth tying everyone’s time up with but I probably need to find more allies. My preference is to keep poking the system until I find a champion – sometimes this can be about a policy ‘window of opportunity’.

All ideas welcome.

[1] Public Spaces and Public Life Study 2011 reports that many parts of the city have between 5,000 and 25,000 pedestrians during a day. It would be fair to guess 100,000 movements per day that wait at one traffic signal (probably more) for an average of 45seconds (because you can be waiting for 90 seconds). That’s 500 people waiting 24-7 all year around. Some of this is unavoidable but it does make my estimates for improvement above look rather conservative.
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Could we make electricity free?

744156-power-prices-chartThis draft blog was 18months old but as I’ve just revisited the topic, I decided to finally publish it as a basis for thinking about electricity prices.

I believe that we should make our electricity free (or almost free) at certain times when we have surplus. This doesn’t happen very often at the moment but will happen more in future. Solar and wind power cost nothing to produce and the incremental cost of running power through under-used powerlines is tiny, we’ve already paid for that asset.

Our power lines spend an awful lot of time being under-used and each year South Australians fork out $1bn toward their cost. I would like to see us encourage twice the usage, maybe even three times as much on our system and then costs for everyone could come down. A renewable energy future looks more and more likely to be electric, so even if we can’t grow our electricity usage through economic activities (more on that in a moment), we should be able to grow it by providing renewable heat and renewable transport energy – taking over from gas and petrol.

How should we price electricity to encourage the transition we need?

This blog covers some of the things we need to think about. I think the principles behind electricity pricing are failing us. There is room to manoeuvre and I’ve explored below some of the issues we need to understand in order to rethink the challenge from scratch.

We know that electricity supply is mostly about big capital investments – electrical poles and wires, power stations, meters and billing systems. Our newer sources of electricity – wind, solar and batteries (on the horizon) are all about up-front capital investment. Once the investment is made, the cost to produce electricity every day is practically nothing. So I’ve tried to answer the question about how the cost of this capital investment should be spread around by looking at the alternative investments we might want to encourage.

We are already familiar with the cost sharing arrangements at the moment. Charge everyone by the amount they use (kWh)… or …the biggest user should pay the most (kW)… or …everyone should have some fixed charges just to access the service. In fact the electricity system uses a combination of all three charging types to try and send price signals to customers but there is an awful lot of averaging that goes on so the system is far from perfect.

I’ll start by framing up the issue with some of the perceived wisdom that currently determines our electricity pricing regime.

Networks – paying for a fixed asset

The cost of networks make up approximately 60% of our electricity prices. We pay for the poles and wires that bring our electricity to us. We have built a system that connects large centralised power stations to distant loads all over South Australia. We have built interconnectors between SA and Victoria to increase competition and give us access to cheap electricity. Much of this system is considered a monopoly – you wouldn’t build a second set of poles and wires just to make it competitive. And so we regulate the prices and guarantee SA Power Networks (and Electranet) a fixed amount of income each year to own and operate the network.

The perceived economics wisdom on network pricing is that customers should see a price signal for their peak load (kW) that equals the cost of building new network to accommodate their load. That way, new network will be built when the customer values new network more than it values reducing its load. This is called Long Run Marginal Cost (LRMC) and isn’t a simple matter to calculate and isn’t necessarily very accurate for signalling real costs to real customers. One of the biggest distortions is that costs vary by location and while there might be economic benefits of accurate, locational pricing, regulators have generally decided that it is fairer to charge everyone the same amount across the network, known as postage stamp pricing.

There are also annual operation and maintenance costs that can be distributed among customers in accordance with how much electricity they use (kWh). My understanding is that SA Power Networks consider these costs differently at different voltage levels so that only the small customers end up paying for the low voltage distribution network.

Then there are residual costs. Now this is interesting. If a network has no load growth then the bulk of costs can be residual. They are for large costs like paying down previous capital investments or smaller charges like managing the overheads of the business. The regulator recently investigated how such charges should be allocated among customers because there is no relationship between customer usage and costs. Networks, regulators and economists around the world offer different ideas about how these costs should be allocated. These costs should be of big interest to us because we are experiencing declining network demand at the moment. (The networks, however, are still being granted permission to invest in more capital infrastructure so investment costs remain and that is a debate for another day)

Traditional Generators – capital cost vs running cost

In the wholesale market traditional generators compete for the privilege of supplying electricity and they are largely dispatched in order of their running costs. Wind first at zero cost, then coal at under 2c/kWh, gas at around 5c/kWh, open cycle gas is closer to 10c/kWh and finally our peaking plants which can cost an eyewatering 40c/kWh to run. (These prices come from Acil Tasman’s estimates of Short Run Marginal Costs (SRMC) reflecting fuel and operating costs and don’t include carbon pricing).

The generators bid into the market at the prices they can afford. Given that they also need to pay off their capital and overheads, these prices will be based on estimates of how often they will get to run in the year in order to recover all their capital costs. As you may know, peaking plants are cheap to buy and expensive to run. They are installed to provide insurance to the retailers that they will be able to buy electricity during peak demand and they never intend to run for many hours in a year.

Renewable Energy Generators

Wind and solar have been the subject of over $5bn of investment in South Australia over the past 10 years. Both are subsidised under the Renewable Energy Target (about 4c/kWh) which everyone in Australia pays for (through electricity charges). In addition, many solar generators receive a feed-in tariff for surplus solar energy (16c – 44c/kWh) which is paid for by all South Australians (again through electricity charges).

Wind generators recoup their capital costs through interaction with the wholesale market. The most recent bid to ACT suggests that the Hornsdale wind farm only needs an unsubsidised 9c/kWh to commercially successful making it competitive with most new fossil fuel investments.

Solar generators recoup their capital costs by selling direct to the household or customer. These ‘behind the meter’ arrangements are worth over twice the value of wholesale energy arrangements because they avoid all the costs in the system including network charges, retailer costs and taxes. A recent article suggests the cost of utility-scale solar is set to drop below 8c/kWh and could be completely covered by the rising RET price.

Other costs

There are also other costs (approximately 10%) associated with retailers and market charges but I will ignore those for the purpose of this discussion.

Now that you understand the components of cost, below are the graphs of my estimates of what we pay for in South Australia and who pays. (you need to note that the asset value is far short of replacement costs, it is simply my estimate and published figures of the amount we are still paying off)

SA electricity costs

The main conclusion here is that over half of our costs can be linked to capital investment only. In fact if you targeted fuel use as the only short run cost that you wanted to recoup through pricing then over 80% of your costs disappear at times when you might want to encourage uses of cheap power.

Principles

The main economics principle is that if you set the right pricing mechanism, the cheapest solutions and investments will emerge and this is economically efficient. So the next section will explore the cost of solutions. Be warned, I am a believer that if we get this right, we can have the cheapest cleanest electricity system on the planet. The goal of this discussion is to ensure we understand our options and reasons why the current system might fail to price these well.

It is also worth noting some other pricing principles that the regulators follow because there will be no changes if we don’t respect these:

  • Fairness is a goal and usually interpreted as treating comparable customers the same. All households are considered a single customer class. SAPN has proposed to treat solar customers as a group, but the regulator has pointed out that then airconditioning users might have to be their own group – both having a rather peaky profile.
  • Gradualism suggests that no one likes bill shock and changes to any cost allocation system need to happen gradually.
  • Ramsey pricing is an economic principle that suggests those with inelastic demand should carry the burden of residual costs in order to leave the price signal pure for those who can respond by adjusting load. It might be a great idea in theory but it would be wrong and unpalatable to assert that the whole household sector has inelastic demand (as proven by those who’ve installed rooftop solar) and therefore should carry most of the cost (good way to cause an uproar).

Value

There is a famous quote that Alexander Graham Bell would not recognize today’s telephone network, but Thomas Edison would feel right at home running our current electrical grid. Technology is changing that proposition and a smarter grid offers the chance for every user to interact on the system, every small generator to offer services and whole neighbourhoods to operate autonomously as micro-grids.

We need to start seeing electricity supply and use in a more nuanced fashion than we once did. I think we need to consider our energy use and supply as having a hierarchy of values:

  1. needs triangleEssential capacity:
  2. Firm capacity: This should cover a customer’s day to day needs.
  3. Manageable (sometimes) capacity: For loads that can be turned off or down in response to peaks which occur for maybe less than 20 hours per year or an ability to make my solar surplus available for export.
  4. Flexible Load: My hot water for example that can be “charged” when it is best for the system.
  5. Flexible Capacity: Battery storage for example has a flexibility both when it is charged and when it is discharged.
  6. Emergency response: Most of us would happily turn some things off in preference to suffering a complete black out providing it only happened occasionally.

Here are some further ways to value electricity that we may not have thought about before:

  • The use of our state’s electricity assets for value-added production supporting jobs and the economy;
  • Finding higher value for surplus – which can be about timing, plenty of wind in the middle of the night, and can be about spare capacity, the network is 80% underutilised.
  • Fulfilling basic needs. Energy poverty costs lives as it undermines people’s ability to manage health, comfort, cooked food etc.
  • Community building if local generation is owned and operated by communities (relating to the subject of my Churchill Fellowship)
  • Local resilience if the system moves toward a network of micro-grids and away from the vulnerability that exists in any centralised system.

The Electricity Act recognises social objectives and therefore places some value on the points above but it fails to explicitly articulate the environmental value of reducing the carbon intensity of our electrical production, which of course is the key reason we need a fast transition to clean energy.

 

Useful references:

Rooftop solar to cut total grid demand to zero in South Australia

http://cleantechnica.com/2015/05/27/the-past-present-future-of-electricity-in-australia/ – it has the price index graph

 

 

 

 

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Pricing the Electricity Network

[Post originally drafted 2 years ago, on the basis of my recent post, and discovery of this one, I’ve decided to publish this one too]

How should we share the costs of our electricity grid? – both now and in a 100% renewable energy future. This is my dilemma of the week as SA Power Networks seeks input on its electricity tariff reforms.

While I have a wonderful vision of small scale local solar energy powering a network of microgrids at lowest cost to consumers, we have yet to get there. On our journey through this energy transition we will have to finish paying for our existing infrastructure as we wean ourselves off fossil fuels and the large generators at the heart of a big centralised system. And the way energy (and the grid in particular) is currently priced distorts our incentives to invest in the new – however tariff reform should present us with an opportunity to support necessary change.

SAPNSA Power Networks (SAPN) is expected to charge it’s customers $3.2bn over the next 5 years. There are around 840,000 of us – 740,000 households and 100,000 businesses. There’s only a handful of very large businesses but the top 5,000 businesses use half the electricity on the system. Because the SA Power Networks revenue is regulated the discussion is essentially about sharing the $3.2bn of charges in the fairest manner. And the regulator has asked every network business to move to cost reflective pricing – which means if the capacity in the system has been built for you then you should be paying for it on your bills.

SAPN is consulting on it’s proposal to move to demand based tariffs. The assertion is that the best way to measure the capacity on the system that is allocated to you is to measure your demand at the times that the system is heavily loaded and allocate your share according to the peak demand you draw in those times. SAPN has already indicated that it will target 12pm – 4pm all year round as a business peak and 4pm – 9pm from November to March as a peak time that both business and households will be charged for. This might be a reasonable approach. At the moment we use the volume we consume as a proxy for the capacity that we need on the system. There is a big difference between a load with high airconditioning needs at peak times and one without, even if they both use the same amount of electricity. The former is clearly contributing to the massive investments in electricity infrastructure that have been occurring over the last decade and it makes sense that this sort of load pays more.

Before coming to conclusions about what is the right way to price electricity, lets explore some of the nuance and cast this discussion in terms of where we need to get to.

I thought I would go back to first principles about how I would price the network. (Suffice to say, I got lost and my integrals are too rusty to pull that one off.) But the thinking made me come up with my own principles, which I’ve described below. Firstly a discussion about peak load…

Peak Load and what the system does for us

The peak load tells you what you ask from the system at the time when you need the most energy. The capacity available to you is determined by what size assets have been built and who is demanding energy at the same time. Improving asset utilisation means the same network can do more at a fixed cost – reducing the cost by making the network asset work harder. Traditionally we measured this in terms of load factor – If I divide the system peak demand by the average demand I get a load factor of 42% (down from 50% eight years ago). This is an indicator of how well the system is utilised but not the only story.

For a start the system has higher capacity than the peak demand we have been seeing in recent years. Only parts of the system are constrained during peak load on the hottest days so there might be capacity locally but in the aggregate, the capacity built at a central level has been most effectively sized to match the load. A typical small business might only have a utilisation of 20%. (think about it, a working week is only 25% of all the hours in the week) The business load complements the household load to some extent as people either use energy at work or at home. But we all sleep at night so that is when the state’s asset utilisation is at its lowest level as well as our local asset utilisation. Two households might both use 0.5kW on average but the family with small children who are home a lot might have peak load of 1.5kW and a load factor of 30% while the DINKS with a large airconditioning system demand 5kW at the height of summer and have a load factor of 10%. SAPN are looking to charge the latter family more to reflect their additional utilisation of the system.

So lets jump to a future that might be just around the corner:

At an individual level my future house has a solar generator, an electric car and some storage. The car and the batteries might give us flexibility in future but even now loads can be structured so that some of them are flexible, eg – a storage hot water system that can heat anytime over a 24 hr period and from excess solar energy, my airconditioning can cycle to give part load for a few hours and I can tolerate a small rise in temperature, the thermal mass of my house can mean turning off the airconditioning still give a few hours grace before temperatures rise, I can set many appliances to operate at night – the washing, the dishes and the pool filtering and I can make the most of energy efficiency and my own behaviour changes.

At a neighborhood level we can optimise even better because everyone’s peaks don’t coincide, especially if there is some mixed use and the shops and houses can both help each other. We can ask questions like, who has the best solar resource for local generation? Who really needs the fixed capacity and who can offer flexibility to the system? Who is best placed to invest in storage?

If the future is going to involve a network of neighbourhood scale microgrids, then we don’t invest anymore in growing the network asset, instead we invest at the local level, growing both the local generation and energy use and using the grid input as just one source of electricity amongst a suite of automatically managed options.

Some principles:

If these were truly cost-reflective tariffs, the customer would get a price signal, SAPN would make an associated saving and everyone would be a winner. There is nothing in the SAPN paper discussing this and the electricity rules themselves force a distortion (notably through postage stamp pricing). The risk in this whole process is that it just shares around fixed costs in a different manner – so my first principle is:

  • Network operators and the regulator must work harder together to design a system that brings down the overall costs.

The SAPN savings we could target are part of the $0.5bn per year that will be spent on new kit and also the private contributions from new loads connecting to the system ($100m per year). Much of this investment might simply maintain the system so we need to dig further into the proposed expenditure and understand which investments can be deferred, diverted to alternatives that better suit neighbourhood optimisation or simply cancelled.

In some cases the neighbourhood is not constrained at the moment and these investments need to be seen as part of a long term strategy to get better asset utilisation across the network. This media release by the AEMC praises a Victorian example where a small business reduced costs by 30% by moving demand out of just 20 hot hours of the year. The example highlights the ease at which cost effective solutions to avoid growth can be found, but if the small business savings don’t match real network investment savings then we are just shuffling the costs around the system with poorly designed price signals. My own analysis of the new demand tariffs points to the same story – if the price signal to shift demand from a few hours a year is so strong, why isn’t SAPN racing out to pop storage onto a few constrained transformers and deferring blanket tariffs for a few more years until they better understand what they can achieve?

  • SAPN need to provide transparent costs and opportunities information – I’m not convinced the tariffs do that.

In this sense, the price signals matter less than the actual behaviours. There is no point providing an incentive if it is too difficult to understand or too easy to game:

  • We need a stronger discussion, learning and experimentation about the behaviours that reduce the overall cost of the system.

Useful links

Here is the submission I ended up making. Years later, I am now on a number of SAPN committees and have an opportunity to explore these issues in advance of the 2020 – 2025 price reset. Talking Power is alive and well and I am hoping to create some further spaces for discussion too.

http://www.vtpi.org/vickrey.htm

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Energy Transition, lessons from South Australia’s energy crisis

Over a year ago, I compiled a list of lessons from South Australia’s renewable energy leadership. At the time, I cast my mind back over the past decade and highlighted the ways that rapid change had caught out the policy makers – suggesting that other jurisdictions could be smarter than we were.

So much has happened in the past year that we are due for an update. The lessons we should learn, depend on the warnings one thinks we should have heeded. So I need firstly to summarise where South Australia finds itself:

We’ve gone from an energy transition to an energy crisis. The goals for an energy system – secure supply, affordability and climate change commitments are not being met adequately. No one agrees on causes or solutions. Governments have commissioned the Finkel Review which could be the most important piece of work this year but a centrepiece to the review, a clean energy target has not met with bi-partisan support.

At the heart of the problem has been governments’ trust in market solutions without a sharp eye on the shortfalls in market performance and without adequate leadership on the long term outcome the market should be tasked to achieve. ‘Lack of planning’ has been cited by numerous commentators as a failing but the fact is, markets don’t plan. My suggestions a year ago include a number where the real failing is seeing renewable energy as an add-on to the market rather than significant changes to be integrated as part of becoming the market itself.

Lesson 1: Supporting an energy transition needs to be a full time, iterative process.
With so much uncontrollable and rapid change, the outcomes of a good process – better technical design (cheaper, cleaner and more robust) and strong support from customers, governments and energy companies – should be enough to justify that the energy transition is funded by the energy system itself. But Government, the market operator or the utilities cannot own the process and rather need to be co-opted into something bigger than themselves. (I’ve written about such a process here and here.)

South Australia, with almost 50% renewable energy, has become the whipping boy for the energy crisis and the most vulnerable state in terms of price shocks, blackouts and pressure to slow or stop the energy transition.

david pope.pngLesson 2: Politicians won’t waste a good crisis and you need to be prepared to make the most of it too…
…while also countering the rubbish. The climate lobby in Australia was sent into overdrive to counter the anti-renewable energy and clean coal push from the Federal politicians. This fantastic David Pope cartoon captures the benefit of having something, ready to be dusted off in your bottom drawer.

As a result, politicians have created energy policy on the run – in the space of a few short months and with social media abuzz. As an example, Elon Musk offered 100MWh of battery storage, “in 100 days or its free” to South Australia via tweet on a Friday. He spoke to the Premier on Saturday and the Prime Minister on Sunday while Adelaide enjoyed a long weekend. By Tuesday, less than a month after promising to intervene in the market, a $550m Energy Plan was launched by the State Government. The Federal Government upped the ante on Wednesday with a $2bn pumped hydro announcement and on the same day the State Premier and the Federal Minister for Energy openly criticised each other in front of the cameras at a battery project launch. By this stage, after most of the state has been subjected to the 4 month debate about what is wrong with our energy system and a few oversimplified solutions, there is little criticism about the expense and the decision making process. Voters are relieved that something substantial is being done.

Lesson 3: Unprecendented resourcing and quick fixes follow crisis.
It may not be your bottom drawer they’ve turned to (see Lesson 2). Keeping longer term outcomes in the public mind is challenging. The public consent our state government has achieved is only short term and crisis driven. Our energy transition demands that we build a stronger consensus on long term action. Time will tell in South Australia – will our politicians keep energy in mind and grapple effectively with longer term issues such as growing inequality in energy outcomes? And what does it take for the solutions to be suitable for a new paradigm, such as significant decentralised generation with localised optimisation and control?

It’s worth noting that two announcements from the state energy plan might not see the light of day in their original form. An energy security target has been deemed simply a subsidy for gas (and there is an ongoing debate about inertia). A new state owned peaking generator has been delivered as a series of engines that might be swapped for a gas turbine later on.

Each event we’ve experienced in the past 6 months has highlighted opportunities to improve the way we operate from the statewide blackout to the involuntary load shedding event.

Some improvements are being made quietly, behind the scenes and away from the blame game. To some extent the hostility of the debate hampers the ability of agencies to get on and make changes, preferring to defend the modus operandi because making changes could be seen as accepting the blame. Some improvements are only ideas at this stage, needing still to run the gamut of consultation, debate and knee-jerk policy making. The process for these latter ideas is fraught (and would benefit from a commitment to the process suggested in Lesson 1).

Lesson 1.b: Getting the right folk to work together is hard, there is plenty of culture change involved too.
My thoughts on this go back to a book I devoured while on my Churchill travels, where Vineet Nayar characterises 10% of an organisation as transformers – these are the people sprinkled throughout the energy regime that need to be empowered to understand and lead our energy transition.

It’s hard to know how much of what has been experienced can be generalised as lessons – but I’ve had a go.

We have seen much of the energy policy debate occur on the East coast where utilities and energy institutions have their head offices.

Lesson 4: National electricity market means the conversations happen at a national scale. It won’t happen in your jurisdiction unless you build a local conversation that can’t be ignored.
Danny Price, the architect of the State Energy Plan has even suggested the system needs to go back to state based control. I would argue that we will ultimately need to consider much more local control and optimisation.

We have seen volatile electricity market prices, potential gaming by incumbents on the market and a business sector openly weeping about the difficulty contracting on the market at a reasonable price. Mark Wakeham wrote an excellent piece after the Hazelwood coal fired power station closed in Victoria. One of his lessons, ‘owners lie about their closure dates’.

Lesson 5: Utilities will work hard to maximise their positioning in the market.

We have seen storage investments everywhere. Every utility scale investment is now required to include storage. Elon Musk will deliver his battery and you can bet that the regulators are scrambling to work out how to control it and reward its energy security value – because if he can put it on the line in 100 days, they need to respond equally quickly by summertime.

Lesson 6: The gap between planning and market driven decisions is messy.
Let’s not forget that the electricity market is creation of Governments and changing it to accommodate batteries highlights that policy makers need to understand the limitations of the old paradigm and the possibilities of the new.

We have seen many proposed investments, large and small. AEMO keep track of the large projects which are larger than our actual consumption by a factor of 2 or more. At the customer end, energy startups like LO3 and Tempus Energy have come to South Australia to participate in projects. Homegrown startups are emerging everywhere (the list is long enough that it needs to be the subject of another blog)

Lesson 7: The energy sector, new and old, will come to investigate the opportunities in your jurisdiction, when your ‘crisis’ is advertising itself loudly enough.
I think there is an opportunity here to stimulate the classic clustering model. Businesses compete, collaborate and innovate and over a decade or so, SA has a world class energy technology sector.

And finally, we have seen the announcement of a solar thermal power station at Port Augusta. This has been a community driven ask for at least 5 years. The numbers didn’t look like they would stack up, but the numbers couldn’t put a value on the jobs that could flow from becoming involved in solar thermal technology. The State Government and final project developer appear to have worked hard to strike a deal that will be commercially acceptable.

Lesson 8: Community advocacy is long hard work but it gets there in the end.

At this point I need to conclude that there is probably another lessons blog needed in about 12 months time.

There is no doubt a rocky road of continuing uncertainty for everyone who buys electricity and invests in assets, including small scale solar panels and batteries.

We still live with the tension between the old system and the new. The end game of 100% renewable energy isn’t integrated into decision maker’s thinking yet. Transport and heat energy is barely on their radar.

Changes are happening faster than anyone is prepared to predict. Finkel and the Electricity Networks Association happily discuss changes taking until 2050 to occur.

Despite my efforts, we have very little discussion of community energy in South Australia. I think we are too complacent because our transition to renewables is well underway and we are not angry enough.

I think we’re missing the broader narrative too. Sooner than we think, we will have an abundance of cheap renewable energy and we need to think about future economic decisions to make the most of our relative abundance.

How is the energy transition progressing in your home state?

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Co-design, for an energy future

Energy Action LabOne of the conclusions from my Churchill Fellowship was that every place will have its own unique energy solutions and we need to do the work of understanding ours.

How exactly? is a question I’ve been grappling with for the past year.

I made the case for a greater role for ordinary voices in, ‘why we need broader voices shaping our energy transition‘. and I argued in my Festival of Ideas talk that ultimately citizens would find themselves demanding long term change that politicians and new technologies can only drive part-way toward.

I looked at governance structures and processes – the DIAD process mentioned at the bottom of this post. (Diversity, Interdependence and Authentic Dialogue) and the self-organising nirvana described by the constellation process, the swarmwise technique and creative coalitions.

Ultimately a safe, liminal space, well resourced heart that is independent and can be ‘owned’ by the stakeholders appears to be key. Business Models inc are trying to get that very thing up in SA through their Energy Action Lab that will run as part of the Open State Festival. This model has been tried in Canada and seems to strike the right balance between stakeholder commitment and resourcing but also neutral territory for real problem solving conversations.

This proposal  based on the constellation process, outlines some of the stakeholders that need to underpin the funding of such an exercise. I’m keen to give the Energy Action Lab a go and optimistic that the initial workshop will lead us to the longer term conversations and experiments that we need to support.

To that end, I’m keen to see ideas emerge for the low income sector (its not an energy transition if we leave folk behind), for the community energy sector and for alternative energy solutions.  If you want to see changes too, please book out the date and come along.

 

Posted in Community energy, Energy Efficiency, Policy Ideas | Tagged , , , | 1 Comment

Why I’m joining Tempus Energy

Tempus

This article first appeared on my LinkedIn blog

I’m joining Tempus Energy to develop their business in one of the most interesting electricity markets in the world – South Australia. Many of you know me as a climate change policy maker but energy policy was my first love. In the 90’s I worked in industry as an energy auditor and project manager of co-generation projects. Ever since that time, I’ve been an advocate for energy efficiency, decentralised systems and renewables.

Integrated Energy Systems also did demand management projects, mainly by using ice storage to pull load from day to night. In Belfast, the utility used to fax the large industries to reduce load during peak winter demand, and industry responded because they could save about half their winter charges. I could never get traction for a useful load shifting conversation in Australia. The differences between peak and off peak charges weren’t stark enough or consistent enough. The network price signal was too blunt and the retail price signal too opaque.

Until now.

Tempus’ software offers the change to forsee the cheap and expensive periods on the electricity market and optimise when we use our energy. The business model offers a chance for both large and small customers to share the savings with their retailer. With a bit of planning (or better still, smart Tempus automation) many loads can shift a few hours – away from a price spike and into a period of surplus, cheap (usually solar) energy. But the truly exciting thing for me is that we have a model that values shifts of even half an hour.

When the market sets up for five minute pricing, the opportunities will be even better. The latter is being driven by the entrance of large scale batteries into the market – 5 minute time-frames are where they can truly make a difference. But do you know what is a whole lot cheaper than batteries? You guessed it, flexible load!

Tempus has plenty to offer South Australia and South Australia has riches to offer Tempus. We have a poorly utilised fleet of energy assets[1], we are well down the road of distributed energy and customer empowerment[2], we have a very high penetration of renewable energy for a stand alone energy market[3]and we have a liberalised energy market[4]

So have I abandoned my work on community energy? Not at all.

There is an underlying tension in the electricity market between local individual ownership of energy assets and large, utility-scale investments. Solar is going Mega, in case you hadn’t noticed, with hundreds of MW proposed in the Riverland and around the Upper Spencer Gulf. And what of the businesses that are being crippled by electricity costs? Do they all need to find the funds to invest in rooftop solar? This is not the business modus operandi – save precious capital for core business and rent what you can, is the way businesses prefer to operate.

I believe that the missing piece of the puzzle here is local, neighbourhood scale optimisation. When individuals can’t use their own solar power, there are others who can, especially if we’ve unlocked the load flexing capacity throughout the neighborhood. Community energy already has emerging models for delivering the assets communities want to see and I am confident we will see this sector grow in South Australia.

Tempus have kindly agreed to me working part time with them so that I can keep the community energy and energy optimisation conversation alive in other circles.

  • You can find me supporting Community Energy Action SA over on the Facebook group: https://www.facebook.com/groups/communityenergyactionSA/
  • I’ll be keeping my work real by delivering energy advice through Tandem Energy. There are a bunch of great energy companies in South Australia, with new solutions for this market. Working with Tom and Rachel allows me to keep my ear to the ground and I’d love to see these companies collaborating through some sort of Clean Energy SA industry association.
  • I will be blogging at https://changingweatherblog.wordpress.com/
  • And please get in touch at heather.smith[at]tempusenergy.com if you know someone who needs to reduce their energy costs and discover what load flexibility they have at their disposal.

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[1] In the 90’s I bought into the idea that distributed, neighbourhood-scale systems were the cheapest economic model for an energy system and I have never seen any evidence to contradict this assertion. We have invested in 3000MW of capacity in our power stations and networks and our load averages about half that level. A local transformer might be five times bigger than its average load, in order to manage the summer peak. From an asset utilisation point of view we have a very inefficient system.

[2] In the 90’s I never forsaw that SA would build the beginnings of a distributed system and customers would start to take control of their energy costs through cheap solar energy. We have seen over 25% of households invest in solar in less than a decade. And this is not the case worldwide. When I traveled on my Churchill Fellowship last year, I saw policy systems that incentivised community scale and utility scale solar before individual investment.

[3] our distance from the rest of the NEM means that only 25% of our peak load can be provided through interconnection and we need to be able to operate on our own.

[4] I saw markets that have not liberalised to the extent we have in the National Electricity Market here and that makes a difference too because the changes happen more quickly and are driven financially. (note difference between Coalition rhetoric on the future of coal contrasted with statements by AGL, Origin and the like)


Posted in About Heather, Bright Ideas, Changemaking, Policy Ideas | Tagged , , | Leave a comment