Supporting the continued growth of rooftop solar.

SA Power Networks has joined organisations including the Total Environment Centre, Australian Council of Social Service (ACOSS) and St Vincent De Paul in proposing a review of electricity rules to ensure they support the continued growth of rooftop solar and other Distributed Energy Resources (DER) in Australia.

In 2019 the Australian Energy Market Commission (AEMC) initiated a cross sectoral group to review access and pricing issues for DER, including rooftop solar. Most parties involved agree that a rule change is necessary, but any changes approved by the AEMC should provide customers with significant notice. If approved, they would not be implemented in South Australia until 2025 at the earliest.

SA Power Networks is proposing a rule change that would ensure:

• Customers have the right to be able to export energy to the grid from rooftop solar and other DER;
• Networks invest efficiently to support the continued take-up of solar PV; and
• Costs to support solar PV are fairly allocated between customers and in a way that is revenue neutral for distribution networks.

“We believe the rules need to be relevant to a 21st century system that increasingly is about DER. After more than 10 years of customer investment in DER, particularly rooftop solar, the rules need to catch up and facilitate future investment in solar and emerging technology such as batteries and electric vehicles,” said Mark Vincent, General Manager Strategy & Transformation, at SA Power Networks.

The issue needs addressing as many electricity networks are reaching their capacity to support DER and new investments are required to support additional DER take-up.

“Our primary aim is to ensure we can continue to support our State’s exciting transition to a net-100% renewables energy supply by 2030,” Mr Vincent said. “We need clear rules that ensure we make appropriate investments in the network that support the choices being made by customers, including those investing in solar, batteries and electric vehicles in the future.

“Customers would be surprised to know that they don’t have a right to export energy from their systems under the current national electricity market rules.  Equally, network businesses like us have no clear guidance on the extent to which we should invest to support solar PV and other DER.  We also think it’s important for the rules to consider, and provide guidance, as to who should pay for any required investment.

“If the pricing aspect of the proposal is approved, we would expect to see a modest increase in network charges for exports by new solar and other DER customers, although this would be offset by reductions in consumption charges and potentially rewards for exporting energy at certain times – for example by discharging energy stored in batteries at times of peak demand,” Mr VIncent said.

We are proactively thinking about how the rules can best facilitate networks to continue to provide services to customers in the most efficient way possible. We already have nearly 1,500MW of solar generation on customers’ rooftops in SA and demand is continuing,” Mr Vincent said. “We want to accommodate even more solar on our network and provide services that help maximise the benefit of customers’ investment in DER for the community.

“There is strong stakeholder support for the proposal, including from some in the solar sector and representatives of vulnerable customers. We also recognise some stakeholders are opposed to any change, but we think it is appropriate and time to weigh up the issues and make a decision that gives clarity for everyone.  In submitting our proposal into the AEMC process, we seek to complement the work and overall objectives of these other rule change proponents by providing our perspectives and experiences as the distribution network at the forefront of Australia’s energy transition.”

Background

There currently is no clear regulatory framework specifically applying to the provision of network support for the rapidly growing amount of rooftop solar generation. In 2019, the Australian Energy Market Commission (AEMC) asked the sector to think broadly about the challenges and opportunities of distributed energy such as solar and changes needed to promote customers’ interests. After participating in an AEMC-facilitated forum, the TEC, ACOSS, St Vincent De Paul and SA Power Networks have all submitted proposals on the issue to the AEMC.

SA Power Networks has submitted a proposal that would require minimal rule changes by aligning proposed new rules to be applied to supporting new solar investors with those already in place in relation to delivering energy to customers. The changes are not proposed to apply to existing solar customers initially but could over time.

How does DER impact network services?

The role of the distribution network has fundamentally changed. Distribution networks now provide two distinct services to customers: the traditional supply of energy to customers’ homes and businesses, and the transport of energy generated by customers’ DER upstream to other customers or the market.

Distribution networks designed to support consumption services have a finite capacity to also deliver export services. While customers’ take-up of DER was relatively low, networks could accommodate additional DER at near zero marginal cost. However, the inherent DER ‘hosting capacity’ of networks is being rapidly approached at local and system-wide levels in many NEM regions. This has implications for the security and quality of supply as well as network costs.

As capacity is reached, either DER customers will no longer be able to connect, or have their export capacity severely limited, or networks will need to invest more to maintain service levels.

Key points – Access and pricing

• The core issue here is our continued desire to support the growth of solar; ensure customers investing in solar can access the network and its services; and ensure we have an appropriate pricing mechanism for those utilising the services provided.
• As we near the intrinsic hosting capacity of networks, and new investment will be required to continue to support customers’ investment in Distributed Energy Resources (DER), it is important that we consider the basis on which networks should invest to support increasing solar PV uptake, and who should pay for this investment
• We think in resolving the issue of access we also need to resolve once and for all the issue of pricing – specifically whether there should be a charge for people utilising the network to export energy (whether from panels, batteries or even EVs).
• If approved, we would expect to see a very modest increase in network charges for NEW solar and other DER customers initially. This would be offset by reductions in consumption charges and potentially rewards for exporting energy at certain times – for example by discharging energy stored in batteries at times of peak demand.
• This proposal will not change our revenue – it is about how we recover Regulator approved revenue from customers through our annual tariffs
• We believe continued customer DER take-up can be supported efficiently with minimal changes to national electricity rules by simply giving ‘export services’ the same status in the rules as ‘consumption services’
• On this basis, networks would have an obligation to meet demand for export services, consistent with customers’ willingness to pay, in exactly the same way as we are obliged to meet demand for consumption. 
• All existing frameworks, incentive mechanisms and regulatory controls over networks’ spending would continue to apply, although some will require refinement.  We would also be able to charge for export services, under the same pricing principles that we use for consumption services.
• By exploiting this symmetry, very few changes in the rules would be required.

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Q&As

So why is this happening?

The Australian Energy Market Commission (AEMC) and ARENA initiated a process to consider appropriate regulatory arrangements for Distributed Energy Resources (or DER – which includes rooftop solar). Currently the rules only clearly address consumption and not energy exports. A broad-based industry group has concluded there needs to be clarity around access to the network for people with DER and consideration of how to price that access. The Total Environment Centre, ACOSS, and St Vincent de Paul have made submissions and SA Power Networks is proposing this can be managed relatively simply by minimal modification of existing rules.

Why an access and pricing review?

In simple terms, the AEMC / ARENA-sponsored review considered three long-standing questions around distribution network access and pricing regulation:

1. Should DER customers have a right to export to the grid?
2. Should distribution networks be able to charge DER customers a tariff for energy exported to the grid?
3. Are DER customers appropriately rewarded when their systems help support the grid?

What did the review group recommend?

The DEIP review has recommended that changes to regulation in this area are warranted,[1] and the Total Environment Centre, ACOSS, and St Vincent de Paul, and SA Power Networks all have made proposals on that. We support changes in regulation that can:

• provide greater confidence to customers and their agents in respect of service levels for DER;
• encourage efficient investment by networks to support those services levels; and
• enable efficient price signals and rewards to be provided to customers upon which to base their informed DER investment and operations decisions, and improve equity in allocating the costs and benefits of DER

How much will my charges be impacted?

The pricing aspect of the proposal will only apply initially to new solar customers and it is only likely to have a very moderate impact on network pricing.  We anticipate no more than a few 10s of dollars per annum. But to be clear, there will be a lot of consultation and engagement undertaken on this (the design of any export charges, and process for their introduction must be determined by distribution businesses in consultation with customers and stakeholders including government) and any change in SA would not occur before 2025.

When would this likely come into place?

We are arguing for a long transition period so that customers who have already made investments in solar PV are not impacted in the mid-term.  If reforms are made, it would only be after extensive consultation and would not apply until the 2025-2030 regulatory period. We have also suggested that jurisdictional governments should have the ability to ‘opt out’.

What are the main issues with DER?

• DER customers are beginning to experience poorer performance of their systems, as the technical limits of the network are reached (ie the network is becoming congested and inverters switch off as or when voltages rise)
• SA has nearly 1,500MW of solar rooftop connected - combined this is the State’s largest generation source for which we have no visibility or ability to manage. This creates issues for the Australian Energy Market Operator (AEMO) in maintaining the stability of the State’s energy supply.
• the renewables industry is concerned that networks will increasingly impose ‘zero export’ limits on new solar customers connecting in areas that are already congested;
• network businesses do not have a clear basis upon which to assess DER-related investment decisions and are facing increasing need for investment with the growth of solar particularly;
• representatives of vulnerable customers are concerned about the potential for increasing cross-subsidies from customers who do not have DER, and may never be able to, to those who do; and
• the AEMC, Energy Security Board (ESB) and Australian Energy Regulator (AER) are concerned that the current regulatory framework may not support efficient investment in the long term.

Why does SA Power Networks want change?

Solar PV and other distributed resources are playing an increasing important role in our State’s energy market, and we believe we need a clear regulatory framework around customer’s rights to export energy onto the grid and on which we can assess network investment decisions.

Unless access rights for customers are clarified, increasingly there is the risk that access to the distribution network will not be fairly distributed, particularly between existing customers of export services and new customers investing in solar.  We want to enable the continued distributed energy transition.

So you are talking about directly charging solar customers extra?

First, we think new customers should have a clear right of access to the network and our services. Second, we propose that solar customers make a contribution to the costs to us in ensuring the network can support their investment. This will only be to the extent that the costs they give rise to are in excess of the benefits.  If approved, we believe the contribution would be modest and built into the tariff framework.

Going forward, we also want to give customers choices on the level of access to our network they want to export their excess energy. At the moment, the rules prevent us from doing this, as the costs of any ‘premium’ levels of service would be recovered from customers who don’t want these service levels.

How much might this be?

There is obviously a lot of consideration and consultation to be done before we know if this will proceed but we would expect it would be minimal – let’s say a few 10s of dollars per annum. That would initially only apply to new customers and would not be introduced at least until 2025.

I have solar already – will I have to pay more?

We anticipate not until you upgrade your existing system – and even then, only after a transition period.  However, we would consult widely with customers and stakeholders on the best approach and the trade-offs between our various customers, in faster or slower transitions.

Are you just trying to make more money?

No. Network tariffs do not determine revenues. Distribution networks operate under an annual revenue allowance determined by the regulator (the AER). Tariffs are then set to recover this fixed revenue across a network’s customers in a way that is fair and equitable and satisfies the Distribution Pricing Rules: most notably that variable pricing should be cost-reflective, i.e. provide a price signal to customers to encourage efficient use of the network. To the extent export tariffs give rise to additional revenue, consumption prices will be reduced to offset this to ensure we comply with the AER-determined revenue cap.

Why should solar customers pay when they are contributing cheap energy and helping the environment?

We agree solar has many benefits and believe that should be reflected in the rules. At the same time, solar customers are being provided a network service for which they do not currently directly pay. This was fine when levels of solar PV take-up were within the intrinsic hosting capacity of the network and little investment was required.  However, now that additional investment is required, we think applying similar charging principals to exports as we do to consumption is the best solution and would be fairest for everyone.

We also want to encourage customers to use the network in the most efficient way possible. 

So, for example, we might charge for exports in the middle of the day, but we might actually pay customers for exports at times when the network is experiencing peak demand.  For example, between 6pm – 8pm on very hot, high demand days.

But the big generators do not pay anything for using the network.

They actually do – but because of their size and nature they pay an up-front network connection fee which can be significant and is based on their size and the augmentation required for the network to be able to connect them. That doesn’t make sense for residential customers who individually don’t impact but who do collectively (and particularly now as the State’s largest generator). We think applying similar charging principals to exports as we do to consumption is the best solution.

Are voltage problems really caused by DER?  And does this require investment to fix?

Yes and yes.  As we describe in our proposal, our network was designed only for one-way flows of energy.  This being the case, our control systems were implemented to only accommodate the drop in voltage that occurs as load increases, and hence we have little headroom to absorb the rise in voltage that now occurs when customers’ inverters are feeding energy back into the grid.

Addressing this is not as simple as ‘lowering the voltage’ across the network, as this would cause under-voltage at peak demand times. Networks need to invest in more sophisticated voltage management capabilities to operate over a much greater ‘dynamic range’ of power flows than they were originally designed for, to manage both positive and negative extremes. This in turn requires investment in improved monitoring of voltage performance across the network.  With the support of our State Government, SA Power Networks has commenced a program of works to put these capabilities in place over the next 12 months.

Once voltage issues are managed, is any more investment required to support more DER?

Yes.  Although voltage is a key issue now, increasingly the physical current-carrying capacity of upstream assets like transformers will become the next barrier, with high levels of solar exports breaching the ‘thermal limits’ of this equipment, causing them to over-heat and fail.  In some residential areas with high solar penetration the local network already carries more current upstream at peak generation times than it supplies downstream at times of peak demand.  This will increasingly drive the need for network capacity upgrades.

Is this just another excuse for networks to over-invest?

No. Under our proposal, network expenditure for exports would come under exactly the same framework as that for traditional energy consumption, and the same regulatory controls, checks and balances that currently exist would also apply to prevent investments that don’t align with customer’s desires and value. 

 

[1]     DEIP, Access and Pricing Reform Package – Outcomes Report, June 2020.