The Australian Energy Market Commission has released a draft determination on the best ways to integrate small-scale solar and other emerging energy technology into the electricity grid while avoiding ‘traffic jams’ to the network.

AEMC Chief Executive Benn Barr, said, “We can decarbonise the electricity sector faster and cheaper if we connect more small solar customers and make it worthwhile for them to install batteries. But to do that we need to make some changes to the power system. 

“Within ten years, half of all energy users will be using home energy options like solar. We must make sure this seismic shift doesn’t leave anyone behind because every Australian, whether they have solar or not, deserves an affordable, sustainable power system.”

The draft determination addresses the problem of ‘traffic jams’ on the network, which are occurring now and will get worse as more solar connects, because the grid infrastructure was built when power only flowed one way. Blocking power exports because the grid is under strain will cost more, because it means less renewable, cheaper energy gets into the system. 

The AEMC’s reform package to make room for more solar includes:

  • Changing distribution networks’ existing incentives to provide services that help people send power back into the grid. Gives networks a stronger reason to deliver quality export services that customers value. At the moment, there are no financial penalties for poor network export service and no rewards for good service. AEMC also propose recognising energy export as a service to the power system in the energy rules to give consumers more influence over what export services networks deliver and how efficiently they deliver them.
  • Letting networks offer two-way pricing to better manage the poles and wires. Gives networks pricing options they don’t have now, like rewarding solar and battery owners for sending power to the grid when it’s needed and charging for sending power when it’s too busy. New incentives will give customers more reason to buy batteries or consume the power they generate at busy times on the grid.
  • Flexible pricing solutions at the network level. Allows each network to design a menu of price options to suit their capability, customer preferences and government policies. Customers could choose things like free export up to a limit or paid premium services that guarantee export during busy times. Networks might offer grandfathering for existing solar owners or choose community batteries.

Extra safeguards proposed for the energy rules will ensure existing and new solar customers – and non-solar customers – are protected. The proposal does not mandate default charges for exporting power. If a network business wanted to introduce export charging, they would need to consult extensively with customers and have a transition plan detailing how this would be done approved by the Australian Energy Regulator.

“This is about creating tailored options, not blanket solutions,” Mr Barr said. 

“We want to open the solar gateway so more Australians can join the 2.6 million small solar owners who have already led the way. But it’s important to do this fairly. We want to avoid a first-come, best dressed system because that limits the capacity for more solar into the grid.

“One option to deal with more solar traffic – building more poles and wires – is very expensive and ends up on all our energy bills whether we have solar or not. While the sun may be free, the poles and wires aren’t, so we think the key is to use the power system smarter to avoid costly overinvestment and keep new infrastructure to a minimum.

“Letting networks give customer incentives to use the system better means supply and demand on the grid can be smoothed out over the course of the day. It helps address large amounts of solar being exported in the middle of the day when it benefits the system least.”

The Commission has already taken on board a wide range of views and are now asking for feedback on the draft determination, with submissions due by 13 May 2021.

“We know there is a lot of interest in this issue,” Mr Barr said. 

“We’ve heard and understood the concern among some solar owners about whether they will be able to realise the value of their investment if the system changes.

“We want to reassure solar customers that we’re not proposing they should all start paying export charges. We expect networks to deliver pricing proposals in close consultation with consumers, which may include options where they don’t have to pay for exports.”

The Commission modelled the potential impact on customer bills if networks did introduce export charges. It found that 80 per cent of customers would see their bills drop because they would no longer pay for solar export services they weren’t using.

For the 20 per cent of customers with solar, there could be a range of export charge impacts, depending on system size. A 4-6kW system would still earn on average $900 – about $70 less than now. But this impact could look very different if they took up options that rewarded them for using the system differently – such as self-consuming power.

Doing nothing is not an option because blocking people’s power exports will cost them now and more in future. While export charges on a 4−6kW system might lead to a marginal drop in solar earnings, owners will face that same drop if they are constrained from exporting energy just 10 per cent of the time. Being constrained 50 per cent of the time would reduce their solar earnings by more than $300 per year.

“We need to think differently about the power system – including its pricing structures,” Mr Barr said.

“We found that buying a battery would allow customers to benefit more and also help the system.

“We have to start planning for a different future now because there is still a lot of work to do and change will take time. If we start now, with the right caveats and protections in place, we will avoid costly crisis solutions further down the track.”

This package of reforms follows a nine-month process of working with stakeholders as part of ARENA’sDistributed Energy Integration Program. The program was led by a steering group of consumer representatives, industry association and energy market bodies. As a result of that work, South Australian Power Networks, the St Vincent de Paul Society, the Total Environment Centre and the Australian Council of Social Services requested the AEMC change the rules. This draft determination is a response to those requests.

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