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Deciding our distributed energy future

The debate around the regulatory reform of distributed energy resources will help decide the future direction of Australia’s electricity system.

In an industry that has experienced its fair share of success in recent years, the rooftop solar sector has been a standout performer. Built on the back of successful incentive programs such as the Small-scale Renewable Energy Scheme (SRES) and various state government initiatives, Australian households and businesses have added close to 8GW of new rooftop solar capacity in the past four years, in the process making Australia a world leader in the deployment of distributed energy resources (DER).

However, with the solar boom showing no sign of slowing, focus has begun to shift to the impact that the rapid expansion of DER is having on Australia’s electricity system. In some parts of Australia, such as South Australia and Western Australia, regulators have already begun to introduce localised solutions to stabilise the grid. But with up to 50% of Australia’s annual generation likely to be served by DER by 2040, more wide-ranging solutions will be required to ensure that the grid remains stable while customers are adequately compensated for the electricity they generate.

As a result, several reviews and rule changes are currently underway to reorganise the way DER is accessed, priced and incentivised to allow us to map out a future in which solar PV, batteries and other emerging DER technologies occupy a crucial position in Australia’s electricity future.

Redesigning for DER

In March 2019, the COAG Energy Council commissioned the Energy Security Board (ESB) to redesign the National Electricity Market (NEM) for a future where renewable energy and DER plays a far more prominent role. Dubbed the Post-2025 Electricity Market Design, the ESB delivered an options paper for the final design in April 2021.

Among many proposed changes to the way the NEM operates, the options paper outlines a greater role for DER in providing system and network services as its participation in the market grows. This increased role would involve a significant change from the traditionally passive relationship between retailers and their customers to a two-way market where customers are rewarded for playing an active role in the electricity market by producing electricity and adapting their demand to prevailing grid conditions.

It also recommends the introduction of technical standards for DER to better ensure the security of the power system and mechanisms for increasing competition as retailers look to offer innovative new ways for DER to interact with the electricity market.

However, while many of the proposed reforms offer positive solutions to the challenges that DER is likely to face in the coming years, it fails to provide a vision, goal or desired end state for DER in Australia. This is an important consideration as it will help with the prioritisation of policies and initiatives and whether they will assist in achieving the sector’s ultimate aims.

Positively, though, the ESB proposed the introduction of a maturity plan, a rolling reform initiative that will be updated as issues arise and priorities shift. In a sector as dynamic and fast-moving as DER, this is an important addition that will provide the industry with the flexibility to adapt to the ever-changing requirements of customers and new technologies.

Has the AEMC made an error?

The other significant piece of reform currently underway is the Australian Energy Market Commission’s (AEMC) rule change on access, pricing and incentive arrangements for DER. Among other things, this has recommended that distribution networks be given the ability to charge DER customers to export power to the grid. It’s fair to say that this hasn’t been particularly well-received within the industry, with many dismissing the proposal as a “sun tax”.

While dismissing the AEMC rule change as a sun tax is too simplistic, the proposal does raise a number of significant concerns. Foremost among these is the uncertainty it will create for both existing solar PV owners and prospective customers.

For existing solar PV owners, the sizeable investment required to purchase a rooftop solar system is based on a set of specific assumptions calculated across a system’s lifetime. Fundamentally changing the value structure of rooftop solar from a model where customers are paid for exporting electricity through feed-in tariffs to one where they are charged for exporting power to the grid has the potential to radically alter the economic basis on which an initial purchasing decision was made.

For customers looking to purchase rooftop solar, the proposed introduction of export tariffs would make it impossible for solar designers and retailers to provide them with a reliable estimate of the likely return on their investment. This would be a significant barrier to entry for new customers that could harm the continued growth of the rooftop solar industry.

The simple solution to these problems would be for the AEMC to only apply export tariffs to new connections, removing the uncertainty for existing customers and giving prospective customers a complete picture of their likely return on investment when making a purchasing decision.

Many paths to success

While these high-level reforms will have a major impact on the future of the Australian rooftop solar industry, we can’t forget the importance of things such as compliance in maintaining the industry’s reputation. After all, if consumers lose trust in the industry and stop investing in rooftop solar, the distributed energy future being mapped out in these high-level reforms will fail to eventuate.

This is why the Clean Energy Council continues to improve compliance on its regulatory programs. Most recently, this has involved a crackdown on installers being on-site for sign-off of solar PV installations, but also includes ongoing work to ensure that installers are complying with all their obligations under the SRES and the Clean Energy Council’s accreditation guidelines.

While the changes occurring in the rooftop solar sector at present are creating uncertainty for those working in the industry, it’s important that we solve the challenges now before they get out of hand or become entrenched.

As we’ve seen all too well in other parts of the electricity market, ignoring problems until it’s too late results in knee-jerk reactions that are often detrimental to the industry’s ongoing success. Ensuring that we get it right now will save us a lot of pain in the future and will guarantee that DER plays a prominent role in our clean energy future.

This article was initially published in the July issue of Ecogeneration 2021.