Transition to off-grid

Transcription

1 Transition to off-grid Back to the future in a market context Presentation to CIDER August 2015 G Thorpe, Executive Director

2 Off-grid options Technological development Together with change of policy focus are prompting consideration of entire townships moving off-grid Single customers can move now Individual customer choice What about entire townships or equivalent number of customers? Unlikely to be unanimous agreement but may still be efficient Regulatory framework developed thinking of off on-grid,not on off grid Many regulatory and competitive complications ESAA commissioned OGW to examine these This presentation starts with that work. 2

3 A reminder of history for context the basis for the back to the future title Circa Circa The electric power sector started as a collection of unconnected townships with their own generation and demand effectively local grids and distributed generation Townships interconnected to share reserve Circa Large scale remotely located generation emerged around fuel (coal and hydro) increasing economies of scale Circa Circa s Major transmission developed from remote sites to cities State electrification programs Township generation progressively retired withered away but connected by statewide grids electrification of the state seen as a major positive Central generation dominates Technology and policies for distributed generation returning distributed generation to economic prospect Beginning of reversal to historical trend and move to off-grid townships based on solar/wind/thermal and storage 3

4 Contracting the boundary of the grid Historically, boundary of grid continually expanded Future may see contraction of boundary of grid? 4

5 Focus of presentation Presumption is that the technology options are viable It s the economy stupid Regulatory and policy implications of transition to off-grid Issues around forced transfer Individual customers have a right to disconnect now. Groups of customers can agree to go off-grid. Unlikely to get unanimous agreement beyond say 4 or 5 consumers What to do about Ring fencing &cross ownership Generator competition Retail competition Social licence 5

6 Confirm there is an economic case for transition to off-grid B r e a k e v e n d i s t a n c e ( k M ) Breakeven distance v peak demand Constructed for Network savings of $150,000/km (full capex), Opex saving $5,900/km/yr) Customer load factor 68%, Generation redundancy N-1 GENERATION SOLN IS PROFITABLE FOR DISTANCE ABOVE EACH CURVE Peak demand (MW) $400/MWh $300/MWh $200/MWh $100/MWh $50/MWh Simple nomogram showing relationship of generation cost, demand profile/size and network distance/cost Read breakeven distance v peak demand In the absence of special conditions such as bushfire risk or inaccessible terrain (for maintenance) the case for off grid is made and is closely related to distance Special conditions generally enhance the case 6

7 Confirm there is an economic case for transition to off-grid B r e a k e v e n d i s t a n c e ( k M ) Breakeven distance v peak demand Constructed for Network savings of $150,000/km (full capex), Opex saving $5,900/km/yr) Customer load factor 68%, Generation redundancy N-1 GENERATION SOLN IS PROFITABLE FOR DISTANCE ABOVE EACH CURVE Peak demand (MW) $400/MWh $300/MWh $200/MWh $100/MWh $50/MWh Breakeven for 1MW (chosen load factor and network cost) and diesel generation is 300km Shorter for lower cost generation In the absence of special conditions such as bushfire risk or inaccessible terrain (for maintenance) the case for off grid is made and is closely related to distance Special conditions generally enhance the case 7

8 Indicators for transition to off-grid Reliability Reliability is low, for example due to single circuit supply prone to interruption and often requiring expenditure on temporary mobile generation during planned or extended forced outages; High operating and minor capital costs E.g. for both routine maintenance and activities such as pole replacement; Location specific risks E.g such as where bush fire risk is high, possibly leading to switching off supply on high risk days; and Local generation Situations where distributed generation already exists and feeds the grid or where fuel is readily available, for example a run of river hydro scheme, an untapped geothermal resource or other local resource. 8

9 Examples WA Previous widespread electrification policy Assets now ageing and in bushfire area History of switching between isolated and connected status in some locations Tasmania inhospitable terrain, island communities, remote small hydro connections SWER systems significant variation across states Best data from Queensland with 25,000 customers and 65,000km of line But recent expenditure has lifted reliability to these areas hence no immediate need 9

10 Market and regulatory implications of transition to off-grid Numerous locations operate perfectly satisfactorily without ever having been on-grid But generally: No retail contestability No generation competition Vertically integrated generation, network and retail Regulated price What to do about competitive arrangements in principle? E.g. do consumers lose these rights What if multiple retailers are currently supplying affected customers Do regulatory and statutory arrangements even permit transition to off-grid once on-grid In some cases yes with approval, in some cases no 10

11 Current regulatory provisions likely to be affected Legal and accounting separation Cost allocation Access to information Physical and functional separation Non discrimination principles 11

12 Cost and pricing issues DX DX TX DX Generation Generation Generation Current price Current price less TX Breakeven cost = price Off-grid is economic with higher generation but lower network costs 12

13 Cost and pricing issues X subsidy DX DX DX TX TX Generation Generation Generation Current price Current cost X subsidy no longer needed But who benefits? Allocation of benefit of off grid may be complicated Social Licence at risk if benefit not seen by off grid customers 13

14 Options (not proposals) Fully integrated generator retailer network business No generator competition, no retail competition Inevitably fully regulated Business owns & constructs generation & networks and dispatch generation (no independent AEMO role) Reduces opportunity for customer choice social licence??? 14

15 Options (not proposals) Single buyer Regularly used elsewhere as a starting point for reform Centred around a combined network owner/operator, market/system operator obliged to offer access and purchase from independent generation and retail to customers No retail competition, inevitably fully regulated Has some attraction as a middle path for competition but overhead costs may be prohibitive? Social licence also an issue here 15

16 Options (not proposals) Gen tailer plus independent network No generator competition, no retail competition Separate network business adjacent/existing network business seems likely Inevitably fully regulated energy charges Combined network system operator model (TSO) Social licence Which of these (or other options) is most suited to transactional market model and efficient use of storage, smart grid, distributed (grid and customer premise) generation and demand side? 16

17 Conclusion Case is made to address probable barriers to a shift back to off-grid Technology is available now and is likely to continue improve Regulatory barriers are real but will involve a number of challenging policy questions that were at the heart of competitive reform 17