Microgrids: here today, more tomorrow – Part 2

by Energy Action | Dec 02, 2016
This second part of our article on microgrids looks at what the future might hold, how the Australian Energy Market Commission’s (AEMC) Power of Choice Rules (which come into effect in December 2017) may shape the market, and who will ‘own’ embedded networks and the potential revenue streams they bring?

AEMC's Power of Choice rules

It seems fairly evident that the advent of the microgrid is just the beginning of a trend that is set to significantly disrupt the way that businesses and consumers interact with the grid. But what is driving this trend?

As with many other disrupted sectors, in energy markets we are seeing the rise of the ‘prosumer’ – active participation in the supply chain by buyers who are increasingly better informed, aware and ‘tech savvy’.

The other main driver for change is the need for decentralisation of what is an inherently inefficient electricity grid system in Australia. The current system we have is centralised, capital intensive and still heavily reliant on fossil fuels. The costs of this are largely borne by Australian businesses, hence the need for change.

A decentralised, low capital, community-centred and sustainable model such as microgrids offers a far more attractive alternative. Moreover, a virtual army of small to mid-scale generators could potentially do much to enhance the grid system, particularly in regards to supply certainty and sustainability.

Currently, new investment in electrical capacity in Australia is dominated by small scale solar PV, which underpins microgrids and embedded networks. Looking to the future, according to Bloomberg New Energy Finance within 10 years small scale solar and batteries will dominate installed capacity in Australia (in terms of rated capacity).

The AEMC’s Power of Choice regulations on embedded networks, which as noted above come into effect as of 1 December 2017, will further regulate the way that microgrids operate as embedded networks (basically on-selling electricity generated). We will know more about this when the AEMC releases its guidelines on Embedded Network Manager service levels and accreditation in March next year.

However, it is important to note that in this instance the regulations are largely intended to increase and maintain choice and foster competition, which in turn should drive further efficiencies and lead to lower electricity prices. Indeed, these are some of the overarching principals of what the AEMC is hoping to achieve with Power of Choice.

And finally, who is likely to ‘own’ microgrids or embedded networks in this brave new disrupted world? It would seem logical that the energy retailers will do their utmost to retain control, after all, they potentially have the most to lose. As they have done with the advent of solar they may seek to maintain control through Power Purchasing Agreements (PPAs) or Operating Leases.

Similarly, electricity distributors face significant loss of revenue if they do not get involved at a more micro level, applying ‘postage stamp’ pricing to local networks. This will certainly require a paradigm shift on their behalf as the grid becomes increasingly decentralised.

Ideally, participation and ‘ownership’ would be shared by all: retailers, distributors and consumers – there are clear benefits for everyone in this scenario. Hopefully the broader implementation of Power of Choice towards encouraging demand-side participation will facilitate this, but we will have to wait and see.

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