While Australian consumers continue to lead the world (PDF) in the uptake of solar installations, the market for other distributed energy resources (DER) is also maturing, including with respect to battery energy storage systems and electric vehicles.

The Australian Energy Market Commission (AEMC) observed in its 2019 annual review of retail competition in energy markets, for most Australian states around 2019-2020, residential solar PV with storage systems are forecast to achieve 'socket parity' — the point where the average levelised cost of energy of grid-connected residential solar PV with a storage systems is equal to that of the price a consumer can purchase energy from the grid.

The economics of Australia’s distributed energy transformation represents a turning point in the way consumers expect to engage with Australia’s energy grid. It raises implications both for the physical design of Australia’s grid and the economic market framework that supports it.

Customers are already engaged – using their DER assets to participate in a range of innovative energy services (such as orchestration) that provide improved solar self-consumption and benefits to the broader energy market, like grid support services during periods of high electricity demand.

For example, AGL’s South Australian Virtual Power Plant (VPP) program which commenced in 2016 comprises the sale, installation, and orchestration of 1,000 energy storage systems installed behind-the-meter in homes and small businesses in South Australia.

Our VPP will deliver up to 5MW of peak generation and 12 MWh of storage capacity to homes, the National Electricity Market (NEM), and a range of network services across metropolitan Adelaide. AGL has since expanded its orchestration service offerings to enable customers in New South Wales, Queensland, South Australia, and Victoria to bring their own battery to AGL’s VPP, and for customers in South Australia to purchase a more affordable battery through AGL.

We’ve also begun to explore the opportunities associated with electric vehicles, both as a demand response resource to improve network stability and storage, and as a component of a multi-asset virtual power plant.

The need for policy and regulatory reform

While customers’ changing behaviours will continue to shape innovative business offerings, realising the full potential of DER for the benefit of all energy users will also require careful policy and regulatory reform. The integration of DER into the energy market system has therefore become a key focus for the industry – as evidenced by AEMC’s 2019 economic regulatory framework review, proposed a suite of actions and reforms to support DER integration.

It is in this context that we welcome the Australian Energy Regulator’s (AER) inquiry, launched in November 2019, on whether the regulatory framework for assessing distribution network businesses’ proposed expenditure to manage the increasing challenge of accommodating DER is fit-for-purpose.

AGL recently made a submission in response to the inquiry, a copy of which is available here.

“To ensure networks enable the interaction of distributed energy assets with the broader energy market system, AGL considers the network expenditure regulatory assessment framework needs to be revised to facilitate new operational modes for distribution networks.”

AGL acknowledges that the current regulatory framework enables networks to determine appropriate tariff structures, connection, and access arrangements and technical standards (almost interchangeably) to ensure optimal network performance. However, in a future distribution market characterised by high DER penetration, it may be more appropriate that networks’ performance is judged by how effectively networks facilitate the interaction of DER with the energy market system.

Indeed, as the AEMC observed:

[While] the core roles of networks in a high DER future are likely to remain the same as today […] how they undertake this role could be different in a number of key respects. In particular, how the electricity distribution network is operated and the services provided by distribution network service providers could change [..] from transporting electricity one way to being platforms for multiple services, facilitating electricity flows in multiple directions and facilitating efficient access for DER so that they can provide the greatest benefits to the system as a whole1.

As we elaborate in our submission, AGL believes the regulatory framework could be revised in a range of ways to improve the AER’s assessment framework, including:

1. Empowering the AER to undertake a more active role in assessing sampling and modelling to support regulatory expenditure proposals;
2. Building an options value into the assessment framework for traditional network solutions (augmentation and replacement expenditure solutions) as well as into non-network solutions once they are adopted;
3. Developing an assessment framework for DER visibility expenditure;
4. Developing a common approach methodology to valuing consumer exported electricity; and
5. Articulating DER integration expenditure categories to draw upon shared learning and guard against ‘rail gauge’ outcomes.

The AER’s network expenditure assessment framework will also need to be cognisant and make ‘no regrets’ changes to avoid influencing the direction of the fundamental market design reforms currently on the horizon that may also work to reorient networks’ operating modes, including:

• the establishment of a distribution market operator (DMO) and supporting communications infrastructure to enable co-optimisation of bidding from DER to support both network and wholesale markets; and
• reform to connection and access arrangements to better incentivise networks to support DER services and enable greater certainty for DER market participation (connections, access and pricing).

AGL has been engaging closely with recent industry consultations to advance these key reforms, including through the Distributed Energy Integration Program Access and Pricing Working Group and the Open Energy Networks consultations. We also encourage the AER to continue to participate in these processes and use the information to inform its inquiry.

AGL looks forward to continuing to engage with policymakers and regulators in this transition to realise the full potential of distributed energy for our customers and the broader NEM.