Centrally delivered electricity will continue to play a major role…
While a lower proportion of all electricity flows through the central grid as embedded generation, demand management and storage play a greater role, the grid still remains the primary source of supply in all scenarios. The Grid, which currently supplies just over 90% of supply, continues to supply over 80% of electricity until 2025. Even in the “Leaving the Grid” Scenario, a central electricity network still supplies approximately 70% of supply until 2050 and the network infrastructure required is roughly equivalent to the “Set and Forget” scenario.
The Grid continues to be highly competitive in providing efficient, reliable and safe supply…
The Future Grid Forum analysis highlights ‘Leaving the Grid’ Scenario is not the lowest cost option. It’s the highest cost option (at $1,042 BN), requiring about 20% more investment and running costs than the most centralised scenario (‘Set and Forget’). The “Rise of the Prosumer” scenario suggests the biggest risk to annual electricity bills for residential customers is irrational overinvestment in onsite generation. In this scenario, which has the highest level of onsite generation (45%), residential bills are about 30% higher by 2050. Under all the other three scenarios (1,3,4) the annual retail bill is about the same – within 2.5% of Scenario 1.
The total cost of network infrastructure required to support each scenario is relatively similar, compared to the other supply costs (eg Off grid and generation costs) which vary by up to $200 billion between scenarios. However, the analysis also indicates that unit costs (in cents/kWh) will increase if the network delivers less energy while still requiring capacity investment to meet peak demand and support onsite generation and storage. Up to 2025, distribution unit costs are stable or declining in three out of the four scenarios.
… TO DELIVER OUTCOMES FOR CONSUMERS.
Given a central grid remains essential, consumers have an interest in a stable investment environment
All scenarios require network investment of at least $300 billion by 2050 (or three times the current asset base), even where high levels of embedded generation and some customer disconnection eventuates. To achieve least cost outcomes for customers, it’s critical this investment occurs in an environment which minimizes regulatory risk to network investors in long-life infrastructure. Today, if network investors required the same risk premium as the electricity generation sector, the cost of finance would be about $2.8 billion higher over a 5 year regulatory period - a hit of at least $60 per year to household electricity bills.
Network Tariff reform is required to ensure fairness and minimise costs…
The potential for dynamic changes in technology and customer preferences makes network tariff reform essential, to ensure network charges remain fair, sustainable and reward customers for efficient choices.
Network tariffs need to evolve to achieve fair cost recovery from all grid customers as the use of the grid changes over time.
Without tariff reform, there will be distorted incentives for consumers making future energy choices and hidden signals to reduce peak demand, the key driver of network costs.
Network businesses will meet the future with pricing and service reform…
Network businesses are embracing the potential for change in the role of networks, including new services and connections, new technologies and transformed customer relationships. This is already changing business models and services within the sector.
Network service providers are adopting innovative approaches to planning and operations, which increase network utilisation and consider the value of optionality which is particularly important in a time of uncertainty.
- Network service providers are focussed on optimising their investment to meet demand, safety and reliability expectations. Businesses are currently required to consider alternatives to network augmentation and the opportunities for lower cost outcomes may increase as technology changes. Networks must invest in a context of some uncertainty, yet recognise the long term life of assets and the stringent safety and reliability requirements.
- Networks businesses are seeking to reform tariff structures to better match network costs and prices and provide incentives for customers to manage their energy consumption and contribute to reducing peak demand. Cost reflective network pricing reform is a central element of the energy reform agenda approved by Australian Governments through the Standing Council on Energy and Resources (SCER).
- With their expertise and current capacities, Network Service Providers are well placed to offer extended services beyond the network itself. For example, some network businesses could establish providers of maintenance services for on-site generation and other energy solutions in future service delivery models
Background to the Future Grid Forum
On December 6, the CSIRO’s Future Grid Forum released “Change and Choice: the Future Grid Forum’s analysis of Australia’s potential electricity pathways to 2050”, prepared over 18 months with the input of Australia’s electricity supply industry and key stakeholders. A number of ENA’s electricity transmission and distribution businesses were closely involved, including gold sponsorship by Ausgrid and Grid Australia. The Report captures the ‘mega-shifts’ reshaping the electricity system and highlights four diverse scenarios, as trends in technology, consumer choices, government policy and commercial responses influence outcomes for consumers. The report was prepared on the basis that the Forum does not endorse any particular scenario as being most likely or most desirable. The Report is available at www.csiro.au/future-grid-forum
- The Future of Energy Networks December 2013