An electricity market on your street?

As we head into a future with more residential solar PV, EVs, and smarter devices, a lot of people in the electricity industry are working on how we prepare the current system (physical assets and regulatory framework) for the future. This is where some stakeholders think distribution markets can play a part.

What is a Distribution-level market?

In theory, it is a way for customers and other participants to buy and sell energy and related services at a household level in a more dynamic way, responding to price signals and customer preferences.

Example 1

I have solar panels and they produce more energy than I use during the day, whilst my family and I are at work or school. This excess energy could be provided to the distribution market and it could match me to my neighbours’ need to charge their EV more efficiently with minimal grid losses.

Example 2

It’s the middle of summer. My solar panel charged up my home battery earlier today. The distribution transformer in my local area has been under stress in the early evening as the sun goes down and the network requires support that my battery can provide. I won’t need all the energy my battery stores so I offer it so it can provide a service to the grid and I get paid.

While these examples may be an oversimplification of the real world, they present some of the benefits that industry sees as worth pursuing.

It’s an incredible challenge to meet, not only because we obviously don’t know what will happen in the future, but also because the decisions we make will affect almost every person in Australia regardless of whether they have solar panels or not.

When you combine this with the difficult times that economies around the world are experiencing and the potential flow on effects to DER uptake[i], it means we are well and truly in a VUCA[ii] world.

Are Distribution markets the answer?

Like the answer to many questions in this space, it depends.

One advantage to a distribution market is that it would provide some certainty of the rules and responsibilities of different parties. But this comes with a cost, both in a complexity and financial sense.

The recently released AEMO Renewable Integration Study reports that 9 GW of solar PV is currently installed on Australian rooftops, with between 12 GW and 19 GW expected by 2025. Note that impacts from COVID were not considered in the modelling for this since AEMO couldn’t (and won’t) know the extent of the impact until this is fully understood.

While 9 GW is an impressive number, we should also consider that uptake of distributed photovoltaics (DPV) is not uniform across the National Electricity Market (NEM), with QLD and SA being the obvious leaders. This suggests that jurisdictional solutions may be best to alleviate today’s challenges, with fuller (and more costly) integration considered when we know more about uptake across the NEM and the Western Electricity Market (WEM).

In the West Australian DER Roadmap[iii], Energy Policy WA (EPWA) has done a fantastic job illustrating what consumers can do now and in the future, and I encourage everyone reading this article to have a read of that paper as well.

What we don’t showcase enough is the immense amount of work in the industry to progress the theoretical and practical knowledge that will organically increase DER integration. Programs such as ARENA DEIP[iv], evolve DER[v] and the various network trials across the country will put us in a stronger position to integrate a large portion of DER, perhaps without bespoke (and costly) distribution markets.

Having said this, we believe it is a question of when and not if distribution markets would and should appear. Starting to map a path to an eventual future of distribution markets is appropriate, but a significant portion of industry wonders whether now is the time for major systems changes.

Last year, I wrote an article on distributed energy resources (DER). In that article I did a small explainer on DER and some technical milestones that we need to make things like distribution markets work. My comments then are still relevant now.

Energy Networks Australia has also recently released a position paper on the Open Energy Networks (OpEN) project where we explore in greater detail the costs and benefits of distribution markets.

Final thoughts

DER is still the hot topic in electricity and COVID-19 has not stopped the need for a lot of work in this space from the many perspectives of customers[vi], market bodies[vii], governments[viii], networks[ix] and businesses[x].

But regardless of how this challenge is approached, we should all keep in mind the following:

  1. Electricity is an essential service – the system must continue to serve all Australians now and in the future. Whatever that means in terms of safety and reliability, it is something that both sides of the environment debate can support.
  2. Evolution not revolution – the future is even more uncertain now than ever and we should preserve optionality in any decision we make so we don’t back ourselves into corners that we will regret later.
  3. Societal benefits should be weighed against costs – the decisions we make as a society need to be continually evaluated and subject to rigorous scrutiny and governance. We should be clear that consumers should benefit in proportion to the costs they pay and strongly engage with them on matters of co-design.

If we can keep these three things in our thoughts and actions, then future generations can be satisfied that we made the right choices with the information we had.