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Select Committee into the Resilience of Electricity Infrastructure in a Warming World
Storage technologies and localised distributed generation in Australian electricity networks

LOVEGROVE, Dr Keith, Director, Australian Solar Thermal Energy Association

REDDAWAY, Mr Andrew, Energy Analyst, Alternative Technology Association

CHAIR: I welcome representatives from the Alternative Technology Association and the Australian Solar Thermal Association. We have submissions from you both—submissions 26 and 43. They are available on the website. Information on parliamentary privilege and the protection of witnesses and evidence has been provided to you. Would you both like to give us a short opening statement, and then we will go to questions. Try and keep it brief because then we can have a bit more back and forth.

Mr Reddaway : The Alternative Technology Association is a not-for-profit organisation providing sustainability and consumer advice. Most of our members are households. We have no vested interest for investments et cetera. Professor Garnaut is correct: we have to act on climate change, and early action saves money. The Chief Scientist is right too: the transition to renewables is already underway. Coal power plants are closing, and we need a mix of solutions to ensure our grid is resilient.

You have already heard much about grid-scale solutions, so I would like to focus on household-scale ones. For example, in energy efficiency we have six-star housing design standards, but they are not enforced in construction. Households could use much less energy for heating and cooling than they are using, reducing strain on the grid. Similarly, better appliance standards would help too. Lower electricity consumption means lower bills, which would help offset any transitional costs involved in moving to a renewable grid. Demand response—for many years some households have been rewarded for allowing their appliances to be run at lower power levels when the grid is stressed. Household batteries—already some households are getting paid for injecting electricity into the grid at critical times. I would like to mention one grid-scale solution too, and that is retaining the spinning machinery in closed coal power stations to help stabilise the grid without burning fuel, which is known as a synchronous condenser.

These are win-win opportunities, putting downward pressure on electricity bills and helping the grid, but their adoption has been piecemeal—often only trial projects that progress no further. Why is this? In our view, the underlying problem is the electricity market's design and governance. The market is dominated by private companies, each focusing on its own part of the grid and short-term profits. There is little or no incentive for companies to implement the initiatives I just mentioned. No-one is coordinating the renewable transition to a long-term plan. Market rule changes are almost impossible to implement against lobbying by vested interests. This is why many of our recommendations, in our submission, focus on reforming the National Electricity Rules et cetera. I have some documents to table, if I could, please.

CHAIR: Yes. Great.

Dr Lovegrove : I have taken the liberty of bringing some extra visual material along to support our submission. The Australian Solar Thermal Energy Association supports a number of companies who are involved in the concentrating solar thermal industry globally. I am sure you will have heard, at your hearings in Adelaide, about concentrating solar thermal. We are talking various approaches to systems of mirrors that concentrate the solar radiation and collect it in high temperatures. Typically the industry standard approach now is to store the energy as thermal energy in two-tank molten salt thermal energy stores. Then, from there, steam is produced as required, on demand, in a flexible, dispatchable manner. We are using steam turbines with synchronous generators. All of the features of a spinning system in a coal-fired generator, which we are so concerned about losing from our electrical system at the present time, are offered in equal measure by a concentrated solar thermal plant. So it ticks a lot of boxes in that regard.

Some pertinent facts to note: the ideal size for building these systems is in the range of 50 to 100 megawatts. In the early days of renewables, that might have seemed like a large thing, but here we are discussing the implications of the withdrawal of Hazelwood power station, and that is 1,600 megawatts. You would need to build 16 100-megawatt plants with 10 hours storage to replicate that; these are actually quite nice modules. Obviously they are solar plants, and you want to build them in good solar areas. What does that mean in Australia? It tends to mean at the outer edges of our distribution and transmission networks. This has the added advantage that those are the areas that are most vulnerable in terms of stability and outages and so forth, so we pick up a secondary benefit of helping to support and strengthen the network with this. Andrew has talked about distributed generation at the household scale; this is actually distributed generation at the utility scale, and the things complement each other very well.

Obviously this committee and its terms of reference have been motivated by what has been happening in South Australia, and that began with the blackouts, which were back in September, as I recall. I am sure people have made the point over and over that transmission lines blew down and it was nothing to do with the type of generation, but there was the second issue of how long particular regions were blacked out for. It is possible to postulate that solar thermal systems with storage, if they were in a disconnected region of the network it is—it is possible to configure the system so it can operate in an 'islanded' mode. But to do that you have to make sure that the contracts that these people are hypothetically working under encourage them to do that. For example, you might pay a solar thermal plant with storage a little bit extra to incorporate a black-start facility in it, because that is certainly a possibility.

CHAIR: What does that mean?

Dr Lovegrove : It basically means you put in a diesel generator big enough to run the feed water pumps to get the thing going again if the main network has gone down. Then it can come up and just sit there running on its home loads until such time as the network operator chooses to connect it to the network, whereupon it can then help other systems restart. So that would be what that would be about.

This is about the resilience of the electricity system, but it would not have escaped anybody's notice that, in South Australia for example, we are losing jobs from the car industry and so forth. There is a very big element with concentrating solar thermal of the potential for job creation. It is about manufacturing, and the nature of the technology—it is glass, steel and concrete, civil works, and infield wiring and infield piping. It is virtually impossible to import all of the value. You are obliged to do it locally and you are obliged to do it in the state and in the country. You might well import some components, but, to be blunt, to contrast with a PV panel, nothing packs in a shipping container as well as a PV panel, and China is dominating the market. This is a technology where that might be less so, although it is worth noting that China is getting very active in concentrating solar thermal as well, so watch that space.

Finally, I should get to what we, AUSTELA, think should be done in the present circumstance. We are advocating two areas of action. Primarily, with this concentrating solar thermal, the energy that is produced from a system with 10 to 15 hours of storage is roughly, as a rule of thumb, 50 per cent more expensive than utility-scale PV. We have a RET at the moment that rewards all megawatt hours equally. If you are playing in the RET, you always install utility scale PV ahead of the thing that costs 50 per cent more but delivers you 10 hours of storage. The energy from 10 hours of storage and all the other features is arguably 100 per cent more valuable, so it should be a good deal. What we would like to see—probably post 2020, when the RET reaches its limit as such. The RET is an industry development scheme for renewable generation; we would argue we still need industry development, but we need to shift that to flexible generation in the renewable space. How to do that? The RET should give out its certificates in proportion to the wholesale price at the time you generated the electricity, so it should be a direct mirroring of the wholesale market. Basically, if you happen to be generating in those late afternoon or early evening periods when we get the highest prices, you should be getting more certificates. We have a situation now where sometimes in South Australia the wholesale price is going negative at times of high wind generation. With the RET, we are effectively subsidising wind generation at a time when the market says we need no power. That has reached a level of perversity. If we switch to a new RET that gives certificates in proportion to the demand or in proportion to the wholesale price—there are various ways of designing it.

Further, what we have suggested in our submission is that we could also introduce a zero-emission ancillary services target. To the extent that within the NEM at present we do trade in ancillary services—there is black start and frequency control and so forth—they are oversupplied and worth very little as a source of income. But here we are discussing a world that is moving into renewables and low emissions and decrying the fact that the winners in the RET race are not providing those services. It would make sense to say, 'If we have a RET that is aiming for a certain percentage of renewable energy, and that's growing, we should match that with a renewable or zero-emissions ancillary services market in the same proportion,' so let us have 20 per cent zero-emissions ancillaries going along with 20 per cent renewable electricity. If you put that together, you then have a system that can grow to 100 per cent without us crashing into a logical wall where the NEM and the RET just contradict each other. I think at that point I will leave it.

Senator McALLISTER: That is a really interesting bundle of ideas, Mr Lovegrove—and thank you for your submission too, Mr Reddaway; I will come back to you. I am interested, I suppose, in talking in a little more detail about how each of those mechanisms would work and what they do and do not do, because it is important to be clear about what problem we are trying to solve and to develop the least number of policy instruments that solve problems as optimally as possible. With the first one, in relation to the RET, which was associated with time of dispatch and the level of demand at the time of dispatch, would you imagine that all technologies would be eligible for that?

Dr Lovegrove : All renewables? Yes, that is what we would be advocating, certainly. In fact, Professor Garnaut is not here anymore, but he was talking about the idea of, say, a storage market. I am reluctant to say that that is such a good idea, because we do not need storage per se; we need our energy delivered when we need it and we need a stable system. I think the market should be rewarding the outcomes we want, not the ways we deliver it. To go further on this, obviously rewarding that would help the solar thermal industry—

Senator McALLISTER: But that is neither here nor there, in some ways.

Dr Lovegrove : That is neither here nor there. If someone builds pumped hydro, if they build utility-scale batteries or if they preferentially face solar panels west instead of north they would get rewarded better than they are under the current system. This is something that Professor Garnaut mentioned: there are diurnal wind resources which happen to anti-correlate with solar better. They are not as strong as the Roaring Forties type things, but if you build the wind farm that way it is going to match the wholesale market better. That would get rewarded more than the '2 am when we do not quite need it' wind. So, yes, everything.

Senator McALLISTER: The starting point for this policy response is that the main problem we need to solve in terms of commercialising emergent technologies is the lack of low- or zero-emission technologies that can be deployed when needed. That is how we would define the problem.

Dr Lovegrove : It is not that there is a lack of technologies in the world; there is a lack of them being applied in Australia.

Senator McALLISTER: Thank you. That is helpful.

Dr Lovegrove : I invite you to look at some of the pictures at your leisure just to give us flavour of where the world is at. This is an industry that is fully utility scale. It has been growing at over 30 per cent per annum for the last decade. To put it in perspective, if Australia embraced this—and we would suggest that it could begin by, say, a reverse auction to get the first few plants in with a contract for difference or something like that—and we replicated the up to 40 per cent per annum growth rates that Spain had its peak of deployment, we would have 10 gigawatts by 2030. If we go back to where we are heading with all of us—which is really about decarbonising the system completely by 2050—I think most of the modelling that has been done says that you need at least 30 per cent of the capacity in the system or the energy system coming from flexible, despatchable things. so concentrating solar-thermal as an industry is perfectly capable of stepping up and providing close to that 30 per cent over the timescale of 2030. But we have to start.

Senator McALLISTER: Are you aware of a similar or comparable scheme of the kind that you propose in relation to a RET correlated with dispatch price?

Dr Lovegrove : No.

Senator McALLISTER: Innovation is fine, but I am interested to know whether anyone else has done it.

Dr Lovegrove : There are a couple of close precedents, but this is an issue that the whole world has to deal with. There are renewable portfolio standards—meaning RETs of various kinds—all around the world in all sorts of jurisdictions and they have almost all gone down this path of rewarding all megawatt hours equally. So it is actually a global policy problem.

California have a fairly interesting thing with some of their reverse auctions. They have done things where it is a reverse auction and they have divided the day and the year into time-based intervals and they have applied in advance a multiplier, a scale factor, to each interval and then they have said, 'We want you to bid a base tariff but you bid that on the understanding that any generation you do in these other intervals your base tariff is always multiplied by this multiplier.' That is a pretty useful precedent, but it still has an inflexibility, because somebody is guess in advance what those multipliers should be and, if circumstances change in the market, maybe they are not the appropriate multipliers anymore. Hence, we are throwing in this idea that you use the NEM price as the source of the multiplier. The multiplier is proportional to the full price; it is not equal to it.

Senator McALLISTER: You mentioned a second instrument that you would recommend, which I think is around markets for ancillary services. Do you see that as complementary to the RET mark II or do you see it as a substitute?

Dr Lovegrove : Complementary. If we build a properly balanced system with a sensible mix of technologies, I do not think the ancillary services are ever going to be the issue. In a properly balanced system they might offer, say, five or 10 per cent of the revenue for a plant with storage, spinning reserve and all the rest of it. They are not the big deal. They are only a big deal if we completely neglect them. That is the problem. At the moment, they are simultaneously oversupplied by fossil generators, yet we are driving those out of the market with the renewable energy mechanism and we are not ensuring that they get replaced. Then, occasionally, when we do not have them, we say, 'Isn't that terrible; we don't have them.' So I see the renewable ancillary market as a sensible system management tool, in the same way that the ancillary trading in the NEM is just a sensible thing to make sure those services are there.

You need to remember that for some services—I mean, think about a system with storage: when I talk about the salt storage systems having 10 hours of storage, that means that when it is fully charged it can run the power plant at nameplate capacity flat out continuously for 10 hours. But it does not mean you have to do it for 10 hours. You can let it sit there for several days, and you can hold a little bit of it back in reserve because there is a bad event coming. AEMO could ask you to hold some back. But that means you had better be earning income by providing a reserve if someone is telling you not to sell your energy. You cannot always have your cake and eat it. The market needs to incentivise everything we want. It needs to incentivise giving us the energy when we need it, but it also needs to incentivise some people to provide some services that are not quite energy but more about reserve and frequency control.

Senator McALLISTER: Thank you.

CHAIR: I want to ask you about what you see the role is of feed-in tariffs and support for householders who have PV on their roof. Can you give us an overview of that and how you think that should be fixed or dealt with going forward?

Mr Reddaway : We have recently seen in Victoria that the Essential Services Commission has increased the feed-in tariff, starting from 1 July, from what was around 5c or 6c up to 11.3c. We support that move. We think it is close to a fair value of that excess solar generation that is being fed into the grid, and that is the sort of thing we would like to see happening in other states. Just valuing the feed-in at the wholesale rate does not recognise the true value of it when you take into account the fact that it is being generated close to the point of consumption, so the electricity does not have to be transported all the way across long distances to get to the house or business. Also being a renewable clean energy source has value as well. But one thing that was not taken into account in the recent Victorian decision was the health benefits from reduced air pollution and the localised environmental issues caused by fossil fuels. We would argue that it should maybe be slightly higher. But it is certainly getting close.

CHAIR: We have had previous witnesses who have described the growth of household solar and even those people who are now kind of in a position—I acknowledge that not many people are—to put battery storage to accompany their solar on their own houses. The Prime Minister, we hear, has solar panels and batteries, so it is good enough for some. Some people have described that as the inevitable; it is the Uber of the energy market, or the Airbnb. Of course, there are always going to be people who cannot do that for whatever reason. How do you see that tension between allowing individual consumers who can make the choice to do that versus those who will never be able to?

Mr Reddaway : There are a couple of things that I would say to that. The first thing would be to increase the pool of consumers who can make that choice. In our submission we highlighted a couple of ways that can be done. At the moment there are not many solar panels on rental properties, and the reason is the split incentive where the landlord pays to install but the bill savings are enjoyed by the tenants.

So one of the great ways you can address that problem is to facilitate something called an environmental upgrade agreement, which is a loan that you pay back through a charge on your council rates. The advantage of that is that people do not normally default on their council rates so financers are willing to offer low interest over long time-frames. And also, for the landlord, if they are putting on solar through one of these loans, if they sell the property then they do not have to continue paying. It automatically transfers over to the new owner. So that is one thing which has been done in a couple of places in a sort of trial way. But there were some regulatory barriers which we are hoping can be overcome. I am not too clear on what the details of those are. But that says something about what councils are allowed to charge for on their council rates. So, if there is any way to help get over that, it would help a lot more renters to enjoy the benefits of solar.

Similarly with strata buildings—units and apartments—there are not too many solar panels on those roofs. One of the drawbacks is that it is quite difficult to split up a solar system across say 10 units. You can do it as 10 small solar systems but then they all have to have their own wiring, and it becomes quite cost-prohibitive to split it all up and have all the extra inverters and extra wiring and cabling and all that stuff. So there are ways that could be addressed, through market rules and regulations as well. There are ways that—you can install it as one solar system and have it going through one meter, but then you share out the generation from that one meter; you allocate it to the 10 meters on the 10 units. So you can do it through software rather than having to put expensive cables through.

CHAIR: We did actually have some evidence from someone developing software in relation to that. Senator McAllister?

Senator McALLISTER: It was just a follow-up around one of the regulatory interventions you mentioned, around allowing councils to place a lien or some kind of notice on the title that creates a continuing obligation for the title homeowner and allows people essentially to recoup the value of their investment. There has been a bit of work done on that, I know, in New South Wales, although I have lost track of where it got up to. Are you aware of whether those legislative changes in New South Wales made any difference?

Mr Reddaway : Sorry, I am not up to speed with the legislation.

Senator McALLISTER: It was a little while ago so I am not up to speed on it either. I just thought you might be able to help me. Thanks, Chair. That was all.

CHAIR: Thank you. What do you suggest is a good way of helping householders take advantage of battery storage options?

Mr Reddaway : If I can maybe just answer the other part of your previous question.

CHAIR: Sure.

Mr Reddaway : Yes, there are always going to be some households that do not have the ability to put solar on the roof, either due to capital constraints of a big tree shading the whole roof or whatever it might be. So, yes, we do see the grid as an essential service. We do not see the future as being every property going off-grid. You also have hospitals and businesses that have a higher electricity consumption than what they could reasonably supply off their own roof anyway. So we do think that in general the future is grid-connected, which also helps to share renewables around and help keep the system more resilient and secure as well.

And your question about the batteries: I guess the AGL—I was not here for that this morning but I guess they would have mentioned their virtual power plant initiatives? That is a really good example of the sort of thing that we are looking for. What householders want mostly is to have a battery that will help to enhance their bill savings—for example, storing their excess solar. So, rather than exporting it out to the grid for a small amount, they can save it in the battery and then use it to avoid importing electricity from the grid in the evening when it is expensive.

What the grid mostly wants is support at those critical times, when you have a heatwave day, for example, and everyone has their air conditioners on. So you can either have batteries in the households helping with the bill savings and batteries at the substations helping with the grid, or you could get both benefits from one battery. If you have batteries in households which at those critical times can be taken control of by the energy companies or the network companies—

CHAIR: To tap into effectively—

Mr Reddaway : to tap into when they need it, yes. So the household gets their bill savings for 360 days of the year, and then the other five days of the year when the grid needs some help, the grid can get what they want out of it.

CHAIR: Does that kind of technology exist?

Mr Reddaway : Yes, it does. The AGL virtual power plant is an example. They have a trial starting—I think, they are talking about 1,000 homes in the next year or two. But we would be looking to try to push as many of those things as we could. Another example is Reposit Power, who I think you heard from already. They have a slightly different model. It is more related to the pool price of the wholesale market. But, yes, I think more of the type of program where householders are paying for the battery and they are owning it; but, if that battery can help the grid, then the network or the energy companies could co-invest in that battery and basically cover some of the cost of it.

CHAIR: Senator McAllister.

Senator McALLISTER: I just want to follow-up. I asked a similar question to Mr Price earlier today. Often when we are thinking about distributor technologies and talking about how they might be integrated into a market framework, we envisage a whole range of contracts and arrangements between parties that would enable all of these technologies to be deployed flexibly in response to price signals. And it is true that all of those things are technically possible, given essentially communications technologies combined with these decentralised technologies. There is a human element to this, though, which is that for households to do that they would need to themselves find the time and the effort to determine a person or an entity with whom they could enter a contract. They would need to evaluate which contract was in their interests. There are a whole range of information barriers and transaction costs associated with fully realising the virtues of these decentralised technologies. Has your organisation thought about whether this idealised market arrangement is likely to be matched on the ground in practice?

Mr Reddaway : You are right. There are sort of information and transaction costs and barriers and often they are asymmetrical as well.

Senator McALLISTER: Massively.

Mr Reddaway : The householders cannot be expected to understand market offering as well as the 100 different providers who all have it as their business to provide it. That is right.

Senator McALLISTER: And I will observe that it is okay to have policy failures and to learn from them and move on, but we did have some early policy failures with the aggregators who did exploit that information asymmetry and produce some substandard outcomes back in the energy efficiency world.

Mr Reddaway : Yes. I do not have anything very specific to add there except to provide regulation of those markets and those services to try and keep them simple and easy to understand.

Senator McALLISTER: Another way through it might be to provide opportunities for the larger participants who already have customer relationships to play that aggregating role, and that is of course the subject of consideration by the AEMC and others at the moment. Does your organisation have a view about whether it is desirable that the existing large energy businesses play some role in aggregating the services that individual customers might be able to provide from behind the meter?

Mr Reddaway : I think we are relatively agnostic about which companies provide that service. We just want it to be regulated so these services do operate in the benefits of consumers. We have the example already with the retail sector in Victoria, where we have the most deregulated electricity market in Australia and the most competitive retail sector—there is a huge number of companies that you can go to, to send a bill to you—but the retail margins are actually higher than other states. That competition is not driving down the costs like it was originally meant to. There are some questions to be looked into there, I think.

CHAIR: There is a call out today back home in South Australia from the Economic Development Board to suggest that the South Australian government should just buy one of the gas-fired power stations. Do you think that is a good use of money?

Dr Lovegrove : I would like to jump into that one and say no.

CHAIR: Why is that?

Dr Lovegrove : There has been a lot of discussion around gas today and, presumably, in your other meetings as well. Professor Garnaut pointed out pretty clearly that it was obvious to anyone who looked that, if we build an LNG export industry, our price rises up through export parity. He even pointed out it has gone somewhat above that. So that was a choice. LNG exports have now risen to be our number 4 source of export income, so it is a massive boost to the Australian economy. Arguably, in years gone by, when we had very cheap gas we were almost taking advantage of something and not getting its true value to the economy.

You have heard about all sorts of technical solutions, not least being solar thermal with storage, that can basically do, in the system, anything that gas can do. In AUSTELA, we are actually worried about—the term that has been used today—a knee-jerk reaction to gas, a domestic reservation or things that force gas generation into the system when market forces are saying that maybe it is not going to be there. It looks as if the various options we have for flexible renewable solutions, and certainly solar thermal, are probably going to be cheaper than, say, new-build gas with gas prices the way they are heading, so why don't we jump on board those?

In fact, if we force gas back in, what we will end up doing is forcing the flexible renewables out—or there is a danger of that—and actually holding back the development of them. If we want to get to zero emissions—and people might argue about whether we do or not, but the Paris Agreement suggests implicitly that we get to zero emissions—then gas does not cut it. Not to mention that there has been recent media attention given to questions about fugitive emissions and how we produce our gas, and whether it is really so very clean that we like to pretend it is. So I would say no. Sorry to hog the answer.

Mr Reddaway : I would agree with most of your comments about gas. Yes, it is appearing more likely that it is not as clean as it is made out to be, when you count all those leaks from the wells and pipelines, et cetera. It is obviously expensive and it is not really compatible with where we want to go with a renewable grid. But, having said all that, reliability in the short term is important as well. If South Australia actually is in that bad a position in the next year that there are no other solutions, then I could understand why the South Australian government might take a drastic step like that. Rather than generating more electricity, there are lots of ways you can use less electricity at those critical times, and it seems as though they have not been looked into much at all in the current market design.

CHAIR: There being no more questions, thank you gentlemen. We appreciate your time today.