Wholesale Solar FiT Brings Australia 1 Step Closer To Distributed Grid

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With the highest penetration of residential rooftop solar in the world, Australia is a testing ground for the role that distributed generators can play on the grid. Despite this fact, energy production incentives for rooftop solar systems are currently minimal or nil, leaving homes to try to maximise their solar self-consumption despite the useful role they could potentially play on the grid. However, recent developments — including the introduction of a variable feed-in tariff based on the wholesale energy spot price — indicate that Australia is slowly but surely moving in the direction of an energy system that values the role of distributed generators.

Shift to Solar Self-Consumption

Generous solar feed-in tariffs were what spawned the country’s solar boom back in 2008–2011. Although these incentives have died off, solar system installation prices have fallen significantly. Rooftop solar is now affordable and makes financial sense for virtually anyone with an unshaded roof above their head and some daytime energy usage.

However, the lack of state-sponsored energy production incentives also means that solar homes are effectively incentivised to keep their solar “behind the meter” (“solar self-consumption“). These days, most feed-in tariffs are voluntary and rates are about a third or a quarter of what homes pay for electricity from the grid. Many solar system owners think that this is unfair, but it has also grudgingly become accepted as the norm. (This could be a vision of things to come for the USA, as Americans will likely find themselves in a similar situation as state-based net metering programs wrap up.)

But a growing interest in household energy independence isn’t necessarily in the best interests of the grid at large. Despite the growing affordability and appeal of going off the grid, the grid will not become obsolete anytime soon. Rather, Australia’s grid is already evolving into its next iteration (albeit slowly, a bit painfully, and without a cohesive, government-backed plan). The consensus is that the future of our energy infrastructure is a smart grid full of distributed consumer–generators (prosumers) who are active market participants — rather than a Mad Max–style, “everyone for themselves” off-grid free-for-all.

Finding a New Way to Value Distributed Energy on the Grid

Currently, there’s no official way to incorporate and effectively capture the value of distributed generation into Australia’s energy infrastructure or market. There have, however, been some major regulatory reforms – AEMC’s Power of Choice Review – that have opened the doors for the development of market-based approaches towards this goal. Although there have recently been suggestions for finding a way to put a value on the “local-ness” of distributed energy (e.g., because it doesn’t need to be transported from coal plants hundreds of miles away), it feels safe to wager that this kind of solution is still some time off (as government movement on such things can be glacial).

Key Role of Batteries & Energy Management Systems

Energy storage is widely seen as the missing piece of the puzzle when it comes to enabling distributed renewable energy generators to partake meaningfully in the energy market. But despite the hype and incredible amount of noise around the topic, widespread adoption of distributed storage is still at least a year off, mainly due to high price points (which are falling quickly). The key functionality that battery storage promises to a distributed grid is the ability to dispatch power on demand, when it is needed most.

People are excited about battery storage and all it entails. It’s understandable, therefore, that batteries are where the focus has been. Reposit Power is one company that has managed to make a name for itself as a developer of a technology that allows battery storage system owners to sell their energy on the grid at opportune times – taking advantage of high spot price events when they occur. Reposit’s GridCredits system has an app-based interface that makes it easy for users to understand and engage with the electricity market. In essence, a Reposit Power battery system owner is occasionally offered the opportunity to export stored energy to receive a premium rate. All the customer needs to do is opt in or out, and Reposit’s software takes care of the rest.

Currently, there is only one retailer (Diamond Energy) that offers a package (Grid Credits 100) that incorporates GridCredits. Under this plan, battery storage system owners get paid $1 per kilowatt-hour of exported stored energy. There are other technology companies that have developed platforms that allow retailers to offer packages like this (including Germany’s sonnen and Australia’s own GreenSync and Redback Technologies), so the idea of market participation along these lines is already beginning to permeate the industry. Technologies like this have facilitated a number of pilot projects in Australia, including at least one virtual microgrid of record-breaking size by one of the ‘big three’ retailers.

A Wholesale Rate for Exported Solar: Who Would Benefit & How?

A much smaller retailer by the name of Urth Energy, however, has recently cracked open the idea of wholesale energy trading to the mass market with a plan called Urth Trader. Urth Trader allows anyone with a grid-connected solar PV system of any size in South Australia, New South Wales, or the Energex network in southeast Queensland to receive the wholesale spot market price for the solar energy that they send into the grid — effectively putting them in the same ring as the country’s large-scale power plants. The plan allows customers to take advantage of high wholesale rates when they occur, but stops short of promising overall higher feed-in rates on average. Instead, the company says that “engaged” solar system owners will be able to maximise their solar returns in a way that has hitherto been impossible – by keeping their solar behind the meter (as much as possible) when spot prices are low, and exporting when prices are high.

Urth acknowledges that feeding solar into the grid is no longer the best way to maximise the value of a solar energy system – even with Urth Trader. Instead, it opens up a new stream of potential value for solar system owners that complements solar self-consumption behind the meter, which is the primary way that solar systems save their owners money these days. But at the same time, Urth Trader recognises solar system owners as the generators that they are and is willing to pay them as such (minus a 15% administration fee). And the door is always open – a customer could theoretically set their system up to export when conditions are most favourable – e.g. the spot price is about to rise about 30¢/kWh and there are no crucial loads running in the house.

And in any case, customers will know that they’re getting an objectively fair rate for their solar. According to the company’s press release on the product launch:

“In a world of declining state-sponsored feed-in tariff incentive programs and rising retail electricity prices, Australia’s solar homes and businesses have become more energy conscious than ever. Solar is worth the most when it is consumed ‘behind the meter’ (e.g. directly, in the building where the energy is produced), while solar exported to the grid ordinarily has little value, with most retailers offering only 6-8¢ per kWh of solar energy sent back to the grid.

“In allowing customers direct access to the wholesale market, Urth Trader delivers a new level of transparency to solar feed-in valuation, which has long been a contentious issue in Australia. Furthermore, Urth Trader allows ordinary homes and businesses to proactively engage in the market as generators, putting them in a position to take advantage of high-price events when they occur by switching off devices (load shedding) to let their solar to flow into the grid. For those who do not wish to be proactively engaged, Urth Trader at a minimum ensures that they will be paid fair market value for their solar energy.”

The people who will be best set up to take advantage of Urth Trader, therefore, are those with home energy management systems that allow for both monitoring and control — systems that can do this are becoming increasingly popular in Australia. The missing piece of puzzle for most of them, however, are algorithms to detect and respond to spot prices (although they could theoretically monitor it manually using apps like Red Dolphin Pocket NEM). On the other hand, there are technologies that can respond to spot prices (e.g., Reposit) but do not constitute a full-blown energy management system, as there is no interface for controlling devices in the home (at least not yet). Redback Technologies is the only company currently claiming that their platform can do it all, but their system is generally tied to batteries — and in any case, it is undoubtedly only a matter of time before others catch up.

What About the Value of Solar’s Other Benefits?

The valuation of solar on the grid under Urth Trader is based on the wholesale spot market, which means that it is honest but one-dimensional. Currently, there is no way to capture in monetary terms the environmental and social benefits of solar on the grid (such as with Minnesota’s Value of Solar Tariff). For those who argue that these are too nebulous to put a proper value on, we could also look to something more concrete: the value of solar as a local generation source. Currently, solar energy generated next door to your house is competing on a level playing field with generators that may be hundreds of kilometres away. Finding a way to effectively capture this value – as the Institute for Sustainable Futures has proposed – could further boost the case for solar system owners to actively engage in the market, especially if a savvy technology developer decides to step in and fill the gaps (which, as noted, a few are currently endeavouring to do).

The 1st Feed-in Tariff of Its Kind — But Not the Last?

It will be interesting to see if other retailers follow suit and begin offering products similar to Urth Trader – after all, there is nothing stopping them. But the plan’s introduction is a pretty clear signal about the direction that Australia’s energy system is headed, and offers a unique and interesting opportunity for solar system owners where it is offered.