The Once and Future Grid

Tuesday, February 4th, 2014
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Just as the stories of King Arthur and his tragic story of Camelot, Guinevere and the Knights of the Round Table continue to capture our imaginations, so do the possibilities of new electricity generation technologies totally transforming our lives.

Up until recently, the promises of large-scale changes to the electricity systems had been relegated to the pages of science fiction stories or speculative articles in science journals such as a Scientific American or New Scientist. But now, thanks to a perfect storm of new technologies driven by government subsidies in Europe leading to a massive decline in the costs of wind and solar photovoltaic generation, and the gradual roll out of climate change policies around the world and in Australia, this is all about to change.

Almost from the days of Thomas Edison and Nikola Tesla, the power system has been built and expanded subject to several key governing principles: The economics of fossil fuels supply and transportation, the economics of electricity transmission over long distances, and the difficulty in storing electricity effectively.

Generators – coal and gas fired – were built close to their resources but far from population centres. Resources include coalmines, existing or dedicated rail links, or gas fields and gas pipelines. High voltages (up to 700 kilovots) are used to minimize losses over hundreds or thousands of kilometres, and sufficient generation and transmission capacity must always exist to ensure the system remains stable in the even of the loss of a large generator or transmission line.

This landscape is currently undergoing a seismic change that is exacerbated by rapid decline in the costs of renewable generation, specifically, wind and solar photovoltaic generation.

Fossil fuel costs are increasing all around the world as China and India grow. Even in Australia, coal costs are under pressure as previously exportable lower grade coal has become attractive to countries such as Korea. New direct current (DC) transmission lines are becoming the most economic option for long distance point-to-point uses. Finally, battery technologies are finally being manufactured in large quantities and at an economic price.

Wind is already a major player in many grids around the world and, according to many studies, it is cheaper to build and run a wind turbine than a new coal fired power station provided the intermittency of wind can be balanced somehow.

Solar panels have been in the media for quite some time because they are now a common feature of most Australian residential areas. Due to the combination of federal and state solar incentive schemes from 2009 to 2011 the amount of solar PV grew from approximately zero to more than 3000 megawatts from 2009 to 2014. That accounts for nearly 10 per cent of Australia’s current peak electricity demand. Solar is also approaching what is known as grid-parity, which is the price at which it competes with buying power from the grid. This calculation includes transmission and distribution costs as well as the generation costs. By generating power at the premises using solar, the consumer avoids paying all of the above.

Coupled with a response to recent and somewhat puzzling increases in end user electricity prices in Australia, where retail prices increased by 80 to 90 per cent between 2007 and 2013, demand growth for centralized (grid connected) generation has ceased. In fact electricity demand, both average and peak, has been dropping since 2009.

The upshot of all this is that there are enormous changes under way and industry players all along the supply chain are taking it seriously. This is reflected in the recently concluded 18-month CSIRO-led electricity system analysis and projection exercise called the Future Grid Forum. This unprecedented consultation was made up of the CSIRO, several industry bodies and many of the major Australian energy and related service companies including AGL Energy, Origin Energy, Energex, Ausgrid, SP Ausnet, Ericsson, Smart Grid Australia and others. The main questions posed were:

  • What might Australia’s electricity system look like in 2050?
  • What are the risks and opportunities that might arise along the way?
  • What can the electricity sector and its stakeholders do to most effectively respond?”

In order to answer these, the forum formulated four key illustrative futures, or scenarios, that cover the possible trends that are being expected to manifest over the next 35 or so years. These four scenarios are called respectively: “Set and Forget”,  “Rise of the prosumer”,  “Leaving the Grid”, and  “Renewables thrive.

The differences were related to the following main drivers: Strong climate change related policies, the extent of demand growth decrease, changes in the load shape due to electric vehicle and batteries, rate of decline in the costs of renewable technology, the rise of a more aware and engaged electricity consumer who also generates their own electricity (the “prosumer”), the availability of cheap batteries which make it economic to leave the grid altogether, and the availability of tariffs that reflect the true cost of electricity delivery. The last is important and topical given the roll-out of smart meters in Victoria and possibly other states.

Three of these drivers can potentially be disruptive enough that the Forum termed them “Megashifts”. These are the decline of energy demand, low cost electricity storage, and strong climate change policies.

Taking all these into account the CSIRO’s modellers were able to generate some useful numbers identifying risks to the industry, opportunities to industry and consumers and policy recommendations. It is beyond the scope of this article to go through it all in detail. I will simply note two key risk and two recommendations.

Firstly, under most of the scenarios, the utilization of the centralized network is at risk of significant decline, resulting in rising prices. Secondly, if energy pricing does not become more cost reflective, there is a risk that consumers will leave the grid en masse, leading to an even greater increase in prices and undermining utilities current business models.

The Forum suggests that the key reform of introducing cost reflective pricing based on consumers actual daily usage profile will be needed to make sure the system evolves efficiently. To protect low-income consumers, the Forum says it is vital to implement comprehensive support and assistance frameworks, as they will be the worst impacted.

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