The opportunity for consumers and the grid edge to secure Australia’s power system

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Recent events in the Australia electricity market, including major power outages in South Australia, the failure of the BassLink interconnector and supply issues at the Alcoa smelter in Victoria, to name a few, have highlighted the challenge of maintaining grid security in an increasingly complex electricity system.

1. Introduction:

In the wake of such events, grid security has become a politically hot topic, with renewable energy, in certain circles, often made out to be the main culprit. Although not to blame for these recent events, an electricity network substantially based on renewable energy is more complex to manage, operate and control than the legacy one-way system based on large-scale synchronous generation. Developing the new operational paradigm required to maintain system security in the Australian electricity system offers a unique opportunity to engage smaller customers in new ways.

The grid edge is characterised by a growing level of distributed energy resources (DER), including batteries, smart inverters, electric vehicles, controllable loads and distributed solar PV, and their owners or aggregators may have a proactive role to play in the security of this future power system.  Indeed, any device that can be made ‘smart’ – i.e. communications connected and controllable – could contribute to collective energy security. With approximately 5.5 GW installed solar PV capacity spread across 1.6 million residential customers, or close to 20% of all electricity customers, the presence of DER at the edge of the electricity system is already significant.

Of course, the biggest impact at the grid edge, at least in the short term will be from large commercial and industrial customers. Despite the rejection of a recent rule change request to develop a Demand Response Mechanism in the wholesale electricity market, interest in demand response services is strong. The reportedly imminent increases in retail electricity prices for large scale customers due to high wholesale prices[1] will only increase this demand. Should consumers embrace this opportunity the positive impact on peak demand is obvious and estimates have suggested 2000MW of demand response is available in the NEM[2].

Beyond these emerging business models around aggregated load shedding and embedded generation capacity, most current DER is made up of residential and SME solar PV.  However, the rapidly falling cost of storage technologies and internet-connected domestic devices will create a new wave of proactive DER opportunities.

In response to these falling costs, recent analysis predicts 300,000 residential storage installations in Australia by 2018. Any additional public subsidy support for battery storage, such as the restructure of the premium solar feed-in tariff proposed by MHC, could increase this number even further.

Figure 1: Battery storage installation estimates (source: Morgan Stanley Research)

In addition to storage there is a growing market for a range of residential controllable load products, including controllable air-conditioners, pool pumps and hot water systems that can complement the established demand response infrastructure and commercial options available to the biggest commercial and industrial customers.

System operators and energy efficiency experts have long considered residential load the least attractive to target: too many individual actors or counterparties, insufficient price sensitivity and not enough devices that can be controlled remotely.  However, new remote system controls, smart inverters, advanced meters and storage technologies challenge these assumptions.

Grid-edge backed energy security then pivots on how residential and SME customers can best be engaged in this transformation. What financial mechanisms or business models can be put in place to ensure smaller consumers realise benefits from helping safeguard Australia’s power system?

There are clear benefits to the energy system from mobilising smaller residential and light commercial stakeholders as well as driving greater engagement from C&I customers.  If appropriately installed, operated and controlled, their DER can help maintain grid security by:

  • alleviating network constraints, energy shortages or market price volatility by influencing localised demand and supply upon activation;
  • mitigating the impact of technical ‘events’ through faster fault detection, temporary provision of local network power supplies (e.g. islanding) and potentially by increasing resilience once an event has occurred; and
  • increasing effective system-wide energy supply and making better use of existing power system assets, rather than adding new generation or network capacity in a traditional ‘lump’ (like a thermal power station).

This article explores the viability, impact and barriers to leveraging DER for these purposes.

2. Viability:

DER’s ability to provide these services is being tested across Australia and commercially deployed in other places, notably the US.

In Victoria, GreenSync and United Energy are utilizing DER across the range of customer groups as part of a non-network solution, selected via the RIT-D process, to maintain system security and defer expensive network augmentation on the Mornington Peninsula.

Elsewhere, Reposit Power has teamed up with SA Power Networks to create a 300kVA solar and storage virtual power plant (VPP). Also in South Australia, AGL is currently in the process of deploying a VPP trial involving up to 1,000 customers, that will be able to store up to 7MWh of energy and have an output of up to 5MW.

A number of studies[3],[4],[5] have found that DER have the potential to provide support to electricity markets in the form of ancillary services, and provide important additional capacity and market liquidity.

Ancillary services, including frequency and voltage support, are currently provided by large synchronous generators. However, if aggregated and controlled, DER might be used to provide similar services at the distribution level of the network. DER can further be used to address supply and demand issues through dynamic balancing, ramp rate control and peak demand management. Changes to the NEM rules late in 2016 now allow “non-retailer” customer aggregators to participate in frequency control ancillary services (FCAS) markets.

3. Impact:

If appropriately managed, DER could help alleviate network issues, reduce the reliance on conventional network technologies and improve utilisation of existing network assets, realising overall lower costs for consumers.

DER could potentially allow individual homes, local communities and even urban areas to operate with increasing self-reliance, while supplying power to critical infrastructure in the event of a fault on the network.

If coupled with advanced communication technologies providing real-time, bidirectional flow of information, DER could improve DNSPs incident response times and costs: faster geo-spatial fault detection, a clear identification of the source of the issue, directing maintenance teams and self-testing repairs.

DER further give network operators an additional (albeit more complex) lever to pull than traditional electro-mechanical network controls. This may include centrally controlled DER used to improve the phasing of ramp-up periods following black or dark starts by using distributed control systems to ramp down localised demand or stabilise voltages.

The key to all of this is aggregation, allowing a vast array of DER to be controlled to act as one, reliable resource. This in turn requires sophisticated software solutions to provide interoperability, communication and control[6].

For this to materialise, the value of DER to the electricity network must be disseminated and signalled to DER owners and aggregators to provide appropriate incentives. MHC, through its work with ARENA’s A-Lab has been instrumental in the development of the trial of a new decentralised energy exchange (deX) to do exactly that.  The deX is a world first and will allow multiple aggregators to bid into a market to provide services to a network in response to a supply security or quality need.  This market platform is to be tested over the coming months on both the United Energy and ActewAGL networks.

4. Barriers:

Despite aggregated DER’s promise to provide valuable service to the electricity system, a number of barriers remain, including:

  • Managing and facilitating a vast number of micro transactions involving several parties, including DER owners, aggregators, NSPs, ESCOs and retailers;
  • Ensuring DER and aggregation technologies are seen as sufficiently reliable for the NSP to rely on for network services;
  • Managing risks such as cybersecurity, data protection and privacy when converging internet enabled information technology with grid based operational technology;
  • Providing the appropriate incentives for customers to participate and ensuring that sufficient DER capacity is available;
  • Challenges to the traditional CAPEX based revenue model of the NSP through the involvement of third party aggregators (a pass-through cost);
  • Funding, integrating and operating the required communications and distributed big data solutions required to disseminate and analyse large swaths of data.

These barriers are not insurmountable but require a mix of regulatory, technical and commercial solutions.

5. Conclusions & Suggestions:

There are already DER embedded in the grid edge, more options are being rapidly deployed in our homes and businesses and these devices are increasingly ‘intelligent’ – able to react to complex situations or price volatility.

The Australian electricity system must now face up to the complex challenge of successfully incorporating the sea of DER to benefit system security and efficiency. MHC believes –  that utilising resources at the grid edge might be a more cost-effective option  than system augmentation.

For this to happen most effectively, consumers and aggregators will need more granular, timely financial signals to preserve embedded investment value and maximise system potential to reduce the impact and likelihood of events impacting grid security. Tariff schemes and incentives for residential and smaller commercial customers will also have to reflect the benefits of their participation.

MHC also see a range of grid edge developments:

  • Emergence of networks as “DSOs” – distribution system operators monitoring and analysing the condition of the network and sending price signals to the DER market participants.
  • The rise of DER aggregators (who may or may not be an electricity retailer). This role is ripe for new market entrants from other industries more familiar with deep client relationships – think Telstra, Google and Tesla.
  • A range of new market platforms, such as the deX, which facilitate value transfer and a financial incentive for DERs (and their owners) to help make the grid edge the frontline of our power system’s security.

Marchment Hill Consulting is proud to be helping our clients navigate this brave new world, and specifically applying our expertise and insights to help secure Australia’s power networks.



[2] AEMC, Demand Response Mechanism and Ancillary Services – Draft Rule Determination, 2016

[3] AEMC, Integration of Energy Storage – Regulatory Implications, December 2015

[4] DNV GL, A Review of Distributed Energy Resources, September 2014

[5] ERCOT, ERCOT Concept Paper on Distributed Energy Resources in the ERCOT Region, August 2015

[6] It also requires confidence and trust by system planners and operators, which MHC believes will come with time and experience with DER’s potential.