The future of network business

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In the lead up to Australian Energy Week 2019, we caught up with three leading figures in the energy industry and chatted all things DERs, prosumers, and the future of network businesses.

Please could you give us a brief background on your experience when it comes to Distributed Energy Resources?

At AusNet Services we operate three regulated networks in Victoria – electricity distribution, electricity transmission and gas distribution – serving over 1.4 million energy users. Although Distributed Energy Resources (DER) are impacting each of these networks, we are seeing the most significant implications for our electricity distribution business. Within our electricity distribution network today, around 16 per cent of our customers have adopted rooftop solar and our forecasts suggest this will rise to more than 40 per cent by 2030 (over 300,000 solar households). The major driver of this growth is the Victorian Government’s Solar Homes Program. The speed of this growth poses both challenges and opportunities for our organisation.

We are actively working with our customers to help them maximise the benefit from their own investments in DER whilst ensuring the energy system remains secure and reliable. In our Mooroolbark mini grid trial, for example, we successfully islanded 17 participating houses from the grid for 21 hours. During this time the households were powered only by their collective solar and battery storage systems, including three homes without either solar or battery.

Mondo, our commercial energy infrastructure and services business, was created in part to help our customers and communities benefit from distributed energy technologies.  In the town of Yackandandah in north-east Victoria, our Mondo team worked closely with the local community to achieve their goal of powering the town with 100% renewable energy by 2022. The resulting mini-grid has combined houses with integrated solar, battery and our proprietary energy management system (known as Ubi). The project has generated over 1GWh of renewable energy and saved the community more than $100,000 in energy costs. This project won the Energy Network Association’s customer Engagement Innovator Award in 2017.

Personally, I had experience dealing with distributed energy resources prior to joining AusNet Services. Working as a management consultant, I advised many electricity companies on the challenges and opportunities associated with rapid DER adoption. For instance, I helped a leading electricity distributor to implement one of the first Virtual Power Plant (VPP) trials in Victoria, employing both rooftop solar and batteries with the goal of deferring distribution network augmentation. I also worked with a new energy services business owned by a different network to develop a commercial growth strategy based on DER and behind-the-meter customer offerings.

What do you think are the biggest challenges in integrating prosumers into the modern energy system?

The growth of distributed energy is leading to profound changes in the way consumers engage with energy and how we, as service providers, manage the energy system. As a network operator, we see enormous potential for distributed energy to help us deliver real improvements in network reliability and affordability for our customers. However, the pace that customers are adopting distributed energy technologies is accelerating, threatening to achieve a level of “solar saturation” in parts of the network in the near future. By 2032, up to 45 per cent of Australia’s energy needs could be sourced from distributed power. In some parts of Australia, networks are already facing saturation-related issues. When zone substations reach the 30-40 per cent threshold penetration of rooftop solar adoption, the risk of reverse demand/power flows increases. Active DER, such as household batteries or sophisticated home energy management systems, pose additional challenges to grid reliability and stability.

We are actively engaged in ways to manage the power grid of the future. A smarter and more flexible grid could provide the enhanced monitoring and control functionality needed to connect DER within the safe technical range whilst optimising the performance of the integrated network. For most networks, this will require a substantial and ongoing investment in digital technology over the next decade. In our recently released draft pricing submission to the Australian Energy Regulator, we have forecast to spend $5.5 million in technology investment and $20 million in network investment to ensure that more people can connect solar and battery systems.

For AusNet Services, the impact of the recent Victorian Solar Homes policy has been significant. We have seen a massive uptick in both solar and household battery connection applications this year. In the first two months of 2019, AusNet Services had more than twice the number of applications for solar connections compared to earlier years. We now expect solar connections to more than double from 2018 to 2019. Foreseeing the increase in DER uptake, we launched a new online tool for our customers and solar installers to automate the connections process. Although 95 per cent of applications are approved rapidly through this tool, a proportion of our requests require more consideration. This is because our residential network was generally built to supply 2kW per house, whereas the typical size of new solar systems is closer to 5kW (or larger). If everyone connected with these larger systems, we would overload our current capacity and have widespread overvoltage in the network, impacting reliability and safety, and possibly preventing inverters from exporting.

In the short-term, we are focusing on maximising the hosting capacity of the existing infrastructure but we must manage the expectations of customers and prosumers such that they align with the technical limitations of the current network. In the longer term, however, we must invest in upgrading our network infrastructure and digital technology so the grid can meet the escalating demand from customers to produce and export their own energy. As a sector, we should also look tariff reform to ensure network pricing adapts to the changing nature of the grid while ensuring fairness and equity, especially for vulnerable customers.

If a system that allows for a bidirectional flow of energy (from prosumers to the grid and back) – what do you imagine is the future business model of grids that allows for such a capacity? How different will it be from the existing grid business model?

The rapid uptake of solar and other distributed energy resources (DER) requires significant changes to our grid, an energy distribution system originally designed for unidirectional power flow. The future grid must become more dynamic and flexible, with advanced communications and orchestration to ensure stability and efficiency. Managing this level of complexity will likely require the support of artificial intelligence and other new digital technologies.

Those networks that do evolve to meet customers’ needs, by integrating distributed resources and enabling customers to export, will become more valuable over the next decade or more. With even a relatively small take up of electric vehicles (EVs) over the next decade raising the energy demand on a network considerably, our research tells us that the majority of our customers aren’t looking to go fully “off the grid.” Most would prefer to remain grid connected whilst making use of distributed resources such as rooftop solar and batteries to lower their total energy bills. We believe that our regulated networks will remain relevant to our customers as long as they enable their choices and continue to provide safe, reliable and affordable energy.

Many new business models are evolving to take advantage of recent developments in distributed energy technologies. These business models allow customers and prosumers to participate directly with the wholesale market through aggregators, retailers and virtual power generation platforms. Some customers and communities are also looking at opportunities to engage in peer-to peer energy trading utilising block chain technologies.

The market for electric vehicles (EVs) is one of the most rapidly changing and fastest growing sectors in the global economy. The new load from EV charging will place additional demands on the grid whilst stimulating the development of new energy platforms and business models. Although EV growth in Australia has been modest to date, we have seen the dramatic impact of supportive government policy in other jurisdictions.

Notably, most of these new business models still rely on networks to supply of proportion of customers’ energy needs and to connect customers to the wholesale market. A more coordinated approach is needed to facilitate the integration of DER, considering network constraints, and to deliver the best outcomes for customers. Many distribution network operators are looking to provide this more coordinated approach by transitioning to become Distribution System Operators (DSOs). The DSO is responsible for safe, reliable and efficient operation of a high DER distribution system. DSOs must facilitate the co-optimisation of network and non-network investments by effectively integrating DER into the energy supply-chain and enabling new business models to meet energy needs.

Internationally the DSO role is still evolving, and will typically be aligned to suit the specific regulatory and markets in which it exists. In Australia, several models are being actively considered but I think we will see more distribution network operators becoming DSOs in the near future to ensure the delivery of safe, reliable and affordable energy in a high DER world.

As the future business model of grids evolves, engaging with customers remains critical and innovation in the regulatory processes is as important as those in the technical and market domain. We recently negotiated parts of our upcoming pricing submission with expert customer representatives to ensure our customers’ expectations are closely aligned to future plans for the network. This Customer Forum is helping us to find ways to deliver on the outcomes that really matter for our customers.

What’s the status of Internet of Things and Behind the Meter technologies – how far away are we from their mass roll out?

We are already seeing proliferation of smart connected devices in homes and in businesses. One estimate suggests that there will be 30 billion connected devices globally by 2020, with that number almost quadrupling by 2025. The energy sector has been a focus for Internet of Things (IoT) device deployment due to its geographically distributed assets and high volumes of data to track. The sector must embrace digital and IoT technologies to improve operational performance and to improve customer experience. Ultimately, IoT will enable improved business efficiency, improved reliability and will support customers to better manage their energy use and reduce their bills.

From a network perspective, there are unique challenges in ensuring the security of IoT systems connected to the distribution network. Because of their connection to the internet and widespread usage, IoT products are prime targets for hacks. In response, Australian networks are investing to uplift the maturity of their cyber security capabilities and ultimately strengthen their cyber resilience. We have adopted the Australian Energy Sector Cyber Security Framework (AESCSF), developed by AEMO in conjunction with industry and government partners, to help us make informed decisions about how to protect our networks against cyber threats.

Which markets or companies around the world are leading the way in terms of behind the meter and integrating DERs that you’re aware of?

There is a hive of activity globally to develop new behind-the-meter offers and services, from improved battery technologies to aggregation platforms and trading services. The market leaders are those with higher rates of DER adoption such as Germany and the USA. Indeed, we’re fortunate in Australia to be considered at the leading edge of DER integration, with forecasts suggesting Australia will lead the world in decentralised generation from the early 2020s onwards. Most network businesses around the world are facing the same challenges as Australia in integrating distributed resources. We recently met with a host of network operators in the USA and agreed that adopting newer digital technologies such as a distributed energy resource management system (DERMS) was critical. DERMS are software-based platforms that provide networks with the ability to continuously manage complex, interactive and distributed energy resources. Companies that had successfully implemented DERMS, particularly those that had also rolled out smart meters to residential and business customers, are already capturing significant network benefits whilst providing customers with greater choice and control over their energy use.

Please could you give us a brief background on your experience when it comes to Distributed Energy Resources?

My past experience with DER, and more broadly Microgrids, has had a varied exposure and work from both the utility side as well as the commercial side of energy delivery. I’ve also had extensive policy, regulatory, business models, and technical experience. For example, I was a technology strategist supporting DER and microgrid deployment within one of the USA’s largest electric utilities. For a few years, I also headed up the United Nations working group on Microgrids towards the SE4ALL initiative. Similarly, the US government sponsored my work in India for several years to help shape their energy policies and regulations supporting DER and microgrid deployments for all state-run electric utilities. Following that, I consulted with a major commercial US energy company to support utility DER orchestration businesses. Finally, I’ve spent the past year in Australia helping develop DER management strategies for a large electric utility. On a personal note, this past year, I helped launch the industry’s first International Microgrid Association, based here in Perth, which I was asked to Chair.

What do you think are the biggest challenges in integrating prosumers into the modern energy system?

This is a very broad topic. The challenges range from regulatory (and tariff) shortfalls to a legacy of utility asset investment that fails to embrace prosumer energy support. First, let’s start with the technical issues. Electric utilities traditionally designed power networks for unidirectional power flow (e.g. from central generator or substation to many small circuits terminated at the meter). This design inherently limits the energy export-potential coming from the producing-consumer. Utilities need to embrace bi-directional power flow, and thereby change their asset investment plan to increase the conductor size at the ends of the network. Similarly, transformers and SCADA equipment need to be installed with a new safety policy that anticipates “live” circuits at both ends of a disconnected line. On the technical side, utilities need to harmonize DER services with utility bulk requirements. As the energy supply from prosumers becomes cheaper than bulk power, the utility needs to “tune” the individual DER with both localized and bulk requirements. Therefore, they need to incorporate a new automation process into their grid management technology stack. This process, largely called DERMS, is the ability to classify DER into categories (i.e. type, capability, financial contracts, duty cycles, location, etc.). Once DER are properly categorized and aggregated according to specialty, they can be orchestrated to perform vital grid functions, such as energy, frequency and voltage management, etc. DER can be energy producers, load suppliers and storage depots. On the regulatory side, proper tariffs need to be set to properly monetize prosumer’s investments. These tariffs would enable a contractual relationship between the prosumer and the utility, which in turn would be included within the DERMS management process.

If a system that allows for a bidirectional flow of energy (from prosumers to the grid, and back) – what do you imagine is the future business model of grids that allows for such a capacity? How different will it be from the existing grid business model?

The rise of the energy prosumer is a global disruption to the traditional utility model. On one hand, the prosumer could simply drop off the grid. When the costs of their energy system drop below grid parity, the technology is sufficient to allow them to disconnect. This leaves behind the potential for fewer consumers carrying the asset-base of the utility, which would cause retail rates to inherently rise – causing more consumers to self-invest, et cetera. At a very early stage, the utility needs to ensure they have sufficient motivation for the prosumer to remain connected to the grid. The service that a utility would then offer those prosumers, is a means to monetize their investments. The utility would need to change their asset investment strategy to encourage bi-directional power flow as well as have a simple mechanism for the prosumer to get paid for any services they offer the grid. The utility would become more of an electric “hiway”, and thereby charge a “toll” for prosumers to conduct their service offerings across the network. The utility would typically charge a connection fee and then a transaction fee for services rendered to the prosumer. However, the utility must make the proper asset investment in infrastructure that this “hiway” could manage the electrical traffic.

Do you think home batteries uptake will be similar to that of solar PV? And what do you think is the role of policy in influencing consumer uptake of new energy solutions?

Cost effective electric storage will radically change the prosumer’s investment in their own requirements. The exponential growth in storage investment and production has already shown to drive per-unit prices down faster than electric photo-voltaic price declines. In many parts of the world, savvy entrepreneurs have built business models around supplying consumers’ electric batteries for small monthly charge to flatten the consumer’s energy bill. The best policy here, again, is in providing the means for the prosumer to monetize their investments by providing grid services.

What’s the status of Internet of Things and Behind the Meter technologies – how far away are we from their mass roll out?

We have seen an interesting convergency of IT and OT companies working together. Many of your traditional “big tech” OT utility asset providers (i.e. ABB, Schneider, Siemens, etc) have developed strong working relationships with the traditional networking and software IT providers (i.e. Cisco, Intel, Microsoft, SAP, etc). This convergence is leading to newer and more advanced utility products that can help retain the utility-prosumer relationships. So far, I don’t see any winners or losers in the prosumer marketplace.

Please could you give us a brief background on your experience when it comes to Distributed Energy Resources?

South Australia is at the forefront of the profound transformation that is occurring in the energy sector and this is a key area of focus for our business. We have over 1,000 MW of rooftop solar in SA, installed on around 1/3 of our customers’ premises. Our state only has a typical demand of 1,500 MW and this can drop as low as 1,000 MW, so DER is now a core component of the energy system. SA Power Networks completed its most recent Future Network Strategy in 2017, which considers the impact of the dramatic shift to customer owned distributed energy resources and how the business needs to transform its network and services to meet customers’ future energy needs. In 2018, SAPN completed a detailed business case for its Regulatory Reset Submission that considers the new capabilities required to support higher levels of DER such as more flexible export connections for DER customers and new services to provide virtual power plants (VPPs) greater access to available network capacity.

SA Power Networks has also developed several DER pilots and trials, most notably operating the Salisbury VPP trial involving 100 participants for almost three years, gaining significant insights into the challenges and opportunities of energy storage and virtual power plants. We also recently were successful in receiving ARENA funding for its Advanced VPP Grid Integration project, a pilot of our future DER integration capabilities with the SA Government / Tesla VPP.

What do you think are the biggest challenges in integrating prosumers into the modern energy system?

Customers are connecting DER to an energy system that was never designed for two way flow of energy. It never ceases to amaze me just how little we have had to alter our network to adapt to this change thus far. However, we are now nearing, and in some areas exceeding, the technical capabilities of the network to host these new resources. As a distribution business, we need to consider how we can best leverage the existing network to support the new needs and choices of our customers, while minimising investment and therefore keeping a lid on distribution charges. Behind the scenes the evolution of the modern energy system is incredibly complicated; grid planning and operation, regulation, markets and services all need to adapt. The challenge for all service providers in the energy system is to keep it simple for customers, make it easy to participate and provide customers the information they need to make informed choices that will maximise the long-term benefits of the community’s investment in DER.

If a system that allows for a bidirectional flow of energy (from prosumers to the grid and back) – what do you imagine is the future business model of grids that allows for such a capacity? How different will it be from the existing grid business model?

The grid will transform from a business model that was merely about supplying customer load to one that delivers additional customer value by efficiently connecting new technology, sharing energy between customers’ distributed energy resources, enabling DER to participate in the national energy market and supporting transport needs through electric vehicles. Ultimately the way in which network costs are recovered will need to evolve over time to recognise the different ways in which the grid is being utilised and the new sources of value these create.

Do you think home batteries uptake will be similar to that of solar PV? And what do you think is the role of policy in influencing consumer uptake of new energy solutions?

We think that mass uptake of batteries is still a little way off, but ultimately will reach the levels we have seen with solar PV. The price of batteries, even with the existing generous subsidies and incentives, cannot yet match the payback of solar PV. In addition, their infancy in the market is likely to lead to uncertainty for customers for some time. Unlocking the full value stack from dispatchable energy storage systems remains a challenge and changes to market rules and operation, as will be trialled in AEMO’s VPP demonstrations project, will be essential for the widespread uptake of battery energy storage.

What’s the status of Internet of Things and Behind the Meter technologies – how far away are we from their mass roll out?

We are just starting to see the emergence of IoT devices and communications technologies that could transform our visibility of the grid. The high volume deployment of low cost grid sensor technologies has the potential to enhance our understanding of network performance and lead to improvements in network planning, DER hosting capability and network operations. In addition, unlocking the potential of smart meters, smart inverters and other in-home devices to provide network performance data could see benefits for Network operators similar to those demonstrated by Victorian utilities under their smart meter roll out programs. This year SAPN is trialling a number of these technologies to inform their wide scale roll out over the coming years.

Having said that, we’re not seeing, nor anticipating, any dramatic uptake of smart fridges, toasters or kettles for some time! Some appliance vendors of higher demand appliances such as electric hot water services, air-conditioners and pool pumps are starting to provide smart options though and some of the home energy management system and battery vendors are starting to be able to integrate them into their systems. We’re probably still 5 – 10 years away from wider scale adoption though.

Which markets or companies around the world are leading the way in terms of behind the meter and integrating DERs that you’re aware of?

Australia is emerging as a world leader in distributed solar PV integration. High PV penetrations coupled with weak low voltage networks, low minimum demands and limited network visibility present significant challenges in South Australia, but this is also driving the need for world-leading innovation. In addition, South Australia is poised to become the VPP capital of the world, with several significant battery deployments proposed that could see up to 100,000 systems installed over the next few years. Internationally there is some really progressed thinking into future market models (UK), EV integration (Europe, UK, Japan) and DER communication standards (US).

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