The (im)maturity plan for distributed energy resources

The Energy Security Board’s final advice regarding the integration into the energy mix of Distributed Energy Resources (DER), such as rooftop solar PV, smart appliances and electric vehicles, is disappointing. It shows that scant progress has been made since the ESB published its DER Integration Roadmap one year ago. The ESB’s recommendations 7-9 are DER-related and are analysed in this briefing note.

It appears the ESB was distracted from more meaningful changes for DER integration.

Recommendation 7: The Adoption of ESB's DER Implementation Plan, including a Maturity Plan process

It appears the ESB was distracted from more meaningful changes for DER integration by its 'Maturity Plan process' comprising hundreds of hours of stakeholder workshops with embarrassingly little to show for it.

ESB’s clumsy Maturity Plan process highlights the importance of balancing expertise and appropriately formulated consultation. In order for consultation to be a productive part of policy or regulation-making, it needs to be based on technical analysis and evidence. Experts need to do analytical work, calculations, modelling, using the disciplines of engineering, economics, law, etc. The ESB's workshops and Maturity Plan pilot collected a few facts and many opinions, but produced no new tangible insights or progress on DER integration and resulted in many frustrated stakeholders.

Technical, regulatory and market-design issues cannot be addressed using these types of stakeholder workshops as the primary activity. The ESB's post-2025 market design process for DER was a series of online workshops over the last year. Such post-it note workshops create the danger of prioritising opinion and emotion, of neglecting the quantitative and qualitative analysis that needs to be the foundation for policy and regulation. The argument in this briefing note is not against consultation, but for rigorous evidence-based public policy making that uses consultation appropriately.

The ESB's Maturity Plan approach failed and should not be continued.

The ESB's Maturity Plan approach failed and should not be continued. The ESB has proposed that further co-design approaches would operate on six-monthly cycles but there is no clear governance or accountability and disturbingly it is not articulated in the recommendation on the DER Implementation Plan. Energy Ministers are seemingly being asked to sign off on a process by default, without understanding how little progress the workshop-after-workshop approach has made. IEEFA strongly opposes the inclusion of the Maturity Plan approach within the ESB's DER Integration Plan.

The ESB’s advisory report includes a table showing how the issues in the Maturity Plan over 2022-23 can be examined through existing or planned energy market institution processes, via the Australian Energy Market Operator and the Australian Energy Market Commission (AEMC or AEMO). In addition, where consultation and collaboration is best conducted outside the energy market institutions, IEEFA suggests the Distributed Energy Integration Program (DEIP), a collaborative process facilitated by the Australian Renewable Energy Agency (ARENA), provides a well established means of examining the issues.

Instead of the Maturity Plan process continuing, the DER integration work set out in the ESB final advice needs to be continued by AEMO and the AEMC with significant additional resources. There are only a few staff at these organisations devoted to DER and more resources are needed to speed up actions such as the development of a minimum system load and other mechanisms in which consumers could be paid for demand management—turning up and turning down appliances to match variable renewable supply. In terms of the ESB's DER Implementation Plan, it is unclear what the scope of the AEMC review on network services mentioned in the final advice is, or what the terms of reference are for the proposed study into community storage and Local Use of System (LUoS) charges. IEEFA notes Energy Ministers would be wise to ask for clarity on both these matters.

Recommendation 8: Energy Ministers Adopt a Jurisdictional Ministerial Lever for Emergency Backstop Measures, as an Immediate Reform

IEEFA's previous critique of household solar cut-offs in South Australia sets out why this recommendation is unjustified in terms of the engineering, economics and policy process. Further, AEMO has already announced the development of minimum system load scheme.

IEEFA recommends that instead of the emergency backstop adoption, that AEMO and the AEMC be tasked with prioritising the development of this scheme for trial implementation in priority jurisdictions by mid-2022. In addition, Ministers should consider legislating ‘a demand response capability’ requirement for priority household appliances under the Commonwealth Greenhouse and Energy Minimum Standards (GEMS) Act 2012. This would be a foundation action to support household appliances soak up abundant solar electricity production in the middle of the day. Without this smart demand response capability, households' ability to participate in wholesale, Frequency Control Ancillary Services (FCAS), or future demand-response or two-sided markets will likely be limited to inverter-based devices.

Recommendation 9: Consumer Protections

The consumer protection risk assessment tool developed by the AEMC is included in the ESB's final advice, but far more work on consumer protections are needed given the substantial and growing role of distributed energy resources in providing electricity to Australian homes and businesses.

Far more work on consumer protections is needed.

Energy Ministers should task the AEMC with conducting a comprehensive review of the National Energy Consumer Framework (NECF) to be completed by the end of 2022.

Similarly, DER has changed the nature of operating a distribution network and, in the same vein, a comprehensive review of distribution network revenue regulation is overdue. There needs to be a major, well-resourced review rethinking the entire nature of network revenue regulation, including the potential for performance-based regulation. The current CPI-X network revenue regulation model was developed for steadily increasing demand growth and one-way flows of electricity. Today, the national electricity market has millions of distributed rooftop solar systems, some smart appliances, and growing numbers of batteries and electric vehicles. Australia needs to look to performance-based regulation and other more modern approaches to revenue regulation.

The reviews proposed in this briefing note need to be based on evidence and analysis with appropriate consultation, for reasons outlined in detail in the report.

Press release: IEEFA: Zero to 60% in 14 years – South Australia’s success in transitioning to renewables

Please view full report PDF for references and sources.