DER: What building blocks need to be in place?

The ascent of Distributed Energy Resources is apparent. Distributed Energy Resources (DER) are power generation sources, often of less than utility scale, that are located closer to where electricity is used, such as in the home or business. Their purpose is to provide an alternative to, or an enhancement of, the traditional electric power grid.

Energy policy uncertainty has cast a long shadow over the nation's electrical power systems.  It has generated speculation about future reliability, electricity shortages, as well as assertions of power quality problems from the influx of renewables, even debate about the potential for blackouts as the energy mix continues to change.  Amidst all this there is a growing focus on DER and its potential to help support and even expand high-quality, reliable electricity supply.

DER has some advantages in an environment of uncertainty around large-scale generation investment.  DER can be a faster, less expensive option to the construction of larger centralised power plants, or an alternative to extending high-voltage transmission lines and even to distribution systems, particularly in areas like the edge of the grid.

DER also has the potential to offer customers lower cost, reliable, efficient energy.  Appealingly for a growing group it also offers customers the prospect of energy independence.  The use of renewable distributed energy generation technologies also bring the potential to provide a significant environmental benefit.

DER can include behind-the-meter energy sources, such as renewable (rooftop solar is the most common), batteries and non-renewable power sources like trigeneration units and gas or diesel turbines.

All this innovative DER requires is a new rules framework. Work to date has focussed on identifying and developing the basic requirements for a functional DER market. The Australian Energy Markets Commission (AEMC) considered that the best way to support consumers’ ability to express their preferences and make meaningful choices is through robust, well-functioning and competitive markets. The AEMC published its final rule on the Contestability of Energy Services in December last year and this follows an overarching philosophy of placing consumers in the centre of the decision making process. The rule is designed to facilitate competition in the growing energy services market.  The AEMC also required the Australian Energy Regulator (AER) to produce a Ring Fencing Guideline that has regard to the likely impacts on the development of competition in markets for energy related services, like DER, in any ring fencing exemptions it grants.

The AER Ring Fencing Guideline has a primary role in the enabling of efficient DER deployment.  The purpose of ring-fencing is to separate the competitive and regulated parts of Distribution Network Service Providers (DNSPs). The most recent AER Ring Fencing Guideline applies ring-fencing even more broadly, to ring-fence regulated distribution and transmission services from other services, such as metering, connections and from DER (such as energy storage devices).  From the beginning of this year, DNSPs were required to comply with the AER’s new Guideline. 

In other work on DER, on 13 September, the AEMC made a final rule for the Australian Energy Market Operator (AEMO) to establish a register of distributed energy resources in the national electricity market, including small scale battery storage systems and rooftop solar. It is intended to give AEMO and networks greater visibility of where distributed energy resources are connected to help in planning and operating the power system, particularly as more DER is introduced.

Meanwhile, the Australian Renewable Energy Agency (ARENA)’s Distributed Energy Integration Program (DEIP) has developed a further structure around a broader collaborative approach to DER integration.  The DEIP program has engaged leaders from all stakeholder groups to establish a functional framework for DER integration within which the requirements of system planning, real time operations, and settlements and markets can be properly developed.  The DEIP timeline seeks to obtain consensus between stakeholders on the best structure within the next 12 months, and to build from there.

At a more functional level, working together Energy Networks Australia (ENA) and AEMO have also published a consultation paper on Open Energy Networks (OEN) and the better integration of DER to benefit all customers.  Included in their paper is discussion on how to optimise passive DER, and in particular the legacy of installed rooftop solar.  As well, the OEN consultation paper proposed three alternatives for the type of platform that enable direct customer participation with the wholesale market; through aggregators, retailers, virtual power generation platforms and in sub-markets that include peer-to-peer trading that utilise block chain technologies.  This has now been widely consulted upon in the AEMO/ENA workshops.

The OEN consultation paper has its detractors.  There are alternate views that expansion of existing arrangements in more of a Peer-to-Peer (P2P) arrangement, a decentralised model whereby the parties interact to buy or sell goods and services directly with each other, without an intermediary third-party,  should be preferred.  Importantly the AEMO/ENA process does provide an opportunity for such arrangements to be considered and debated.  It is up to the participants to make their case.

This is an exciting new world.  The AEMC, AER, ARENA and ENA/AEMO processes are important because they represent the opportunity to develop and agree the building blocks needed as the system transforms from one dominated by utility-scale, centralised, synchronous power plants, and passive consumption, to one that includes a multitude of resources and technologies of various sizes, with many, many more participants.