draft final report - environment.act.gov.au€¦ · 29 march 2019 act government environment,...

1Final report: Review of the Next Generation Energy Storage Program

with

Mid-term review of the Next Generation Energy Storage program

29 March 2019

ACT Government

Environment, Planning and Sustainable Development Directorate

FINAL REPORT


ContentsSection Description

1 What is the program seeking to achieve?

Program logic

KEQs and review structure

2 Recommendations

3 Insights from desktop analysis

4 Insights from survey

5 Insights from interviews

6 SWOT

Appendix Additional information


1: What is the program seeking to achieve?


Program logic

Enabler


The Key Evaluation Questions have structured the analysis


2: Recommendations


Incentivise uptakeRecommendation Rationale Indicative

timeframe for implementation

Conduct stakeholder consultation with the distribution network service provider (DNSP) to identify how batteries can alleviate specific areas of network constraints and how the program may interact with demand management initiatives incentivised by the AER 1

Once there is a 10-25% penetration in constrained area, start to unlock network benefits.

3-6 months

Target potential participants in solar suburbs through a focussed marketing program. This may require further consultation with developers / builders and the DNSP to clearly identify the best areas to target.

As aboveAndThe benefit is likely to be higher for electricity-only customers

6-12 months

Develop a clear infographic / factsheet for the Next Gen website that demonstrates the benefits beneficiaries can expect from participating in the Next Gen VPP.

Consider conducting further consultation with Next Gen VPP players (electricity retailers, the DNSP, VPP technology providers) to refine understanding of the VPP benefits to customers in the ACT – see slide 22).

This factsheet will explain how beneficiaries’ may access the full value available in a VPP (given the appropriate arrangements with retailers and VPP management system providers). It also may encourage more participation by electricity customers, as they are clear on the benefits the program will bring to their electricity bill.

3 months


Incentivise uptakeRecommendation Rationale Indicative


Consider increasing the maximum battery size (currently 30 kW) allowed under the program.This may require further consultation with installers so they are aware of the proposed change and can plan accordingly. Also consider impact on the level of incentive provided.

This will open the program to larger systems: community-based solar, universities, schools. The 36MW target could be easier to achieve. Economies of scales may be such that a decreasing incentive might be able to be offered for larger systems.

3-6 months

Develop a factsheet for the Next Gen website that clearly outlines the proposed NEM rule changes (5-min settlement rule, and wholesale demand response mechanism).

This will clearly inform VPP aggregators and potential VPP operators of the future likely improvement in the business case for batteries as a result of these rule changes. If aggregators and operators are informed about the changes and how their organisations could benefit, then that could inform how they approach consumers and structure their offers

3 months

Do not change the program design to include a specific mechanism to incentivise renters, unless government decides to make equity a priority objective for the program. It is recommended to keep objectives contained at this exploratory stage.

Given that the program’s objectives never included equity considerations, it would not be cost-effective at this stage to target renters, unless other funds can be accessed to work with government on social housing programs.

n/a

Do not change the program design to include a specific mechanism to incentivise low-income households, unless government decides to make equity a priority objective for the program.

Given that the program’s objectives never included equity considerations and that low income households would be very difficult to reach, it would not be cost-effective to put in place complementary financing arrangements (loans) in addition to grants.

n/a


Maximise benefits

Recommendation Rationale Indicative timeframe for implementation

Ensure operational data is easily accessible by stakeholders and analyses are shared, as much as confidentiality arrangements allow

Maximise benefits of collected data, stimulate innovation across researchers, battery installers, electricity retailers etc.

3 months

Make the most of available grants: continue monitoring the market and adjust the subsidy price to ensure it is a the level it should be at for funding round 4 (and beyond).This could take place as part of the next price discovery exercise1,2.

Current funds do not lead to a total 36MW uptake at $825/kWp, rather 27.3MW. Therefore, to achieve targets, subsidy needs to be reduced into the future. However, this needs to be balanced against the current cost barrier for potential participants to ensure that the incentive is sufficient to remove the barrier.

Ongoing

Identify potential complementarity between DES, demand response (see first recommendation on slide 7) and large scale energy storage in the NEM and identify possible threshold effects.

Clarifying the role of the program in relation to other energy system transformation trends and initiatives will strengthen the ESPDD’s understanding of the benefit of the program.

>12 months


Maximise benefitsRecommendation Rationale Indicative


Explore with the DNSP whether a minimum capacity requirement would be beneficial for the network. This could form part of a larger piece of work to conduct an in-depth analysis of the impacts of the program on network investment into the future1.

Following this clarify whether the program’s technical specifications should be updated to include a minimum capacity rating for batteries.

1. Ensure storage capacity does not drop below 1.5 hour (see slide 26 for further information)As peak demand shaving is beneficial for the territory, continuing to incentivise based on peak output is recommended. However, it is important to ensure aggregate storage capacity does not drop below 1.5 hours of storage, so that 36MW peak output is available.

2. Understand the likely reduction in network investment costs the program would produce.This could provide the network operator and government with a clearer picture of how this benefit could be passed onto electricity customers.

6 months

Monitor actual benefits from network / wholesale electricity price drop2.

Program data, once available, can be analysed to identify whether batteries are providing electricity to the network during high price events are charging during low price events, thereby relieving pressure on the market.

For network price impacts, this could be informed by the collaboration with the DNSP on the program’s impacts on the network (see recommendation above).3

Better understand and then promote benefits of batteries across all stakeholders.

12 months / ongoing


Administrative improvementsCategory Recommendation Rationale Indicative


Administration Allow existing installers to reapply with existing documentation.

Reduce administrative burden for installers and Next Gen team

3 months

Administration Provide more certainty over the dates for the next set of funding rounds to installers.

Incentivises installers to put more emphasis on the program in their overall business strategy. This may mean they put more effort into marketing program, which could help to drive uptake.

3 months

Administration Consult with relevant stakeholders with a view to allow potential entrants to qualify in between funding rounds, provided they commit to participating to the next price discovery exercise.

Make the program more accessible for installers in between funding rounds.

6 months

Marketing Increase advertising/promotion of program and ACT Government’s role through increased web presence, more factsheets, brochures given to beneficiaries at install etc.

Increase public awareness of program 3-6 months

Knowledge sharing

Insights sharing email / newsletter to installers regarding the program progress – most popular batteries, locations, operational aspects etc.In addition, consider further consultation with installers so they are aware of the funds remaining under the program, the trends for larger output batteries (impacting number of systems available under the program).

Could lead to further innovation in the market

Reduces risk that installers overestimate the stock they require for remaining program funds

3 months


Administrative improvements

Category Recommendation Rationale Indicative timeframe for implementation

Safety Organise a case manager to take over any major compliance issue until resolution (and ensure knowledge sharing). This manager could also manage beneficiaries’ complaints.

Reduce the risk of compliance issues becoming more serious especially as program grows–damage limitation for ACT Government

6 months

Safety Forum / newsletter / information sharing in relation to installation compliance / learnings by Access Canberra.

Improve safety and compliance outcomes across installers

3 months

Safety Update Safety Management and Installation Guide with new requirements from new on-site battery system standard (Australian Standard 5139).

Ensure the guide is up to date 9 months

Technical Clarify acceptability of inverters installed within last 12-16 months that meet Next Gen requirements.

Reduce upfront cost for beneficiaries who already have acceptable equipment

3 months

https://www.standards.org.au/StandardAU/Media/SA-Archive/OurOrganisation/News/Documents/Consultation-commences-on-new-draft-standard-for-On-Site-Battery-Systems.pdf


3: Insights from the desktop analysis


Are we reaching a tipping point?

?


Are battery prices going to decrease in the near future?


A fairly evenly distributed roll out


Storage system located in areas with high PV penetration


Leading battery type evolves over time


The average sustained peak output may change in the future

0

4

8

12

16

2016 2017 2018 2019

Ave

rgae b

attery

outp

ut

(kW

)

Battery output

Very partial dataTrend to be confirmed!


NEM (market)

Value stack - VPPs

BTM

Network


Value stack – what’s going on in the ACT?

DNSP

Retailer

VPP technology provider

Customer

Customer bill

• Retail price• Network

charge• FCAS benefit:

Monthly free battery charge

Contract, e.g. $1/kWh for peak management (opt-in)

ContractDepending on number of MW peak shaving capacity

ContractFCAS

With some retailers:Spot price arbitrage


Peak demand impacts Low load factor presents opportunities for peak shaving by batteries

300

400

500

600

700

Jul Sep Nov Jan Mar MayM

onth

ly s

yste

m p

eak d

em

an

d (

MV

A)

FY 2017-18 FY 2016-17 FY 2015-16

0.5

0.52

0.54

0.56

550

575

600

625

Load f

acto

r

Sys

tem

peak d

em

and (

MV

A)

Financial year

System peak Load factor


Peak demand impactsACT load duration curve

30%

40%

50%

60%

70%

80%

90%

100%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Perc

enta

ge o

f sys

tem

peak d

em

an

d

Percentage of time

Ideal for peak shaving by DER


Peak demand impactsNext Gen battery rollout to date

0.0

0.5

1.0

1.5

2.0

0

4

8

12

16

2016 2017 2018 2019

Hours

of

sto

rage

Ave

rgae b

attery

outp

ut

(kW

)

Battery output Hours of storage

Partial data


250

350

450

550

650

AC

T e

lectr

icity

dem

and d

uring p

eak d

em

and d

ays

(MV

A)

ACT electricity demand Peak shaving by batteries

Peak demand impactsPotential Impact of full 36 MW rollout


Wholesale electricity price impacts Potential to put downward pressure during high price events

-2000

15000

Price o

ffere

d b

y genera

tors

($/M

Wh)

Quantity of electricity offered by generators(MW)

In this region, small changes in demand can impact prices. This is where the full Next Gen rollout may put some downward pressure.

No expected price impact

No expected price impact


Wholesale electricity price impacts High price events have cost NSW market >$1B over the last 5 years

0

5

10

15

2014 2015 2016 2017 2018

No.

of

Tra

din

g I

nte

rvals

where

NS

W w

hole

sale

ele

ctr

icity

price >

= $

1000/M

Wh

0

5000

10000

15000

NS

W w

hole

sale

ele

ctr

icity

price (

$/M

Wh)

Top 31 Trading Intervals with the highest price


Key rule changesFrom July 2021, NEM will be settled every five minutes

Key message: Batteries with smaller capacities will likely be able to capture more value in the wholesale market than they can today

0

10

20

30

40

$10000/MWh $100/MWh $100/MWh $100/MWh $100/MWh $100/MWh

MW

dis

charg

ed b

y V

PP

Price in each 5 min interval

VPP under 5 min settlement VPP under 30 min settlement

Both receive $30k over 30 minutes


Key rule changesWholesale demand response mechanism

What changes Under current rules Potential future under wholesale demand

response mechanism

Who can operate VPP in wholesale market

Retailer only Retailer or third party aggregator

Who bids (and hence sets price) in wholesale market

Generators Generators and demand response

Price certainty for demand response

None. Demand response takes a risk on what the wholesale price will be

If demand response is dispatched, it would be

guaranteed at least the bid price

Transparency No visibility over the amount of demand

response in the wholesale market or how it is being

deployed

Full visibility over demand response


4: Insights from the survey


Stakeholders had overwhelmingly positive feedback of the program


Program beneficiaries are very happy with their battery systems


The program has delivered noticeable bill savings for beneficiaries

Average $275 savings per quarter (solar + storage)

Assumed 15-50% is storage - $40-140 per quarter


A large minority of respondents are battery enthusiasts who did not need an incentive


Beneficiaries have a variety of motivations to install batteries


There are a range of reasons why some beneficiaries might be dissatisfied with the Next Gen program


There are a range of reasons why some beneficiaries might be dissatisfied with their battery systems


5: Insights from the interviews


Overview of program impacts

• Acceleration of battery adoption and creation of an opportunity for innovators to “move in”

• Slow uptake but tipping point may be getting close

• Wider impacts:➢Knowledge / expertise base in the ACT (exportable)➢Local economy stimulation➢Technical requirements could become a benchmark

• Private benefits: impacts on electricity bills ➢50%-90% of electricity bill➢15-50% of total solar + storage reductions due to batteries

• Network benefits: ➢3 MW (650 systems): “not negligible” but still anecdotal

• Ancillary services:➢ In Australia VPP-related participation in FCAS (facilitated by retailers) is a recent innovation

• Wholesale prices:➢No evidence of impacts and some barriers


Feedback on program effectiveness (barriers)

• There are still significant financial barriers to program participation ➢ Long payback

➢ High upfront cost

➢ ‘Split incentive’ barriers remain for rental households

• The majority of businesses’ energy usage profiles do not align with storage benefits, making the ROI for batteries very low

BUT

• Dropping battery prices => generally positive sentiment amongst installers

• The expiry of the ActewAGL FiT (1:1 scheme) in June 2020 (~17,000 customers) should further improve the business case for batteries

• Opportunity: allowing larger systems (up to ~200-500 kW: community, universities) to participate could help reach 36MW target


Feedback on effectiveness – maximising benefits

• Individual beneficiaries have not to date seen much benefits other than “behind the meter”

• ACT electricity retail market is not necessarily conducive to the realisation of spot price arbitrage benefits

• Several stakeholders suggested a more geographically targeted approach to maximise network benefits➢DNSP may need to identify grid constrained areas to target for

installs (e.g. in ‘solar suburbs’)BUT

➢Need to ensure equity does not become an issue

Will competitive tension be enough to ensure that battery owners get their fair share of the benefits?


Feedback on scheme design and parameters

• Grant still required until battery costs drop (and ROI increase)

➢Reduction in the subsidy level may be possible in the future

➢There could be a risk that the subsidy might be keeping battery prices artificially high (but no evidence found so far)

• Most stakeholders agreed that the grant is at about the right level

• The use of sustained peak output (kWp) as the parameter driving the grant amount is best because it:

➢incentivises discharge power

➢helps support VPP capabilities


Feedback on administrative efficiency

Participation:

• Several installers wanted more certainty over funding rounds, and more notice of upcoming rounds

Management and communication:

• Stakeholders suggested streamlining the onboarding / tendering process for repeat “approved” installers over funding rounds

• Many wanted more regular updates and information from the program, including key takeaways from program data analysis

• Others suggested a regular forum or newsletter to share information relating to installation compliance / learnings

• One stakeholder suggested that the Next Gen program consider providing free training to installers

Reach:

• Several stakeholders suggested the program could be more heavily marketed


6: SWOT analysis


Strengths

• Meets a need (technology price holds back innovation / need for critical mass)

• Good market – affluent, educated population

• Subsidy metric – best choice, it supports VPP capabilities

• Good collaboration between players: battery installers, electricity retailers, DNSP, VPP aggregator

• Data specifications are robust and well regarded

• Good set-up, great feedback from stakeholders –word of mouth marketing will help to drive uptake

StrengthsWeak-nesses

Opportu-nities

Threats


Weaknesses

• Upfront cost is still a barrier and will remain for low income households / renters, etc.

• Beneficiaries unclear on benefits beyond “behind the meter”

• Operational data collection and use – benefits not fully realised

• ACT doesn’t have major grid constraint issues, when compared with other regions of the NEM1 – lower opportunities for benefit realisation currently

• Businesses do not have energy usage profile aligned with storage benefits – may not be a relevant target

• Administrative burden for small installers is high


Opportu-nities

Threats


Opportunities

• Peak demand / load factor – good opportunity for batteries

• Solar suburbs - opportunity to market the program to builders

• ActewAGL FiT (1:1 scheme) finishing in June 2020

• Likely reduced cost of systems over time

• Increase brand recognition / marketing

• Five min settlement rule change – Value that small capacity batteries can capture in the wholesale market will likely increase

• Implementation of wholesale demand response mechanism likely to give more price certainty to VPPs and open up market to third party aggregators


Opportu-nities

Threats


Threats

• Savings could be eroded by increasing grid connection fees.

• Technical capabilities of the DES not demonstrated at large scale yet.

• Unique retail electricity market in the ACT• Under present wholesale demand response rules, only a retailer is

able to operate a VPP in the spot market.

• This could result in a conflict of interest for retailers who also own generation assets. For example, when wholesale prices are high, a gentailer may find that it is more beneficial for them to not activate their VPP in order to keep prices high for their generation fleet.

• Battery costs may not go down as fast as expected.

• If retail electricity prices go down in future, could reduce business case.


Opportu-nities

Threats


Thank you


www.pointadvisory.com

For further information, contact:

Christophe Brulliard0404 146 525

[email protected]

Caoilinn Murphy0455 597 852

[email protected]

http://www.pointadvisory.com/

mailto:[email protected]

mailto:[email protected]


Appendix


High rate of systems installed, moderate system peak output


Moderate rate of systems installed, high system peak output


Moderate rate of systems installed, moderate system peak output


References for Energy Synapse’s analysis

1. Evoenergy zone substation data: https://www.evoenergy.com.au/about-us/about-our-network/zone-substation-data

2. Evoenergy Annual Planning Report 2018: https://www.evoenergy.com.au/-/media/evoenergy/about-us/annual-planning-report-2018.pdf?la=en&hash=E3A3453C51A4B27BD142B1248614F7E5AB6630F6

3. AEMC Consultation Paper Wholesale Demand Response Mechanisms: https://www.aemc.gov.au/sites/default/files/2018-11/Consultation%20paper.pdf

https://www.evoenergy.com.au/about-us/about-our-network/zone-substation-data

https://www.evoenergy.com.au/-/media/evoenergy/about-us/annual-planning-report-2018.pdf?la=en&hash=E3A3453C51A4B27BD142B1248614F7E5AB6630F6

https://www.aemc.gov.au/sites/default/files/2018-11/Consultation%20paper.pdf