In our previous article, we touched on some of the challenges of managing the increasing amount of rooftop solar energy entering the system, resulting from growing consumer uptake.
This second part looks at some of the options that are being discussed and evaluates which approach provides the lowest cost solution while maximising the benefit to the consumer from their investment in solar PV.
Technology is empowering consumers
The good news is that smart solar energy systems can help address minimum demand, from a wholesale market perspective.
A lot of modern inverters are smart and controllable and are ready and able to be actively managed to support the grid. Most new inverters installed today have some level of connectivity for monitoring purposes, be it Wi-Fi, 4G or ethernet, and can be controlled natively without the need for additional modems or gateways to be connected. For the installed base, many installed in the past three to four years can be retrospectively updated with firmware to make them controllable or, be retrofitted with an additional gateway device to control them.
From a technical standpoint, smart solar PV could also be ramped up and down to accommodate other resources and support the stability of the grid. This generation flexibility could be utilised to respond at the transmission level, to support whole of system security.
AGL’s Virtual Power Plant (VPP) provides a real-life example of how, with the right incentives, customers’ distributed energy resources (DER) can be coordinated to support power system operations and electricity markets. While our VPP offering currently focuses on customers with energy storage investments, the concept can be applied more broadly to the solar PV market.
As Australia’s electricity system evolves to accommodate the continued growth in renewable energy, solar PV will need to be valued in terms of its flexibility to not only underpin household consumption but also provide wider essential services support. Where solar can shift in response to market signals to support the balance of grid supply and demand, solar PV owners should be rewarded for the flexibility they can provide.
While we have focused here on the ability of solar to contribute to minimum demand in the wholesale market, it is also worth noting that with the right incentives, DER could also provide a range of network support services to respond to constraints in local distribution level circuits – the poles and wires in your street – as we have discussed previously.
Customer value needs to be at the heart of the solution
In developing an approach to actively managing customers’ solar PV, it is critical that their participation is value accretive, rewarding the generation flexibility that they provide to the electricity system, at least equivalent to the actual generation itself.
As the Australian Energy Market Operator (AEMO) rightly acknowledges, active management of customers’ assets requires building social licence and establishing trust that service providers will act in customers’ best financial interest.
Recent analysis undertaken by CutlerMerz on behalf of Energy Consumers Australia also underscored that to attract social licence in DER management programs, solutions need to facilitate net private benefits for DER customers that exceed costs. Policymakers also need to be alive to the risks associated with pursing a mandated command and control approach beyond genuine emergency scenarios, that present high net private costs and garner low levels of social licence.
At a minimum, customers will expect to be provided with:
- Visibility of the impacts of any solution or value case for any management offering to their investment.
- Clear safeguards on the limits of control.
- Consistent consumer protections, to guard against the risk of consumer harm.
Options available to manage solar PV to address minimum demand
Solutions to address the challenge of minimum demand are likely to involve a range of approaches.
On one side of the spectrum, emergency backstop measures will be required, to ensure that in every eventuality the security of the grid is maintained. On the other side of the spectrum, competitive market offers should be deployed, providing customers with the option to choose to improve value and support the grid.
We also anticipate that distribution networks dynamic site export limits – implemented through a connection agreement and providing networks direct control of inverters – will play a part, though they should be used infrequently, provided the market and business as usual network management initiatives (such as dynamic voltage management control) and appropriately rewarding customer flexibility work effectively.
As each of these reforms is implemented, customers will require clarity on how each measure interacts and whether one solution will take precedence over another. That relationship should be informed by a robust cost benefit analysis that weights the overall system benefit against the potential cost to consumers.
A case study on mandated management of PV solar
In March 2021, a minimum operational demand event took place in South Australia. It was the first time the state’s residential solar customers’ PV systems were managed through the South Australian Government’s mandatory Smarter Homes Initiative.
Because the Smarter Homes regulatory framework operates adjacent to the retail energy market, customers did not have visibility of the impact to the management of their solar PV asset in terms of the minimum operational demand event or the associated impacts to customers’ investments, either at the time of their entering their retail supply agreement or during the event and after their PV system had been managed.
The solution delivered the required outcome in supporting system security. Longer-term, the challenge is to develop solutions that support positive consumer outcomes and build social licence.
As recent analysis undertaken by the University of New South Wales (UNSW) highlights, consumers expect transparency about the timing and extent of management of their PV systems, particularly information on the economic viability of their distributed PV solar systems, including impacts on the payback period.
UNSW recently partnered with AGL, SAPN, Solar Analytics and the Australian PV Institute (APVI) in a fast-track project through Cooperative Research Centres (CRC) Racefor2030: Curtailment and Network Voltage Analysis Study (CANVAS).
Among other things, the project assessed the degree to which DER curtailment –in other words reducing or restricting a customer’s DER into the system – impacts customer value, as well as the fairness of curtailment from the energy-user's perspective.
UNSW’s social science research indicated that people expect transparency and information about the extent to which they are being or might be affected by management of their PV system, to make informed decisions about DER investment.
There also needs to be clear safeguards on the limits of control in any solar management solution. It is not yet clear how the solar curtailment solution established through the South Australian Government’s Smarter Homes Initiative will interact with the complex web of other reforms that could similarly impact the value of customers’ investment in solar PV, including:
- The mandating of minimum technical standards for DER in the National Electricity Rules, including the requirement for the provision of more aggressive power quality mode settings.
- The establishment of two-way network access and pricing arrangements for DER.
- The transition toward dynamic export limits and customer connections.
As regulators and policymakers continue to develop options to address the challenge of minimum demand, priority should be given to developing market-based solutions that reward customers that provide flexible solar generation to support system security. Emergency backstop and dynamic site export limit measures can then retreat as break glass measures, to be used only as a last resort option.
Retailers are ideally placed to help customers realise value in providing greater flexibility
We believe there is substantial potential for retailers to actively manage customers’ solar PV, to realise benefits for the electricity system while creating value for the customer. Retailers already manage supply chain risk on behalf of customers and provide consistent consumer protections to guard against consumer harm.
Our experience in deploying DER products and services, including our VPP, underscores our ability to develop customer-centric solutions that earn social licence.
Customers who own solar PV (and indeed batteries and electric vehicles) are investing in the transition of our industry – and we think they should be rewarded for this.
Our engagement with our VPP participants provided some important insights about how customers want to be rewarded. The prevailing theme was a desire for simplicity and the need for confidence in the value of our service offering, guaranteeing that they are always better off.
- Participants who we spoke to were happy for their battery to be used to provide a grid service but didn’t have a way of calculating what the impact of providing that service was on their bill.
- They also didn’t want their value to be influenced by the day-to-day fluctuations of the energy market – they wanted a defined benefit for their participation and wanted their service provider to smooth out the ups and down of the market for them.
The design of our orchestration offering, and flagship app enables our customers to feel in control when they participate.
Drawing on AGL’s experience in managing risk on behalf of our customers, we have developed a simple, transparent orchestration offering that provides our customers with monthly bill credits or an upfront discount on the cost of their battery.
In return we manage our customers’ solar battery, and make sure that when we use their battery to support the grid, the impact to their bill never exceeds more than $50/year so that they are always better off as a part of the VPP.
Through our flagship app, our customers can check the performance of their solar and battery systems and keep an eye on their energy bill, wherever they are. Customers who want to dig a little deeper can also interrogate the performance of their battery during the times that we managed it and dig into the detail of the data in the app, or in our MyAccount web portal.
By facilitating this level of transparency, our customers don’t need to be trading experts or engineers to understand how their energy is being used and how it creates value for them through orchestration.
Building upon this experience, AGL’s new Solar Grid Saver offer rewards users for participating in an innovative solution that ensures households can continue to get the most value from their solar panels, while ensuring the grid can accommodate increasing solar.
Solar Grid Saver works by pausing customers’ solar exports for up to 140 hours per year – less than three hours per week on average. When there is more rooftop solar than the system demand requires, AGL will access customers’ solar inverter remotely and reduce their solar exports, so that the electricity grid can operate safely. Customers can continue to generate and use their own solar power for their home even during times when solar exports are paused.
For playing their part in a smarter solar solution, customers receive up to $150 in bill credits every 12 months. These credits vary based on the size of customers’ systems but will ensure they are better off than the potential loss in feed-in tariff credits.
Developing a customer-centric solution
We acknowledge the important work of the Energy Security Board (ESB) in its Post-2025 Market Design Project in assessing the challenge of minimum operational demand and we agree with the ESB’s conclusion that emergency backstops (on their own) are a blunt instrument and need to be complemented with measures to support market response to the system needs.
We appreciate that managing the emerging system security challenge of minimum operational demand may require interim emergency backstop arrangements that can be superseded with market-based solutions as investment in smart inverters and energy storage solutions scale.
Nevertheless, these arrangements should draw upon existing market arrangements and provide clear safeguards on the limits of control as well as visibility on the impact to customers.
Policymakers should also forge a clear pathway towards a market-based solution to mitigate impact to customers, through the development of appropriate market signals to shape consumer energy use as well as incentives to accelerate investment in supporting technologies.
Ultimately, the solution should enable solar PV customers to be part of the solution – and be rewarded for their contribution.
We look forward to continuing to work with governments and industry to develop an appropriate customer-centric solution to this important issue.
Kurt was recently engaged by the Energy Security Board (ESB) as the retail representative on the DER Maturity Plan Pilot Steering Cohort, that spearheaded industry co-design on the issue of minimum operational demand as part of the ESB’s broader Post-2025 Market Design Project.