13 April 2018

Legislative Assembly

Economics and Industry Standing Committee

Parliament House

4 Harvest Terrace

West Perth, WA 6005

Via email to: laeisc@parliament.wa.gov.au

Ref: A675035

Inquiry into microgrids and associated technologies in Western Australia

Summary

Perth Energy submits this paper in response to the Economics and Industry Standing Committee’s Inquiry

into Microgrids and Associated Technologies in Western Australia (the Inquiry).

Established in 1999, Perth Energy is an independent electricity and gas retailer. Operating in the Western

Australian market, we have been at the forefront of industry reform for almost twenty years and have

seen considerable yet gradual change in the energy sector.

We commend the Legislative Assembly for leading the conversation on microgrids and associated

technologies and believe this Inquiry can be a catalyst for meaningful change in our state. By

participating in this Inquiry, our aim is to help accelerate energy reform and help create a working and

long-lasting framework that can bring competition and better value to energy consumers throughout the

state.

The timing of the Inquiry is apt, as there has been some progress in the development of microgrids in

Western Australia (WA) over the past 3-4 years. However, this has been conducted in the absence of any

formal framework to promote the prudent and efficient pursuit of these new technologies. A regulatory

structure is urgently required to guide the development of microgrids and associated technologies and

provide a level of certainty for investors, industry participants and customers.

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mailto:laeisc@parliament.wa.gov.au

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This submission provides Perth Energy’s views on the potential for microgrids and associated

technologies to provide competitively priced and sustainable energy for WA consumers. It also discusses

the key enablers and barriers likely to affect the implementation of these new energy services.

In summary, Perth Energy believes the following:

microgrids are potential game-changers for the WA energy sector, with the likelihood of improving energy security, reliability of supply and sustainability, and result in lower long-term

energy costs for Western Australians;

microgrids are practicable, scalable solutions that could be implemented at relatively low cost, particularly in comparison to the ongoing need for costly transmission network investment as

our state’s population and energy needs change;

to fully realise the benefits of microgrids it is important they are delivered efficiently and that privately owned market participants have opportunity to build and operate microgrids (including

retailing energy). This will allow the associated commercial risk and debt financing to be borne

by the private sector, which will reduce the debt burden of the Western Australian State

Government; and

competition in any market is proven to keep prices lower than they otherwise would be. In addition, it also promotes the development and refinement of technologies as potential

suppliers attempt to differentiate and create market share. This helps accelerate the pace of

change and leads to more efficient solutions.

There are several barriers to competition that need to be addressed before the full benefit of microgrids

can be optimised and passed on to WA energy users:

current institutional arrangements mean it is not possible for parties other than Synergy or Western Power to deliver a microgrid in the South West Interconnected System (SWIS). For

example, customers wishing to participate in a microgrid must be able to change retailers to

ensure a sufficient cross-section of customers to make a microgrid solution viable is available to

retailers other than Synergy;

the current regulatory framework is not conducive to the effective establishment and operation of microgrid solutions. The Electricity Networks Access Code currently only applies to the SWIS

and would need to be modified. Licencing arrangements and connection obligations would also

need to be modified to enable more service providers to compete; and

the current electricity pricing arrangements would not reflect the cost of delivering microgrid solutions. For example, prices must be amended to consider the cost / value of network

constraints in the wholesale cost of electricity, the appropriateness of the current subsidy

associated with the higher cost of servicing regional areas, and the structural difference in the

usage of the transmission and distribution networks.

Perth Energy considers these barriers can be removed relatively easily and that this Inquiry is the ideal

catalyst for addressing regulatory and market constraints, and promoting competition in WA.

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We recommend the Standing Committee prioritises addressing institutional arrangements and creating a

workable regulatory framework for microgrids as precursor to promoting further microgrids. This will

establish a clear pathway for the efficient and competitive delivery of microgrids and associated

technologies in our state.

The above points are discussed in further detail in the remainder of this submission.

We appreciate the opportunity to comment on this Inquiry and would welcome further discussion with

the Standing Committee as the Inquiry progresses.

Should you have any questions in relation to this submission please contact me on (08) 9420 0347 or at

e.aitken@perthenergy.com.au.

Regards,

Elizabeth Aitken

General Manager Operations

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What is a microgrid?

Definition of a microgrid

To provide context to this submission, it is important to define what we believe a microgrid is and what it

is not. We consider CIGRE’s definition is the most applicable:

Electricity distribution systems containing loads and distributed energy resources, (such as

distributed generators, storage devices, or controllable loads) that can be operated in a

controlled, coordinated way either while connected to the main power network or while

islanded.1

CIGRE also defines generators, storage devices and controlled loads, all of which are key components of

a microgrid:

Generators covers all sources possible at the scales and within the context of a microgrid, e.g.

fossil or biomass-fired small-scale combined heat and power (CHP), photovoltaic modules (PV),

small wind turbines, mini-hydro, etc.

Storage Devices includes all of electrical, pressure, gravitational, flywheel, and heat storage

technologies. While the microgrid concept focuses on a power system, heat storage can be

relevant to its operation whenever its existence affects operation of the microgrid. For example,

the availability of heat storage will alter the desirable operating schedule of a CHP system as the

electrical and heat loads are decoupled. Similarly, the pre-cooling or heating of buildings will alter

the load shape of heating ventilation and air conditioning (HVAC) system, and therefore the

requirement faced by electricity supply resources.

Controlled loads, such as automatically dimmable lighting or delayed pumping, are particularly

important to microgrids simply by virtue of their scale. Inevitably in small power systems, load

variability will be more extreme than in utility-scale systems. The corollary is that load control can

make a particularly valuable contribution to a microgrid.2

The key concepts are that a microgrid must be:

1. distribution connected; 2. controllable; and 3. able to be operated without connection to the main electricity network.

1 CIGRÉ C6.22 Working Group, Microgrid Evolution Roadmap

2 CIGRÉ C6.22 Definition Qualifiers

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It is important to note the inclusion of controlled loads in CIGRE’s definition. There is significant value in

dispatchable load control in smaller and ‘peakier’ networks and as such it is important to include

demand side management energy sources in any microgrid definition.

CIGRE’s definition, to which Perth Energy subscribes, excludes transmission connected networks such as

Transalta’s Southern Cross Energy Network. These privately-owned networks are connected between

two parts of the main electricity transmission network are often referred to as ‘embedded networks’.

Though embedded networks are often discussed in the context of microgrids, we consider they should

not be classified as microgrid solutions.

Microgrid models

Applying the CIGRE definition of a microgrid, we consider there are four different microgrid models:

Remote power systems – This is where loads and sufficient generation to meet the requirements of those loads are physically located together and connected by a distribution

network operated in isolation from the main electricity network system.

Community microgrids – This is where loads and sufficient generation to meet the requirements of those loads are physically located together and connected by a distribution network to the

main electricity network system but has the ability to be operated in isolation while

disconnected or ‘islanded’. The sole function is to supply emergency power if and when needed.

Customer microgrids – This is where loads and distributed energy sources are physically located behind a common connection to the main network, but do not have the ability to be operated

while disconnected from the main network.

Virtual microgrids – A virtual microgrid is something that has not been expressly defined in consensus by any markets. However, we use the term to refer to loads and distributed energy

sources that are located at various physical locations but coordinated and virtually aggregated to

form a single controlled entity (e.g. communities, commercial portfolios or industrial parks) to

trade energy.

Existing microgrids in WA

A number of microgrids have already been established in Western Australia.

In 2015, Curtin University, Lendlease and the CSIRO partnered to deliver a behind the meter microgrid for White Gum Valley. The behind the meter microgrid allows residents to trade excess

solar energy between themselves before importing or exporting to the main network.

In August 2016, Carnegie Clean Energy established a wave and solar energy integrated microgrid solution for Garden Island, which was designed to operate independently of the main network,

but also has the ability to be operated in conjunction with the main network. The project was

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designed to demonstrate that wave energy integrated microgrids can be a viable solution to

meet the specific needs of island and coastal fringe-of-grid communities.

On 21 October 2016, Western Power published its feasibility study on the establishment of a microgrid in Kalbarri. This was the response to declining network reliability affecting customers

at the edge of the electricity grid. In its proposed access arrangement for the period 2017 to

2022, Western Power included $7.9 million of capital expenditure to address the poor levels of

reliability experienced by residents in the area. It intends to be able to establish a dynamically-

connected3 microgrid for Kalbarri.

It is important to note these have all been branded as studies or trials. This is because the current

regulatory structure governing the investment in and operation of the SWIS does not allow microgrids to

operate.

In contrast Horizon Power, which as the vertically-integrated regional energy service provider sits outside

of the economic regulatory structure that applies to the SWIS, operates 32 microgrids in the Pilbara

region.

In February 2017, Horizon Power announced the network infrastructure in the town of Onslow would be

replaced with a high distributed energy resource end-state system - the largest comprehensive microgrid

projects undertaken in the Asia-Pacific region.

Horizon Power’s successful establishment and operation of its various microgrids demonstrates that not

only do microgrids offer an effective alternative to significant investment in the main network (primarily

transmission infrastructure), but that they also provide an isolated platform to develop and test

emerging technologies.

Benefits of microgrids and associated technologies

Perth Energy believes that microgrids are potential game-changers for the WA energy sector. They have

the potential to improve energy security, reliability of supply, sustainability and result in lower long-term

energy costs for Western Australians as they will deliver the following:

• reduced network costs - in a traditional grid setup, network costs are required to cover the keeping of lines, poles and other grid technologies maintained and working to full capacity.

Whereas in a microgrid setup the source of electricity is much closer, meaning network and

therefore electricity costs are much less;

• a source of back-up power in case of emergencies - microgrids can disconnect from the traditional grid and operate autonomously if required to do so. This allows users who are

3 Dynamic-connection infers the ability for the microgrid to operate in both a grid-connected and islanded mode. The primary

operating mode contemplated for the Kalbarri microgrid is grid-connected with islanding occurring during outages of the

Kalbarri feeder.

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connected to the microgrid to continue to use electricity, even if the traditional grid has shut

down;

• more energy independent communities - by creating and consuming their own energy and becoming less reliant on the traditional grid and electricity retailers, microgrids help

communities control costs and be more flexible in the types of services they procure;

• increased environmental sustainability - when utilising renewable-based generation like solar energy or wind power, microgrids can increase a community’s environmental

sustainability;

• increased value from demand side management - the local control over load within a microgrid makes it well suited for demand side management, where the microgrid responds

to instructions from the Wholesale Electricity Market (WEM) to reduce net consumption to

provide support to the main electricity network;

• outage resilience – on-site generation and storage resources within a microgrid create redundancy and back-up power to mitigate economic losses due to unserved loads in the

event of planned and unplanned outages in the main electricity network; and

• increased system stability – The incentivisation of distributed generation through microgrids provides greater system security and lowers the risk of significant generation outages. The

geographically different locations of generation sources will protect the system from

significant variations in generation availability. This will become increasingly important with

an increased penetration of renewables.

Several industry participants already have the capability and capacity to deliver microgrid solutions.

Perth Energy believes that allowing competing parties the opportunity to build and operate microgrids

(including retailing energy) is critical to fully realise the potential benefits of these solutions.

Competition in any market is proven to keep prices lower than they otherwise would be. In addition,

competition also promotes the development and refinement of technologies as potential suppliers

attempt to differentiate and create market share. This helps accelerate the pace of change and leads to

more efficient solutions.

We consider that perpetuating the current Government-owned monopoly model in what could be a

competitive market is unlikely to deliver the optimal outcome for customers.

Barriers to the development of microgr ids

Though it is clear microgrids are an attractive, prudent and commercial energy option, there are several

regulatory and legal barriers that impede their delivery. Perhaps more importantly, current institutional

arrangements prohibit competition in the microgrid space, meaning that even if microgrids could be

delivered under the current monopoly framework, the full economic benefits are unlikely to be realised.

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Perth Energy believe these barriers can be overcome in a relatively straightforward manner, and that this

Inquiry is the perfect vehicle to drive the necessary regulatory reforms. The current regulatory, legal and

electricity pricing issues are discussed below.

Western Power is the only party able to develop a microgrid in the SWIS

The current regulatory framework prevents anyone other than Western Power from developing a

microgrid, and anyone other than Synergy facilitating the trade of energy within a microgrid.

Western Power is obligated to connect and maintain a reliable service to customers within 100 metres4

of the existing network. The Electricity Networks Access Code (Access Code) permits Western Power to

replace traditional ‘poles and wires’ solutions with an alternative network solution5, such as a microgrid.

This means that under the current regulatory framework, there is no ability for anyone other than

Western Power to develop a microgrid. Any customer that would be serviced under this type of

microgrid arrangement would continue to be part of the SWIS and if they are non-contestable would

continue to also be a customer of Synergy.

Changes to the regulatory framework must be made to ensure an appropriate level of oversight is

maintained with respect to generation, network and retail services being provided to customers.

Synergy is the only retailer able to retail to a microgrid customer group

in the SWIS

Current arrangements in Western Australia mean the vast majority of electricity users are not

contestable and therefore have to purchase their electricity from Synergy. These non-contestable

customers, mostly homes and small business, are the customers that stand to benefit most from

microgrids.

However, unless institutional arrangements are changed, only Synergy would be able to retail to these

customers, meaning only Synergy can provide a microgrid. Therefore, customers wishing to be part of a

microgrid can only do so if Synergy chooses to develop a microgrid in their area.

Further, because current contestability restrictions mean contestable customers are relatively few and

not necessarily located near to each other, potential microgrid providers other than Synergy would not

be able to physically build and operate a microgrid.

Customers wishing to participate in a microgrid must be able to change retailers. Otherwise a sufficient

cross-section of customers to make a microgrid solution viable would not be available to any retailer

other than Synergy.

4 See section 5(1) of the Electricity Industry (Obligation to Connect) Regulations 2005.

5 See section 6.41 of the Access Code.

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Full retail contestability, or at least more retail contestability, is the ideal if microgrids are to be viable.6

However, Government could readily enact changes to allow customers who would like to participate

within a microgrid to change retailers.

Microgrids are not a natural monopoly market. There are already other public and private sector

organisations that design and deliver microgrid solutions and arguably are better placed to do so than

the current monopoly gentailer. Any legislative restrictions on free-market competition would be

unlikely to achieve the lowest cost option.

Enablers to the development of microgrids

Once the regulatory barriers are removed, focus should turn to the technology and legislation required

to enable the benefits of microgrids to be delivered. Again, Perth Energy considers these enablers are

achievable and could be delivered in a reasonably short time frame, particularly if being driven by the

Inquiry. Microgrid enablers are discussed in the following sections.

Current pricing structures will not reflect the cost of alternative delivery

methods

One of the key benefits of microgrid solutions is the lower cost to supply customers.

We note that, while we are on a pathway to cost reflectivity, the current uniform network pricing

arrangements in the SWIS do not reflect the cost of service. Without the ability to accurately, and

differentially price these services across the SWIS, the full benefit of microgrids will not be realised. In

particular, cost allocation and pricing arrangements must be reviewed to account for:

1. changes in the wholesale cost of electricity to reflect the cost or value of network constraints7;

2. the application of the Tariff Equalisation Contribution and similar cross-subsidies with respect to the cost of servicing regional areas of the network; and

3. the allocation of transmission costs to distribution customers (within the microgrid) who would no longer be connected to Western Power’s transmission network, and the resulting impact on

transmission network tariffs.

6 It should be noted that Perth Energy would support full retail contestability as the optimal solution.

7 We acknowledge there is an electricity market reform process is being pursued by the PUO in parallel with this Inquiry.

However, we consider electricity pricing issues (including wholesale pricing issues) to be fundamental to the success of

microgrids.

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Western Power’s current edge-of-grid trials are aimed at replacing high cost network feeders with

stand-alone power systems as a more efficient and reliable delivery method for remote customers. We

consider that determining the true cost of supply in across all locations in the SWIS is fundamental to

identifying opportunities for microgrids in WA, thereby reducing the cost to supply customers.

Metering competition

Western Power is currently the metering agent in the SWIS. This means Western Power owns, maintains

and operates all the meters in the SWIS as well as collecting and owning the metering data from all of

the customers in the SWIS. It is only required to gives access to that data to retailers once per month.

Timely and transparent metering data is essential to enable the development of microgrids. Without

access to more granular meter data, retailers and customers participating in a dynamic microgrid such as

a customer or virtual microgrid structure will not be able to balance local and market transactions in

real-time. Implementation of advanced or smart meters would enable import/export information to be

provided in real time.

However, Perth Energy understands Western Power does not currently have the capability to:

1. read, store or transfer the granular data from smart meters; or

2. upgrade any significant number of meters from basic meters to advanced meters in a short time8.

These are both critical to ensure timely and transparent data availability.

A solution to these issues is to allow other parties to provide metering services. We consider

competition in metering is necessary to enable the roll-out of the metering and IT systems that are a

prerequisite for microgrid and associated technology solutions.

Accommodating associated technologies

The current WEM was not designed to accommodate new technologies such as batteries. Amendments

to the WEM Rules and associated IT systems will need to be made.

The WEM Rules will need to be reviewed to allow the registration and dispatch of new load and

generation technologies.

Moreover, the current WEM IT systems will be unable to facilitate the optimal dispatch of generation

facilities within microgrids. Ideally, balancing gate closure will need to be reduced to five minutes.

8 Western Power’s estimated timeframe to change a meter from a ‘basic’ meter to an ‘advanced meter’ or ‘smart meter’ is

currently 5-8 business days for metropolitan areas and 10-15 business days for regional areas. Moreover, it has estimated the

roll-out of advanced metering for contestable customers to take more than five years.

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“Triangular” contractual relationships

Currently, SWIS connected electricity customers have no relationship with their distribution network

provider (Western Power), only their retailer. The reliance on retailers to negotiate network access on

their behalf increases the risk for retailers, and complexity of commercial negotiations.

A tripartite relationship would allow customers and communities / microgrid groups to have a

relationship with their microgrid operator and retailer should these parties be different. It would also

allow peer to peer trading to more freely occur.9

9 It should be noted that Power Ledger’s existing solar energy peer to peer trading is reliant on Synergy effectively netting the

customer imports and exports outside of its overarching commercial contracts.

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Submitter detai ls

COMPANY DETAILS

Name of Respondent and address of

registered office

Perth Energy Pty Ltd

24th Floor, 221 St George Tce, Perth WA 6000

Australian Company Number 087 386 445

Australian Business Number 39 087 386 445

Principal Office in Western Australia As above

Telephone (08) 9420 0300

Email info@perthenergy.com.au

PERSONNEL

Primary contact name Nicole SanGregory

Primary contact role Manager New Products

Primary contact email address and

telephone

n.sangregory@perthenergy.com.au

(08) 9420 0352

0450 185 807

Secondary contact name Elizabeth Aitken

Secondary contact role General Manager Operations

Secondary contact email address and

telephone

e.aitken@perthenergy.com.au

(08) 9420 0347

0439 623 045

CONFLICTS OF INTEREST

Detail any real or perceived conflicts of None

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interest

MAT Submission 20