A DNSP perspective on the contentious AEMC rule change and the spectre of a ‘solar tax’

Submissions in response to the Australian Energy Market Commission’s rule change — Access, pricing and incentive arrangements for distributed energy resources — were published last week, and the Commission is set to release a final determination on the proposed changes next month. In the interests of getting the backstory straight, pv magazine Australia spoke with Bryn Williams, Network Strategy Manager at SA Power Networks, one of the original proponents of the rule change, about its genesis, its intentions and how some of the changes might play out.

pv magazine Australia: How did SA Power Networks become involved in this AEMC rule change?

Bryn Williams: The context was that back in 2019 the Australian Renewable Energy Agency sponsored a review process that brought together a whole bunch of stakeholders from across different parts of the electricity sector, to think about concerns that were emerging around distribution networks — poles and wires companies like us — and our ability to support the continued uptake of rooftop solar. The issue being that we’re governed by regulation, and the rules are very prescriptive about what we can and cannot do, particularly what we can and cannot spend money on. For example, the rules today don’t recognise that enabling energy to be exported into the network is part of the service that the regulated poles and wires companies now provide — they predate rooftop PV uptake.

That means that all the requirements that the rules placed upon us to make sure that the network has enough capacity to do the things customers want to do, don’t apply to solar customers feeding in. We have no obligations, there are no service levels that we have to meet, etc. And in fact, the rules almost mandate the reverse: there are clear obligations to keep prices down as much as possible and spend as little as we can on the network because that’s good for customers. Put those two things together and you find that there are technical limits to how much solar you can connect in an area of the network before you start running into problems. Until now we’ve kind of been filling up the existing capacity and everything’s been fine. We’re now in a situation in some places, like South Australia, where we’re starting to reach those limits.

So we’ve got choices to make: we have to spend money to upgrade the network, to add more capacity or we have to stop anymore solar energy feeding in. And as they stand, the rules are pretty clear on that. They don’t give us a mandate to spend money to upgrade the network for that purpose, but they do require us to keep the network working properly while spending as little as possible. So you’re starting to see, in areas where there’s already lots of rooftop solar, new customers who want to connect being told by their network provider: “I’m sorry your area is full. You can only connect your solar if you don’t feed any energy into the grid; you have to set your system to zero export.” That’s the broad issue that this review was grappling with, what do we do about that, because clearly that’s not what customers want. 

And the other issue was around the fairness of spreading costs incurred by upgrading for more solar connection across all customers, including non-solar owners, is that right?

Yes, the review also grappled with that issue, raised by vulnerable-customer advocates, such as ACOSS and St Vincent de Paul. That is, If we decide that we do want to start spending money to upgrade so that more solar customers can connect and feed in their energy, who pays for that? Does it get passed on to all the other customers who don’t have solar, which is how networks recover their costs today, and is that fair? 

As a result of that review process, three of the parties involved in that review — ourselves as a distribution network, St Vincent Paul and ACOSS/TEC that’s a joint proposal from advocacy group ACOSS (the Australian Council of Social Services) and Total Environment Centre advocacy groups. Each of us wrote up a rule change proposal and submitted it to the AEMC reflecting our views arising from this review process as to what needed to be done and we were very closely aligned, varying only slightly according to our different perspectives.

The common view was that we do need to change the rules to now recognise that networks do provide a service to solar customers, to let them feed energy into the network — that is something that should be recognised as part of the role of a network. And simply by making that definitional change in the rules, that brings to bear all the other requirements and obligations on us as a regulated entity,  to make sure the network is fit for that purpose and has enough capacity. 

So that basically gives us the mandate as distribution network businesses to go to the regulator with proposals to spend money to upgrade the network to enable more solar which is something that we couldn’t do before. 

The other side of the coin arising from the issues or concerns raised by ACOSS and others about who pays for that is the rule change goes to that issue as well. So it says, to the extent that networks are spending money to upgrade the network, purely for the purpose of enabling solar customers to feed in more energy, those particular costs then should be recovered from the customers that are using that service, the solar customers. They shouldn’t be passed on to other customers who can’t get any benefit from them because they don’t have solar. And that’s the pricing part. So the rule change is about access and pricing: access to feed energy into the network and how the cost of the investments required to enable that are recovered through pricing. 

There’s a very specific thing in the rules today that says network tariffs cannot be applied to energy fed into the grid; they can only be applied to energy consumed from the grid. The rule change proposes to delete that prohibition, so that in the future, we can consider pricing arrangements that pass on the component of our costs associated with enabling more energy to be fed in, to the people who are using that, separate to charging for simply maintaining the network etc which will continue to be recovered through the normal charges on energy consumed from the grid.

That seems logical. But are DNSPs considering imposing a flat fee? 

The rules are very specific about the process we  have to go through to create new tariffs. We can only do it every five years, as part of our five-year regulatory determination. We go through what’s called the Tariff Structure Statement process where we have to engage with customers and governments and the regulator if we want to propose changes. We can only create new tariff structures if everyone agrees. The rule change doesn’t, as has been suggested, whack $100 on people’s new tariffs. It simply changes a few of the parameters and regulations, so that the next time distribution networks go through that five-year cycle which for us is 2025, we will then go through it in the context of these changes to the rules. So we will be able to propose to spend money to enable more solar, which we couldn’t do before. And we will be able to propose tariffs to recover that expenditure from solar customers, which we couldn’t do before. 

Neither of these proposals, if they are deemed appropriate by the networks, will come to pass, if the regulator doesn’t like what we propose, or our customers don’t support it, because that’s the way we’re governed as a regulated entity.

What’s the alternative to paying a fee for access?

The alternative is, you may not get to feed energy into the network because there isn’t enough network capacity for you to connect, which is already happening in some places.

People also perceive that you will invest in poles and wires to support greater solar export from rooftops, but that’s not necessarily what you’re proposing is it? Poles and wires are not the only technology.

 Speaking just as SA Power Networks, but it’s similar to the views of other network businesses, we’ve got a public goal to double the amount of solar that we can accommodate on the network by 2025. Based on current forecasts, that’s what customers want and we’ll bring to bear a whole bunch of different approaches to try to achieve that in the most efficient way we can. Flexible Exports is a key part of that, which involves moving from fixed export limits to dynamic ones. And we put a lot of effort into building the case to invest in that capability in South Australia. It was in our last regulatory proposal, and was widely supported as the right technical solution; it’s now accepted across the industry as the way we should be going. 

Having flexible export limits means you can get a lot more out of the poles and wires you’ve already got because customers don’t just have to be set to the worst possible case of system overload all the time. When we say the network is running out of capacity in different areas, it’s generally only at certain times in the middle of the day in spring that we have problems if you export above one kilowatt or something. That shouldn’t mean that the rest of the time you can’t export more than one kilowatt. But if all we’ve got is a fixed limit that’s hard coded in your device then the best we can do is say it’s got to be one kilowatt. Shifting to a dynamic limit, means that all the rest of the time, the limit can be higher and customers can export much more energy. In fact we’re saying that under the Flexible Exports scheme we can raise the limit from five kilowatts to up to 10 kilowatts for customer exports. So only at specific times, in those specific locations where we’ve got constraints, will we have to reduce the level, and that will happen automatically. 

That’s a key part of the solution. It doesn’t add any new capacity to the network, it just means you can get a lot more out of what you’ve got, which will get us so far, and then over time we can deploy other strategies to add more capacity if this rule change is successful, and we’re allowed to invest in adding more capacity,

What kinds of changes would you make in terms of adding more capacity?

SA Power Networks has already done something in this regulatory period, because we were able to take advantage of an upgrade program that we had to do to our substations anyway.  We’ve just completed a $10 million program, upgrading the voltage regulation capability of 140 of our major substations, which has significantly improved the way those substations can control voltage on the network. And that’s because voltage rise in the middle of the day is the first thing that goes wrong if you’ve got too much solar in a local area. The upgrade has been really helpful and we’re already seeing the effects of that in a significant reduction in the number of customer inquiries we’re getting for high voltage issues in solar-rich areas. 

As we go into our next regulatory proposal for the 2025-plus period we’ll be proposing additional measures like that. They could just be replacing a transformer with a bigger one, because the existing transformer is just too small to collect the amount of solar energy that’s now flowing through it. So it could be those sorts of traditional network upgrades. It could be engaging virtual power plants or solar owners, or customers themselves to provide services to us. We’re working with the virtual power plants in South Australia to explore those sorts of services at the moment.

A lot of people say the possible solar-export charge is just a money grab on the part of networks …

Something fundamentally important to know is that we are a regulated, private business. We have a very specific role, which is to look after the poles and wires from the substation down to the customer. We’re fully regulated which means that we operate under a revenue cap that is set by the Australian Energy Regulator every five years. So our revenues are basically locked in for five years at a time. Our tariffs are a component of the electricity bill and are calculated so that, added up, they recover that fixed amount of revenue that the AER has approved for us. What this means is we cannot possibly lose money as a business, if for example customers consume less from the grid because they have installed rooftop solar. Our revenues are fixed. If customers consume less than we thought they would, because they’re putting a lot more solar into their neighbourhood than anticipated, that is translated as an adjustment to our tariffs in the next year to push them up so that we still recover the same amount of revenue. That’s the way our regulation works. 

Similarly, if everyone goes out and buys an EV and everyone starts consuming a lot more energy from the grid, retailers and generators are going to make more money out of that because they make money from selling energy. But distribution networks don’t. Our revenues are fixed by the regulator, and our prices actually go down if the unit volume goes up.

There’s this very common narrative that we are threatened as a business by solar, because we are energy companies, so surely it’s bad for us if customers are making their own energy. That might be true if you’re running a coal-fired generator; it’s absolutely not true if you’re a distribution network which is the sector this rule change is targeting. 

In fact there’s no question that the transition to distributed energy and rooftop solar is unequivocally a very good thing for us as businesses, because it means that much more of the energy system is now concentrated in our network. 

Where are you up to with the Flexible Exports trial?

We’re working away with our partners, putting in place the technical components of that system, which is on track. So we are looking to open up that trial in July or August of this year. The field trial will involve around about 300 customers, and we’ll target a couple of specific areas in our network where we’ve got lots and lots of solar PV, where if we didn’t do this, we would be facing the prospect of having to put new customers onto lower export limits or zero elements. We’ll be opening up this dynamic export option for customers in those areas, so that  they have a choice. They don’t have to go onto a fixed limit; they can go onto this flexible export limit. That field trial is starting in the middle of this year, and that will run for 12 months, and our intention is, that at the end of that process we should be in a position to move this to being the standard service offer for new solar connections for South Australia.