The case for generating energy locally and sharing it with neighbours has been dealt a huge blow after the Australian Energy Market Commission today ruled against a proposal to incentivise the practice put forward by the Property Council, City of Sydney and Total Environment Centre.

The move has been slammed as “absurd” and “bizarre” by supporters of the change, who argue it’s a massive missed opportunity to decarbonise the economy, and will limit the uptake of commercial solar and co/trigeneration systems.

The proposed rule change would have allowed local generators to receive financial incentives in the form of a credit for surplus power exported to the grid and traded locally, as recognition of savings made from not using the entire transmission and distribution networks.

Advocates of the rule said it would have helped the transition from the historic centralised, one-way energy model to a more decentralised, low-carbon energy network, encouraging precinct-scale energy sharing.

The AEMC, however, remains unconvinced.

“The original request would have achieved little but higher prices for all consumers,” AEMC chair John Pierce said.

He said the rule change request was tantamount to an expensive subsidy for a particular group of energy producers.

The AEMC also said the proposed change would preference investment in embedded generation at the expense of other solutions like demand response, which could be cheaper.

“Our analysis shows that paying credits to embedded generators would likely result in higher costs for all electricity customers because payments would be made regardless of whether the embedded generator is located where it provides value.”

The AEMC also said controllable diesel and gas generators would likely receive higher payments than wind or solar, so renewable generation may not be preferenced.

UTS found economic benefits of over $1 billion

The ruling flies in the face of a report released this week by the Institute for Sustainable Futures at the University of Technology, Sydney, which found there would be benefits to the economy of $1.2 billion dollars to 2050 from local generation network credits combined with local electricity trading.

More than half of new investment under business as usual could be avoided through the measures, the report found.

The report, funded by ARENA, said these changes to electricity rules could solve a number of issues, including:

  • inefficient sizing and operation of distributed generators
  • a lack of incentive for dispatchable generators like co/trigeneration to operate at required (peak) times
  • the potential under-utilisation of the grid, with consequent rise in consumer charges
  • perverse incentives to duplicate infrastructure

“Our research shows that combining local network credits with a measure allowing households and businesses to trade electricity with their neighbours (known as Local Electricity Trading or Virtual Net Metering) improves the economic viability of local energy projects,” lead author Jay Rutovitz said.

“Exploring regulatory changes will be critical for building the energy systems of the future and encouraging more renewables into our grids.”

AEMC out of touch

AEMC’s “more preferable rule” tackles a perceived information barrier, proposing that network businesses produce an annual “systems limitations report”, which would enable “providers of non-network solutions to focus on locations where they could defer or reduce the need to invest in the network”.

Ms Rutovitz told The Fifth Estate AEMC’s suggestion did nothing to address the problem, labelling the response as “tangential” and the commission as “out of touch”.

She said the AEMC’s suggestion was unnecessary because the type of information barriers the preferred rule seeks to address are already being tackled.

“Information barriers are real, but [the AEMC has not] noticed that some of them have already been addressed. If they brought out the rule three years ago it would have had some merit.”

She said the AEMC seemed “way behind what’s already happening”.

Ms Rutovitz said people wanted to be able to engage in peer-to-peer trading, though without the local network credit there was not enough value in doing so.

She gave the example of a council who had an area of high demand with little roof space and an area of low demand with lots of roof space. With local network credits, it would be cost-effective to build on the area with roof space and share with the area of high demand. Under current conditions, however, it was uneconomic because the council would have to pay for the energy as if it were coming from the Hunter Valley, rather than a kilometre away.

Ms Rutowitz said the ISF report found benefits of $1.2 billion partly because it recommended cutting out generators below 10 kilowatts and above 30 megawatts, as well as existing generators, though this hadn’t been put forward by the proponents.

However, she said this advice had been presented to the AEMC at least five weeks ago and they could have included it in a preferred rule change.

“Instead they’ve ignored that and proposed something that doesn’t relate to it.”

Indeed the AEMC said in a “media fact pack” that the ISF submission went against the original proposal because it called for the exclusion of small-scale embedded generation.

The AEMC also said the ISF report used projections for peak demand that increased significantly more than currently projected by the Australian Energy Market Operator. If AEMO projections were used, there would be a loss of $233 million.

Private wires and expensive duplication a lose-lose

Ms Rutowitz said the local network credits were important for the future of the grid because they offered an alternative to defecting or “going behind the meter”.

The propensity of councils looking into private wires – localised electricity grids – was a cause for concern and indicated a market failure. Behind the meter solutions, she said, provided the worst outcomes for network operators and retailers in terms of loss of revenue. The loss of revenue was also not reflected in consumer gain, either, as they were essentially duplicating existing infrastructure.

We’re wasting time

Ms Rudowitz said she hoped the AEMC would go back to the drawing board on their rule proposal after the six-week consultation process.

She believes the proposal being put forward is delaying the inevitable and wasting valuable time.

“This problem is not going to go away. The AEMC is out of touch with what people want and what consumers want to do.

“Many, many projects won’t go ahead because of this decision. It’s perverse.

“If we’re going to get anywhere near our renewable energy targets we need to be unlocking this potential. It’s very short-sighted.”

Solar Citizens slams “absurd” decision

Activist group Solar Citizens also came out strongly against the draft determination, saying the AEMC had failed to grasp consumer demand and intent with its “absurd” decision.

“It is just one more example of how our energy institutions have their faces firmly turned against the future, and are simply not responding to what consumers want – more renewables, more local energy and more control over their power bills,” Solar Citizens consumer campaigner Reece Turner said.

“This rule change could have unlocked hundreds of new decentralised renewable energy projects, but instead it is another in a long line of decisions which clearly demonstrate one thing – our ageing energy institutions have failed, and continue to fail us.”

AEMC “held hostage” to National Electricity Objective

Solar Citizens is pushing for a change of the National Electricity Objective, which is currently “to promote efficient investment in, and efficient operation and use of, electricity services for the long-term interests of consumers of electricity with respect to – price, quality, safety, reliability, and security of supply of electricity; and the reliability, safety and security of the national electricity system”.

“The AEMC ignored the environmental or social outcomes of this decision because they aren’t in the one sentence that rules them all, so are in effect hostage to that one line,” Mr Turner said.

“If we are to meet our climate targets and transition our energy system in a way that is fair, decisions about how our energy system is run have to consider these environmental and social factors.”

TEC has indicated it will also push for changes to legislation so the AEMC must take into account decarbonisation.

Consultation is now open on the draft determination until 3 November.