How can the grid survive distributed generation and storage?

A lot of the talk about the ‘death spiral’ in the demand for electricity from the grid in Australia has centred on the distribution end of the equation and the downside or asset risk associated with ‘disruptive’ technologies such as solar PV and storage.

I’ve suggested before that talk of the death of the grid may be premature. But how can the electricity industry respond to the advent of distributed generation and storage to embrace its potential benefits?

The grid is still required in some form

Historically, we have moved from a decentralised or local model of electricity generation and consumption to a more centralised generation model through the development of large-scale synchronous machines (hydro and thermal).  This was driven by efficiencies and the high energy demands, both in volume and reliability, of industry.

The reduction in cost of distributed generation and storage is changing the efficiency equation for smaller users.  But distributed generation and storage is not a viable alternative for all energy users, so the grid must remain in some form.


Balancing the value and cost of grid connection

All connected parties benefit to some extent from being connected to the grid.  Generators get a delivery mechanism for their product.  Industry gets an important input to production with high levels of reliability.  Small businesses and homes get access to controllable and comparatively inexpensive energy.  Customers with distributed generation and storage get access to a sink or source that can increase the value of their investment and cap their exposure to resource or equipment failure.

The network adds value to each of these transactions since without it the individual parties must all become self-sufficient. But this added value is not always perceived as adequate compensation for the cost of grid access.  This distortion will ultimately lead to an over-investment in distributed generation and storage to go with an existing over-investment in the grid.

Reaping the benefits of distributed generation and storage

I think two changes could foster more efficient co-development of network infrastructure and distributed generation and storage:

  1. developing a real-time communication and control protocol with customer loads and storage
  2. re-evaluating the worth of the network, basing value not on sunk cost but on utility.

Developing a real-time communication and control protocol

To enhance the synergies between distributed generation and storage and the wider network, real-time status and control of loads and storage must be available to whoever needs it.  The mechanics of this are not difficult unless response must be rapid.  The sooner a standard or an accepted architecture can be adopted, the more efficient the transition and the faster the realisation of benefits.

One of the great challenges of distributed generation and storage for network operators is that it fundamentally changes the assumptions that can be made about the predictability of system demand in the minute-by-minute operation of the grid.

Linking available generation more directly to that demand alleviates some of the risk associated with the increased volatility on the demand side.  It turns a looming risk into a relatively benign outcome, perhaps even a beneficial one.

For instance, if the decision to store is based on price and there is a small variation in this price setpoint across the storage fleet, then the amount of variation within one dispatch interval could be quite high, requiring larger amounts of regulation reserve to be dispatched for a larger percentage of dispatch intervals.

For large-scale renewable generators, linking to loads and storage may provide a way to increase demand to better utilise high potential yields that would otherwise be constrained in the market. The simplest example of this is a wind farm in a region where the interconnector to a larger region is at its limit.  The wind farm output will be constrained even if more wind is available, unless additional demand can be found on the same side of the constraint as the wind farm.

Re-evaluating the worth of the network

Distributed generation and storage decreases some customers’ reliance on the grid. Those customers may value the grid less, but still pay the same amount to access it. And those customers are now saying this doesn’t make sense.

We know the grid does offer value. In capability terms (reliability and security), the grid is very valuable to most customers, even if they don’t appreciate it. But the grid is over-built in capacity terms for a market awash in distributed generation and storage. For many consumers, it is no longer a choice of whether to invest in distributed generation and storage, but rather a choice of what rating of inverter or storage.

Network charges cannot continue to be based purely on the sunk cost of the development and provision of the network. This worked when there was little alternative.  But now that distributed generation and storage is viable for many, it is up to the network to improve its perceived value to keep its customers.

If customers’ willingness to pay is capped by a credible alternative, there is an easy choice for the rational customer with distributed generation and storage, and there is a hard choice for the electricity industry – change your pricing and enhance your product, or lose your customers.  This reality is better dealt with sooner than later.

The grid of the future must be developed by considering distributed generation and storage, and comparing the relative costs of network development against distributed generation and storage developments.

It is critical that we ensure the grid is right-sized for the future.  This will lead to any number of on-grid, hybrid or fully off-grid arrangements.  For an efficient outcome, the flexibility and agility of grid design and operation must complement rather than duplicate the capability provided by distributed generation and storage.

It’s not the fall that kills you …

The grid has a role to play in the future delivery and consumption of electricity.  But unless clear and correct signals are given to customers, the network will not follow an efficient trajectory to a new and suitable steady state, a soft landing.

A number of changes will help us create a bridge between where we are now (a grid that is increasingly unappealing to customers with distributed generation and storage) and where we need to be (a market with a seamless grid efficiently linking generators and loads).  These changes centre on standardising technology and being open to adaptive network pricing and planning.

Accommodating the growing competitiveness of distribution and storage is essential to the long-term wellbeing not only of the electricity industry but also the economies it has nurtured and that sustain us all.

If you would like to find out more about how Entura can help you adapt successfully to the rapidly changing market for electricity generation and energy services, contact Donald Vaughan on +61 3 6245 4279.

About the author

Donald Vaughan is Entura’s Technical Director, Power. He has more than 25 years of experience providing advice on regulatory and technical requirements for generators, substations and transmission systems. Donald specialises in the performance of power systems. His experience with generating units, governors and excitation systems provides a helpful perspective on how the physical electrical network behaves and how it can support the transition to a high renewables environment.


July 1, 2015