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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.
MAT Submission 20
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
MAT Submission 20
mailto:e.aitken@perthenergy.com.au
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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
MAT Submission 20
mailto:info@perthenergy.com.aumailto:n.sangregory@perthenergy.com.aumailto:e.aitken@perthenergy.com.au
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interest
MAT Submission 20
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