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Distribution networks unDER the pump

Rooftop solar has grown rapidly over the last decade with numbers indicating that almost 10 GW has been installed across the NEM and AEMO’s projections indicate that there is still plenty more to come (~4 GW over the next decade). Effects of behind-the-meter (BTM) solar on market outcomes are well documented (including by us); so in this Issue, we look at the impact of distributed energy resources (DER) on the distribution network and some of the challenges arising in efficiently managing the transition to a two-way market.

Initial integration of DER at the distribution level could be categorised as low impact; comparatively few households with solar and local demand able to absorb excess energy. Now, the flow of power in the distribution network is increasingly bidirectional – i.e. exported to the grid when the weather allows and flowing more traditionally when it doesn’t. The emergence of this dynamic has challenged Distribution Network Service Providers (DNSP) to ensure reliability of supply within their networks while facilitating higher DER penetration. Powercor in its most recent determination proposal for 2021-2026 stated that without augmentation, by 2025 47% of their substation will be constrained more than 20% of the time – their proposed augmentations reduce this to an average of 5%. All DNSPs are facing this issue and as such, are committing large sums to reinforce their networks and improve system management capabilities.

The table below sets out a few of the financial commitments made by the DNSPs as part of their five-year determination.

Residential rooftop solar has transitioned from a resource that was a net benefit for the grid (which also provided a range of benefits that were never valued) to a generation source that is now so prolific that it requires augmentations to the distribution network in order to allow continued installations and connections without significant curtailments. If the current rates of installation were to continue over the next decade this would take us well above the high DER ISP scenario (~30GW by 2030), however, in our view we expect growth to gradually tail off (like the central case) as federal subsidies taper off. There have also been recent state-based schemes and zero-interest loans offered by Victoria, NSW and QLD which are long-term programs which could sustain the growth. The VIC scheme set to add around 4.5GW to market by 2030 alone placing the NEM on the fast change scenario.

Much of the focus in recent months has been on the ability of transmission connected solar to connect to the grid. We are already beginning to see the same issues arise in the distribution network. If the same responses to voltage and frequency issues on the transmission network are followed in distribution planning, then many households are going to be left with constrained assets that will be unable to realise returns leaving some consumers worse off.