Helping you make sense of the Australian energy sector.

Energy Spectrum Australia

Energy Spectrum Australia | Issue 9

Welcome to the ninth edition of Energy Spectrum Australia.

The below extract has been taken from our ninth edition, and if you have enjoyed reading this article and want to read more about the latest developments in the Australian energy market, please contact Ben Cerini, for more information.

OpEN considers possible framework models for DER

Energy Networks Australia published a position paper on 12 May the Open Networks Project (OpEN), considering the costs and benefits of distributed energy resources (DER) and how they can best be managed.

OpEN was developed jointly with Energy Networks Australia and the Australian Energy Market Operator (AEMO) and aims to demonstrate that through a distribution market, DER can be better integrated into local distribution networks.

OpEN published an interim report in July 2019. The report discussed four potential technical frameworks for incorporating DER into the electricity network: single integrated platform (SIP); two-step tiered platform (TST); independent distribution system operator (IDSO); and hybrid.

The 12 May report includes a cost-benefit analysis of the different frameworks. The SIP framework most closely resembles the current system, with AEMO acting as the single market operator. AEMO would operate a single centralised platform to optimise the dispatch of DER and manage all distribution and transmission connected generation and storage.

The TST framework involves distribution network service providers (DNSPs) taking responsibility for optimisation of DER dispatch within their own networks. The framework derives its name from its two types of market platform: the central wholesale market platform operated by AEMO, and distribution level market platforms operated by DSOs.

In the IDSO framework, IDSOs would optimise DER dispatch within distribution network technical limits. A separate IDSO would be needed for each distribution network, or a single IDSO for the NEM and WEM.

The Hybrid model takes elements from some of the other models. The DNSP would manage and communicate distribution network constraints (operating envelopes) to DER participants, via aggregators and retailers and AEMO. AEMO would manage a market platform that optimises all DER bids for wholesale electricity and system support services.

OpEN calculated SIP would cost $2527mn, TST would cost $2972mn, Hybrid would cost $2806mn and IDSO $3486mn (2019-20 prices).

OpEN concluded that the independent distribution system operator framework is likely to be the least attractive, due to its high implementation and operating costs. The remaining three frameworks could all be viable options to suit different circumstances. They have significant positive net benefits under high DER uptake scenarios, but significant costs under slower DER uptake scenarios. The differences in quantified net benefits and costs between the three distribution market frameworks are all within the margin of error and are not significant.

The report suggests that the best model for a new distribution market will be a hybrid of SIP and TST, but has recommended that work be paused until after the post 2025 market design has been completed. If we are serious about developing a framework that can integrate DERs as well as remunerate them then this process needs to continue to evaluate possible market designs in parallel to all other market design processes. Given that we are already rushing much needed investment in transmission infrastructure and establishing new wholesale markets (to assist with stable system operation and reward those generators) it makes sense given the benefits derived at the distribution level that the same rigour be applied to develop similar solutions at the LV level. As acknowledged in the report the regulatory framework is restrictive but that shouldn’t stop us trying to change it now so that we can achieve beneficial outcomes for consumers in the future. Irrespective of the final market model chosen there is a need for all DNSPs to increase visibility of the assets connected to their network, in order to actively manage and communicate with those assets.

Interestingly the benefits that were assessed as part of the cost benefit analysis did not include a significant amount of flexibility payments to DERs. Other jurisdictions like the UK already have much more mature flexibility services markets suggesting that there is value at the distribution level. It is unclear whether the report may have been hamstrung by only evaluating those revenues streams that exist today or whether it considered markets not yet established.