Don’t be afraid to think big, writes GreenSync founder Dr Phil Blythe, because the future of the NEM requires a psychological shift in how we think about energy.
It’s no surprise that the National Electricity Market (NEM) and its operations, processes and quirks are being scrutinised as part of the Finkel Review. We’ve been trying to crease out some of its imperfections for years, agitating for reform and change that would allow new innovations and technologies to be integrated into the grid.
The simple fact is that the NEM has not kept pace with the advancements that have occurred on the fringes, or the “grid edge” as our US counterparts termed it. As an industry, we’ve persisted with old infrastructure beyond its operating life, shunned opportunities for better demand management and deliberated policy changes that have largely fallen victim to political football. Focus has been on tinkering at the edges rather than envisioning a future whereby Australia is a global leader in energy technology innovation.
With over 360 responses received by Dr Alan Finkel in response to the Independent Review of the Future Security of the National Electricity Market, it’s clear there are other players in the industry who are advocating for change. No doubt there’s a great diversity of ideas being put to the Finkel team about how we can secure our future energy supply, but if there’s one point we can all agree on it’s that the evolution to a cleaner, more affordable and secure system is already underway.
Steering our industry onto a new path is no small feat that will take the lot of us to effect. While governments and regulators tinker with market levers to lower costs, enhance security and reduce emissions, discrete actions focused on a quick fix will leave the industry on its back foot. So rather than play catch up and dust off old policy, we have to think bigger. We must be bolder in our ambitions to create a secure NEM.
There is a lot to fix right now, and a lot to plan for — Australia is a hotbed for energy innovation, as evidenced by our world-leading position in household solar uptake, our appetite for wind farms and the fact battery manufacturers are eager to get a foothold in the growing storage market. As a nation, we have the opportunity to demonstrate global leadership in re-designing an energy system. Doing nothing, however, is not an option — Australia will end up with prohibitively priced energy, a massively affected manufacturing sector, and widespread energy poverty.
Patch the immediate capacity shortfalls with demand side management
Whilst we work on a medium-term plan, we need to move swiftly and decisively to put 500MW to 1GW of demand side management into the NEM. The theory is that this will put sufficient downward pressure on wholesale prices and mitigate the economic damage that would result from a 25% increase in our electricity bills across eastern Australia.
Most importantly, demand side management can be implemented quickly over the next 1-2 years, can include a wide range of technology such as backup generation and battery storage, and is by far the most cost-effective way to patch the capacity shortfalls in the wholesale market.
Supporting new innovations and markets
In an industry where technological advancements are the catalyst for significant change, collaboration between regulators and vendors is crucial. We have the innovators among us who are exploring new business models, yet as an industry we are still looking in the rear vision mirror — watching our existing national energy market and rules to see if they adapt to the changes we need.
Our regulators will need to show more leadership by supporting new innovations, setting a faster pace and allowing some regulatory freedom as new business models find their feet.
Distributed energy supporting our grids
Finkel’s review will need to closely examine the key obstacles to demand-side activity in the sector and propose recommendations that enable demand response to fairly compete with supply side initiatives. The introduction of the Regulatory Investment Test for Distribution and Transmission (RIT-D and RIT-T) was a stake in the ground for demand response in the Australian energy market and GreenSync is proud to be the first company in Australia to be awarded a RIT-D project by United Energy.
The Mornington Peninsula “Community Grid” project is a landmark demand response and energy storage project that will allow United Energy to defer a $30 million network upgrade. The project will support the long-term affordability and sustainability of Mornington Peninsula’s electricity supply.
This is not only significant for the money it will save but represents an important shift within the industry, towards managing our existing assets better and integrating new technologies for a fraction of the cost of a major build. The innovative thinking that led to the awarding of this project needs renewed momentum so similar projects can be rolled out across Australia and demand response can become the norm rather than the exception in our energy market.
To encourage more of such projects, we need to strengthen support of the RIT processes by better qualifying the biggest risk in any large infrastructure project – the risk of a stranded asset. Technology is rapidly changing the energy landscape and many long-term investments begin to look shaky if these infrastructure assets are no longer needed in 10 years’ time.
So where do we go from here? Disruption is needed to lead the NEM into the next generation. A new mindset is needed to nudge us from obsessing about “market reform” to focus instead on “new market creation”. The future of the NEM is about thinking big, embracing change, and igniting a psychological shift in understanding our new roles in the transformed energy system.
We’re confident that the Finkel team will propose the new supporting structures needed to fast-track the energy landscape of the future.