The transition to local, clean and low-cost energy markets – An independent assessment

The transition of energy markets to local, clean and low-cost is core to our purpose here at PAE. Whether you are a community, a commercial or residential development, or a town or mine site that requires power, understanding the benefits of the move and how we might get there is vital.

To address the matter intelligently and from an independent view, I’m thankful to have the permission of Frank Tudor, the MD of Horizon Power, WA’s integrated electricity utility servicing the Pilbara and North West of Australia to republish his recent LinkedIn article.

Frank Tudor – Managing Director of Horizon Power:

There is no denying the facts that renewable energy in the form of wind and solar has dropped dramatically in cost – between 2008 and 2014 US Department of Energy observes that they have fallen by 40% and 60% respectively. With further advances in PV manufacture predicted (i.e. further reductions in electricity consumption in furnaces, more wafers per ingot, more embedded busbars to improve efficiency and further developments in base technology) further cost reductions can be expected. Bloomberg note that more has been spent globally in recent years on renewables than thermal generation, and Navigant Research anticipate that more will be spent on distributed rather than centralised renewable energy by the end of this decade. Indeed, Germany the front runner in utility scale renewables has positively encouraged the take up of distributed energy and now some 85% of solar PV installations totalling 40 GW are less than 1 MW in size and over 98% are connected to the low to medium voltage end of the network – distributed across the network.

In Australia studies by CSIRO and ENA foreshadow a similar trend towards distribution enabled by advances in ICT. This will inevitably challenge regulation, business models and the very essence of the status quo in the electricity industry developed without much change over the last 100 odd years. A key to extracting the benefits from a highly distributed energy future in which a myriad of devices (PV, batteries, diesel/gas generators, fuel cells, micro-turbines, CHP, EVs…) will be deployed, augmented and retired by individual decision makers continually across vast networks will be to maximise their utilisation so as to satisfy both the requirements of the individual owner and the common good of the underlying interconnecting physical/ICT system. This problem of maximising the asset utilisation of billions of devices in a dynamic environment is best solved by devolving the problem down to a subset/local level – the level of a microgrid which denotes a group of individual owners that have grouped together, physically or virtually, and sought to optimise their own subset of interconnected devices and loads, and present themselves as a single entity to the broader market.

Hence, it could be argued that Microgrids in their various guises will form the DNA of the electricity sector in the 21st century, and that the larger integrated systems (so called smart cities) are in some sense nothing more than a federation of microgrids or interconnected ‘optimised’ clusters of devices/loads. Much of the advanced controls, regulatory frameworks and pricing structures that enable this future are being discussed and progressed across the globe in a potted almost ad hoc fashion today. The opportunity exists in Australia to focus and utilise our world class endowment of remote microgrids which are not subject to regulatory barriers and impeded by differential ownership across the supply chain (remote communities do not have the complexity of a separate generator, network owner and retailer) to experiment and refine regulatory models, pricing structure and advanced microgrids technology that enable high levels of distributed energy reliance at an early stage of the industries evolution. The recognition and development of this IP (as may come from the Onslow Microgrid) will be invaluable in the context of evolving networks in the developed world, and as people in emerging economies either seek to access for the first time, or seek to improve their current level of electricity reliability, through the advent of DER and microgrids.

I would add that whilst there are extreme views that either contend that the centralised world defined by large scale transmission and distribution are destined to become relics of the past with the take up of DER, or on the other hand that distributed resources are topical and nothing more than a blip on the radar the most likely outcome will see the two realities mesh together – high density population settings may well focus on microgrids (a la New York’s Brooklyn Microgrid) but the requirement for large industrial loads (aluminum smelters) is likely still to be met by traditional utility scale power Infrastructure for the foreseeable future.