AEMO grid-plan fails to recognise the solar with batteries disruption

AEMO's plan for the future of the power grid fails to recognise the disruption that will come from solar with batteries. While it sees batteries of 5kWh in size becoming common, it still sees new gas capacity as well. Yet once batteries become attractive, fossil fuel is doomed.

AEMO has just released the NTNDP (National Transmission Network Development Plan) and it’s not as delusional as the National Gas Forecasting Report, released yesterday (which I commented on in my article 'Gas demand plummets in NSW and SA, flat in VIC – the death spiral is on'). The two are strongly linked because a wholesale dumping of the gas networks by residential customers may see a bit of an upswing of demand in electricity consumption. However, AEMO fails to even see this as a possibility over the next 20 years.

What AEMO does rightly identify is the likelihood of battery storage affecting future maximum network demand; this demand reduction cascades up from the distribution networks to the higher voltage transmission networks (which is the main spine of the electricity supply business that the NTNDP is focused on). However, after identifying battery storage as a possibility to affect network owners, they downplay the likely penetration of batteries onto the grid on a per customer basis, and on the number of customers taking the technology up.

Firstly, AEMO takes 4 kilowatt as the size of solar system customers will install – but that’s just the size they are installing on average today, in 2014. A few years ago the average solar system size was 1.5kW. Even if distributors try to use their power to block customers from connecting larger inverters to the grid, oversizing will allow customers to easily double their production with the same size inverter. Meaning, the production down the track will be for systems that are the equivalent of 8kW, 10kW or 15kW.

Secondly, AEMO fails to do proper research into the “low” cost of solar systems by using Solar Choice's assessment of average system prices. Their claims on what a system costs in Melbourne are significantly off the mark. Their data from July puts solar after subsidies at $1.40 a watt, however two weeks ago my colleague from TrueDemand arranged and installed a 5kW system in Melbourne’s inner-west for $5000. That system is installed 50-50 on the customer's north and east facing sections of their roof. That customer is so pleased they are now considering a further 5kW on their east and south roof.

Figure 1: Payback periods for 4kW rooftop PV, 5kW RES (residential energy storage) when investing in next decade

Source: AEMO

Solar Choice’s data misses the point on the true cost of solar PV in the market, meaning that the cost today is already where AEMO is predicting it will be in 2017-2018.

Thirdly, with battery storage on the way down to $100/kWh, a price point that will definitely be achieved in the 20-year planning horizon of the NTNDP, AEMO assumes households will only go for 5kWh or $500 worth of batteries. But if batteries are cheaper than power from the grid to make 5kWh attractive to customers, then why wouldn't you buy enough capacity to completely eliminate your network peak – about 15kWh. This would, of course, be helped by a properly priced network where each kilowatt of capacity starting at 1kW or below 1kW is charged in a cost reflective manner.

Figure 2: Potential impact of RES (residential energy storage) on maximum demand at transmission connection point. Note: In this chart you can see the modest reduction in maximum evening demand from 5kWh batteries installed as per AEMO’s modeling. We can expect much more significant reductions than this as batteries are rapidly reducing in cost.

Source: AEMO

On renewables

AEMO assumes that the Renewable Energy Target drives investment until 2020 and then nothing more is required due to the effective flat-lining of demand out to 2030. They’re wrong here, with cost reductions in PV likely to result in large reductions in the need for conventional plant.

And the most bizarre prediction of all from AEMO? That there will be demand for gas again for power generation after 2030 when, magically, growth in centralised energy demand picks up. 

Here, like in yesterday’s gas forecast, AEMO is deluding itself. After 2030 there will not be any new fossil fuel plants built. There will be a lot of storage and a lot of solar PV that is so cheap that they will make gas look extremely expensive. Based on net present value financial analysis solar PV and batteries are already competitive with conventional peaking plant, and such systems are rolling out as we speak in the US and elsewhere on commercial merits.

In all, this document has some good discussion points, but wherever AEMO incorporates a glimpse of future new technologies, they grossly underestimate them, retreating to the status quo. 

Policymakers need to be wary of using this advice, as we’re going through an energy revolution. AEMO planners need to take stock and recall when only the nerds had access to the internet. No one would have imagined at that time that you’d now be walking around with a supercomputer in your pocket, that can talk to you and allow you to access almost all the world's knowledge wirelessly in rapid time. 

Well, that’s kind of transformation we are facing in energy today. And we’ve got a clearer preview of what’s to come than we ever had with information technology and communications. We know batteries are reducing in cost, we know solar is reducing in cost, we know energy efficiency options are reducing in cost.

Matthew Wright is executive director of Zero Emissions Australia, technical director at Efficiency Matrix and resident columnist at Climate Spectator.