Are we virtually there yet?

Virtual net metering would allow small-scale renewable generators to obtain greater financial benefit for their exported energy, but three things stand in the way of a major energy shake-up.

Before we all get too excited about going off-grid, there is a way to stay on-grid but distribute the value of renewable energy to customers who may be in the same area but who are not behind the meter – that is, who are not on the same site or connected by a private wire.

It’s called virtual net metering (VNM) and it would make it much easier for small-scale generators of renewable energy – community groups, co- and trigeneration proponents, landlords and local councils – to obtain a greater financial benefit from their exported energy.

This is especially critical for the PV industry, now that most government support for feed-in tariffs has been either reduced to well below socket parity, or removed altogether, leaving consumers at the mercy of a retail market that has shown little interest in paying more than a token amount for energy exported to the grid.

VNM is basically a way to credit the energy generated in one location to a customer – or a group of customers, in the case of community-owned renewables projects – in another location. (This is different to the new market category of Small Generation Aggregator, which allows for businesses to bundle the output from a number of small generators to sell as a single load into the NEM, but which doesn’t link generators and consumers in the way that VNM does.)

Sounds simple, doesn’t it? There are laws governing VNM in at least 10 American states, but it’s new to Australia. The simplest type, ‘single entity’ VNM, occurs at Investa’s Coca Cola Place Building in North Sydney. As a newly released report from the Institute for Sustainable Futures, commissioned by the Total Environment Centre, puts it, this building

…has a 744kWe trigeneration plant where there is demand for heating and cooling in the building, as well as electricity demand for commercial base building loads. More electricity is produced by the trigeneration than can be used within the common building loads, and as such electricity is exported to the grid.

Any electricity generation up to the level of site demand effectively offsets the full retail electricity price at that metering point. Any exported electricity generation would ordinarily be fed back into the electricity grid, obtaining roughly the wholesale energy price. However, through the VNM arrangement with Origin/Cogent, the exported generation is able to offset its electricity consumption at Investa’s Deutsche Bank Place Building… in the Sydney CBD. The value obtained for this arrangement is the full retail rate less the network… charges.

A more complex type is ‘third party’ VNM, which will occur in the Dandenong Precinct Energy Project. It plans

…a central 2 4MWe central trigeneration plant, connected to a district hot water reticulation network and Energy Transfer Stations within each precinct building to supply heating, or cooling using absorption chillers. Heating, cooling and locally generated electricity will be sold to precinct customers.

As per the Coca Cola Building example, this arrangement uses the public grid to transfer electricity, and incurs full pass through of network charges to purchasing customers. The major difference is that in this VNM example, the generator is able to offset electrical demand of multiple customers within the precinct.

If community groups could get similar deals, it would open up a vast array of possibilities and greatly increase their financial viability. They could, for instance, negotiate leases on derelict land to install PV arrays of 100 kW or more and distribute the value of the exported energy among shareholders.

Companies specialising in developing co- or tri-generation projects could sell them on the basis that the energy generated could be sold to customers in a range of locations.

As in California, people with no capacity to generate their own renewable energy – public and private housing tenants, for instance – could own shares in renewable energy projects that would help to reduce their bills, assuming the exported energy could be credited against their household consumption.

Landlords could install PV systems on the roofs of shopping centres of apartment buildings and sell the exported energy to tenants for less than they would be paying in the retail market.

Local councils could use the energy generated at one of their facilities to offset consumption at another facility.

There are three things standing in the way of this becoming a reality. One, although there is nothing in the NER to prevent VNM, there is no specific process for it either, so any retailer and/or network business could drag their feet in responding to a request to institute VNM.

The second issue is wheeling charges. Usually consumers pay the full distribution charge for the use of the network, whether they are exporting energy next door or across the region. Wheeling charges amount to a way of recognising that energy travelling shorter distances through the network typically costs the network business less in infrastructure and maintenance. (This is different to the issue of line losses – the value of the energy lost in travelling long distances.)

There is currently no methodology for calculating wheeling charges in the NEM. Hopefully the network businesses will see that it is in their interest to either develop a relatively straightforward methodology, or to negotiate in good faith. The longer-term alternative is that co- and trigeneration proponents and community groups will try to do more behind the meter or on private networks, cutting existing network businesses out of the picture altogether.

The third hurdle is retailers, who will need to develop software systems to calculate the net surplus or deficit of energy at the point of consumption after the exported energy from the host site is taken into account. Here too, there is a market niche for clever retailers to tap into early, offering competitive rates and terms for VNM customers.

TEC and ISF will hold a workshop in Sydney on July 30 with representatives from industry, network businesses and community renewable energy sector to thrash out whether VNM could become a reality in the NEM through informal negotiations with networks and retailers, or whether – more likely – we need to go down the long and winding road of a rule change request to the AEMC.

Mark Byrne is energy market advocate at the Total Environment Centre. Anyone wanting to attend the VNM workshop on June 30 should email markb@tec.org.au