Blowing $40 billion on yesterday's power grid

Distribution networks are generating a lot of press these days. The public is getting a crash course in exactly who pays for those poles and wires outside our homes and businesses. This includes:

-- $40 billion of already-approved expenditure on the Australian power grid (as big as the National Broadband Network),

-- $4.7 billion that solar PV is expected to cost Australians through their power bills over the next 9 years, and

-- $2 billion on smart meters in Victoria alone.

Those charges account for about 40 per cent of residential power bills.

However, most energy experts recognise that the energy network of the future won't be the 'generate heaps here, send it over a long distance, use heaps there' model we have now. It will be one with more small generators scattered on rooftops and in office building basements, because these can meet our energy needs with much lower emissions and waste than the mammoth coal- and gas-fired plants we have now. But our electricity distribution networks are completely unprepared for this impending tidal wave of small power generators. 

A piecemeal approach

Currently, if you're a business-owner who wants to connect a small generator to the grid you have to negotiate with, as Tristan Edis put it last week, 'a 900 pound gorilla called the monopoly network business'. In this David vs Goliath battle, they set the price, and you have no choice but to pay it. The problem is that network owners often need to upgrade parts of their network to let you connect your generator safely, and since you're the one who wants to connect, you have to pay for those upgrades. 

This piecemeal approach means that you end up footing the bill to fix problems that were already there before you decided to connect, or to alleviate problems for generators that connect after you. As a result, small generator projects often don't stack up financially.

It's no wonder, because the regulatory system is forcing these small generators to finance the transformation of the entire distribution network from a dinosaur to the nimble, responsive grid of tomorrow. What's more, distribution businesses are not interested in connecting small generators – they don't generate much income and their connection applications take a lot of time to process. In short they are seen as a pesky hindrance rather than part of the solution. 

But if our grid is built to accommodate thousands upon thousands of small generators, everyone wins - carbon emissions decrease, power losses decrease, heating and cooling costs for buildings decrease, network investment costs to meet peak demand decrease. Yet this can't happen through tinkering with the current system, adding to a patchwork of regulations that is fundamentally flawed because it is built on a paradigm of electricity generation and consumption that is now over 100 years old. 

There are already first-movers out there trying to tackle the behemoth of the Australian energy regulatory system. The City of Sydney is still pushing ahead with its plan to install local small generators that will provide heat, cooling and power (“tri-generation”) to the CBD and reduce greenhouse gas emissions in Sydney by 70 per cent by 2030. As Alan Jones, the head of the tri-generation plan, said in an interview with Ellen Fanning in the Global Mail in February, 'Tony Blair just got his head around the problem and said, 'sort it out, remove the barriers'. Australia hasn't yet seen that kind of political leadership in this area of energy policy. 

A complete overhaul

The governing body for distribution networks, the Australian Energy Market Commission (AEMC), the Ministerial Council on Energy (MCE) and the Productivity Commission are all investigating different parts of this energy jigsaw. For example, the AEMC now requires distribution businesses to offer standard form connection contracts to small generators that want to connect,. It is also insisting that when a distribution business wants to upgrade part of the network, they investigate whether something like a small generator could fix the problem instead. 

But this is all tinkering around the edges. What the energy market actually needs is a complete overhaul of the way distribution networks finance the connection of small generators. This requires more than mere information provision and 'demand side engagement facilitation process documents' (MCE's words, not mine). This is because the financial odds are overwhelmingly stacked against the small guys who will build and finance the next generation of  power generators. 

The distribution businesses aren't inherently opposed to such a fundamental re-working of the industry. And nor should they be. The distribution networks of the future will be just as important, and perhaps even more so, in making sure power is available when and where we want it. George Maltabarow, CEO of NSW distribution business AusGrid, is probably the most visible industry champion of this new playing field for distribution companies. He is on the record as supporting a new kind of business model that makes our power grids smarter, rather than just bigger. 

No political will

Distribution businesses need to be funded to make their networks small generator-ready, and individual small generator entrepreneurs should have access to a fund to subsidise their connection costs. This would shore up their business cases, while preserving the incentive for them to look for the lowest-cost points in the network to connect to. What's more, the government needs to make sure that those small generators can sell the electricity they generate to anyone that wants to buy it, and not just the building in which they happen to be located. 

This kind of once-in-a-generation transformation of our distribution networks requires the full and sustained political will of Julia Gillard, Martin Ferguson and other key government players. But at present they are content to let the regulatory bodies run around in circles and generate countless reports that produce lots of recommendations, implement only the most palatable (read easiest) ones and neglect the ones that will make the biggest difference. The result? Around $40 billion of investment over five years, made by private companies, paid for by energy consumers and approved by a faceless team of policy wonks.

Governments don't like picking winners, but getting our distribution networks and national electricity market ready for two-directional power flows and distributed small generation will create an environment for private investors to come in and develop the innovative, low-carbon power sources that will make a real difference to Australia's carbon emissions. Julia Gillard, Wayne Swan and Martin Ferguson need to get their hands dirty, step up and lay out a clear, coherent and comprehensive policy vision for our distribution networks so we don't waste another $40 billion on yesterday's idea of what a power grid should look like.

Ryan Alexander is a former engineer/policy analyst at AEMO.