Smart grid better because it discourages solar?

The $100m the government has allocated to smart grid trials led by Ausgrid has come up with a counter-intuitive result that smart grid technology will be of moderate benefit in reducing peak demand and network investment, but will be very good at deterring solar installations.

The $100 million government smart grid technology trial known as Smart Grid, Smart City has released a final report attempting to summarise their evaluation of the cost-effectiveness of smart grid technology.

The report finds that the roll-out of information technology-enabled equipment in the electricity network such as smart meters and also automated detection and resolution of network faults could provide a net present value benefit to the country of between $9.5 billion and $28.4 billion depending on the level of electricity demand growth.  

But contrary to what many people might think only a small proportion of the benefit is due to smart meters encouraging people to reduce their demand during peak periods.  

Most of the benefit comes from rollout of technology that would allow networks operators to more quickly restore power to customers after a fault. This would not appreciably reduce the cost of providing the network capacity but would improve power reliability.

Yet there are questions hanging over whether the levels of reliability requirements imposed historically in NSW and Queensland are already too high and impose costs greater than customers value. A 2012 survey of NSW electricity consumers by the Australian Energy Market Commission concluded.

our analysis suggests that the cost savings of reducing reliability levels are larger than the costs to customers of reduced reliability levels. In other words, a relatively small reduction in reliability can lead to a large reduction in the investment required by electricity distribution networks. This suggests that there may be large benefits in slightly reducing the level of reliability provided to customers.

The second largest benefit was that a smart meter roll-out combined with tariffs that penalised usage during peak demand periods, while reducing prices at other times, would act to deter the installation of solar and other distributed generation power systems. In essence smart grid technology would lead to lower levels of solar capacity rather than more, contrary to many people’s perceptions.

According to the report,

field trial and modelling showed that the effectiveness of rooftop solar PV systems in reducing summer peak demand is limited, mainly due to misalignment of the timing of rooftop solar PV system output and peak network demand. Advanced modelling of high PV penetration scenarios found that PV reduced feeder peak load on average by 3 per cent. It was also found that the hottest days were not necessarily the sunniest, with later afternoon clouds reducing the amount of available solar radiation on some days.

The report concluded,

Results from the cost benefit assessment showed that maintaining the existing flat or inclining block retail tariffs in Australia will continue to incentivise the installation of larger solar PV systems in the future, as customers seek to further reduce their consumption of grid-sourced electricity. Unfortunately, this does not necessary reduce peak demand. By contrast, under the smart grid case, the number of consumers investing in rooftop solar PV continues to grow, but the size of the systems are smaller because the cross subsidy through the existing tariff structures is reduced

It estimates that peak-demand linked tariffs would lead to a $15 billion reduction in investment in solar and other distributed generation, partly offset by an extra $5 billion in costs in network capital expenditure and centralised generator operating costs.  The study estimates that there would be 3GW less solar and 1.8GW less cogeneration power capacity, but around 3.5GW of additional battery storage installed with a change in tariff structures. In relation to solar, the report notes that the reduction in capacity would be almost entirely concentrated in the residential sector but commercial solar capacity would be relatively unchanged.

Rather oddly the modelling exercise did not analyse the potential for storage systems in combination with distributed generation to export generation during peak periods that might provide an alternative to investing in network and centralised power generation capacity. The report notes that current tariffs provide no reward for exported generation during network peak periods which could offset the need for network capacity, but it chose not to model what the effects might be of reforming this current market distortion.