Where the escape from power retailers will begin

The increasingly large sum of money needed to keep rural areas connected to the grid means it already makes sense to go with solar plus batteries in many of these locations.

Recently, I answered a call from a farmer in outback NSW who wanted advice on stand-alone power system costs, as he wished to never interact with his electricity retailer again. I pointed out that stand-alone power systems have high initial capital costs, mainly due to the need for large battery banks,and that he may be better off changing retailers and installing a grid-connected, photovoltaic system.

This did not appease him as he believed all retailers were as bad as each other. He indicated that he was willing to spend big to achieve his goal of energy independence, so I suggested he do a detailed winter and summer load analysis before seeking several quotes. I declined his request to provide a ballpark cost but indicated that while photovoltaic costs have fallen dramatically, batteries are still expensive.

After the call, I remembered an old, very rough rule-of-thumb for a ‘solar’ stand-alone power system of initial capital costs are about $5000 per kWh of daily load from back in the day when photovoltaic modules were so costly that domestic offgrid systems always included a diesel generator and grid extensions’ rule-of-thumb was $10,000 per kilometre. This sparked my curiosity, as costs have changed a lot since the early 1990s. Unable to find the assumptions and methodology for these old rules-of-thumb, I wondered, ‘as grid extension costs have more than trebled, how much has the stand-alone power system cost changed?’

There’s a range of complexity for costing an ‘average home’ stand-alone power system including:

-- loads are seasonal and a household that averages 10kWh per day over the year may have vastly different summer and winter daily loads. Whether firewood or LPG is used for some needs also effects the load variability over the year;

-- the horizontal solar resource in Australia varies from about 1400kWh/m2/year to above 2400kWh/m2/year. Tilting photovoltaic modules at roof tilt, latitude angle or latitude angle plus 10 degrees for more winter generation, or even using trackers increases this potential range;

-- systems can be designed from 10% solar contribution to 100% solar contribution to the annual load, which has major impacts on battery bank sizing and diesel generator run times;

-- installation costs depend on distance from base and site factors.

Thus apples with apples comparisons are rare in the stand-alone power systems market. Battery bank sizing is a key component that affects lifecycle costs and anywhere between one day and five days’ storage are commonly used.

My back-of the-envelope estimate indicates that the initial capital costs for a 10kWh per day solar stand-alone power system would be in the ballpark of $40,000, (GST exc, before any renewable energy certificate discounts). It is not straightforward to compare this to the old rule-of-thumb as it would have been for a solar-diesel hybrid stand-alone power system which may have a smaller battery bank. However, it can be observed that the initial capital costs have come down in nominal terms since the early 1990s. This is quite impressive as some components, like labour and fuel costs will have increased significantly while lead prices have more than trebled in nominal terms.

This has a surprising impact for electricity regulators, where the assumption that network provision is a natural monopoly can now be challenged in some fringe-of-grid locations.

In off-grid sites near the extremities of the grid, a contestable market already exists. Owners of new house sites maychoose to self generate rather than pay the exorbitant price to extend the grid. Although this isn’t always the case, as land planning rules haven’t yet caught up with the trends and often require new rural sub-divisions to provide gridconnection.

Network assets earn a regulated rate of return but expanding networks in some fringe-of-grid locations may not always be the most cost-effective solution. This is due to the initial capital cost of a solar stand-alone power system now being significantly less than even just the annual maintenance costs on some long feeders. For example, Australia has large amounts of low voltage lines that service quite small loads. The annual maintenance costs on these lines can mean that meeting the load is actually costing significantly more than $1 per kWh. While a solar stand-alone power system lifecycle electricity cost may be higher than the regulated retail tariff charged, it will be cheaper to buy and operate than just maintaining the line in many regional areas.

There is a town-sized precedent. In 2004, Bremer Bay was disconnected from WA’s main-grid after a wind-diesel hybrid system was installed. This improved power availability and reduced costs for Western Power, a vertically integrated utility at the time.

While my angry caller will pay for his stand-alone power system, the network provider may benefit from reducing the length of line it has to maintain. These annual maintenance savings can, in many fringe-of-grid locations, often be significantly more than the income earned from the customer. If the regulator is notified of the line length reduction, some of these savings may even be passed on to all consumers.

Some utilities have started examining stand-alone power system options, mainly to reduce their risk exposure to power lines starting bush fires but also due to the frequent outages some long feeders experience. Initially, utilities may find it hard to believe the analysis that shows that solar stand-alone power systems are significantly more cost-effective in many fringe-of-grid locations. How this translates to reducing network costs in Australia is a thorny political issue hampered by Distribution Network Service Providers earning their income via the value of their asset base, not being incentivised to reduce cross-subsidies and having restrictions on their ownership of generation assets.

Market forces often move in ways not predicted by forecasters and regulators. If battery prices fall and innovation erodes some of the regulatory inertia, then the large Australian fringe-of-grid electricity market may evolve new ways of doing business. These ways can be less greenhouse intense plus more flexible, reliable and resilient. They can also be more cost-effective for all electricity consumers.

Joe Wyder is projects manager at IT Power Australia, an independent renewable energy consultancy.

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