Breamlea Wind Generator
c/- 21 Wolseley Parade
Kensington Vic 3031
15 November 1998
Mr Stephen Bygrave
Australian Greenhouse Office
GPO Box 621 Canberra ACT 2601
Dear Mr Bygrave,
re: 2% New Renewables Measure:
No portfolio, no central purchasing, and something for everyone.
Thank you for the opportunity to attend the 2% Renewable Energy Target Workshop. I now regret that I did not become a more active participant in the process at an earlier stage, as I see the situation of the Breamlea Wind Generator's energy trading being the role model for achieving the measure at least cost.
Of course, energy-conserving demand management, co-generation and efficient appliances could achieve real GHG reductions at net overall saving to the Australian economy, so I would encourage the AGO to pursue these "other measures" at least as vigorously as the matter now before us. It is worth noting that no ACF, Greenpeace or Wilderness Society observers were present at the workshop to my knowledge. To make the measure "bankable" politically with respect to the wider green movement will not be possible unless comprehensive implementation of Mr Howard's statement can be demonstrated. At the very least the distribution network service providers (NSPs) should get displacement credits for network customers persuaded to trade-in an electric stove for a gas stove. Since they are not liable parties, they must sell the credits to any liable party e.g. their retail arm
Real World Energy Trading: the National Electricity Market
The NEMMCO people use some very confusing terminology regarding "the market". To NEMMCO, trading electricity "through the pool" means bidding and dispatch of generating units greater than 30 MW. To small embedded generators, it means simply having NEMMCO metering, which measures our electricial output every 15 or 30 minutes. This exported ("sent-out") renewable or co-generated energy is not dispatched in the sense that NEMMCO means: indeed no bidding occurs. The use of the word "dispatchability" in your paper 4c caused a lot of confusion at the workshop - virtually all renewables projects will just export their energy to the grid depending on the availability of bagasse, wind or sunshine. However the metered energy data is used to provide a market settlement between the local NSP and another market participant (the purchaser of the energy) anywhere within NEM's interconnected grid. From NEMMCO's point of view, the critical factor seems to be that NEMMCO will not pay the embedded generator directly: NEMMCO ONLY writes cheques to big generators who bid and get dispatched when the pool price is above zero. Thus, in most cases, Figure 3 in paper 6 will be incorrect. The real situation is as follows:
Both my energy trading and EEC's proposed wind farm energy trading at Portland have independently arrived at identical arrangements with our customers: half-hourly metering is used to monitor and verify renewable energy export. A correlation with half-hourly pool price is then performed by NEMMCO to determine the wholesale pool value of the embedded generation. This dollar amount will then be used for a market settlement process in which the local retailer must pay the renewable energy customer the wholesale value of the embedded generation. This may sound complex, but is directly analogous to the linchpin of contestability: settlement for "second-tier customers" i.e. customers who choose to buy electricity from a remote retailer.
All of this was only confirmed for me during a coffee-break discussion with Murray Chapman (NEMMCO) and Matthew Rosser (EEC) on the afternoon of Day 3. It is a sad indictment on the degree of asymmetry of information disclosure in the industry that it has taken me 4 years to have this information confirmed, despite repeatedly asking NECA, NEMMCO, Citipower and Powercor about the detailed logistics of contestable energy trading in the "special case" of embedded generation. The good news from the Australian Greenhouse Office's perspective is that because I have independently "uncovered" how least-cost energy trading and market settlement actually works in the real-world, I am not bound by any draconian confidentiality clauses, and am free to share the information with you (assuming this info is new to you!) and any new proponent of a renewable energy scheme.
Because settlement calculations are performed using the Adjusted Gross Energy attributable to the embedded generator, this settlement methodology provides about half of the "locational signals", namely it takes into account the distribution losses associated with centralised power generation. The other half will comprise the "pass- through" of transmission use of system (TUOS) savings. Savings in TUOS charges are achieved by every embedded generator on behalf of all the net energy customers at the upstream network connection point. In my case, this means that on an Adjusted Gross Energy of 0.1 GWh each year, the TUOS reduction for all other customers at the Geelong Terminal Station is in the order of $600 or about $6 for every MWh that I produce throughout the course of the year. Incidentally, the data required for my TUOS calculations was only obtained under FOI after Powercor, the local NSP, claimed commercial confidentiality for the relevant terminal station data.
Only when the physical energy has been metered through a "certified renewable" meter and bought by a liable party, should the credits come into existence (base unit = 1 MWh). Equally rigorous credit accounting will be needed for solar hot water systems installed. The workshop consensus seemed to be that a derivatives market will naturally emerge to manage the risk, and trade credits outside the NEM area of coverage.
Having prised open the information clam, I shall say more below about how the vital market information required for least-cost implementation could continue to be made public for other new renewable projects:
NEM Code Change is required:
NEMMCO has recently announced a 500% increase in their fees for market metering:
the major component is a $25/day standing charge, unrelated to the size of the generator's output. In view of the proven information asymmetry in the market and the need for liable bodies (or the proposed REPO, heaven forbid!) to determine the true cost of the measure above pool purchases, I propose the following:
· The new $25/day fixed charge be made for units over 25MW, with a linear reduction of $1/MW/day for units less than 25 MW down to 1MW. Thus a 250kW wind turbine would be eligible for market metering at $365 p.a. plus volume charges.
· In return for this substantial discount all the energy data produced by that meter would be subject to mandatory public disclosure through the NEMMCO web site at appropriate accounting intervals. Such a growing public database would provide an extremely valuable tool for liable parties, renewable generators and any REPO organisation to determine the best technologies for least-cost achievement of the measure's target. After 2010 any generator receiving the discount should be able to pay full fees for the subsequent data to become confidential again.
· Any large renewable generator paying full NEMMCO metering fees should not be penalised by his purchaser for electing to also voluntarily publish all his metered data on the NEMMCO web site. A reward may even be appropriate.
NECA and the ACCC will have to be convinced of the need for this Code change on the basis that it removes a substantial barrier to market entry for many small new entrants. An excellent case can be made for this, in view of the 9000 GWh p.a. target required to be achieved.
Another Code Change for All Embedded Generators:
Very clearly, the distribution NSPs have been using their powerful market position to largely ignore small embedded generation projects with impunity. The late change required by the ACCC for authorisation of the Code as an effective access regime has not gone far enough: the requirement for local retailers only to "negotiate" on the pass- through of TUOS benefits is woefully inadequate: to give the measure the best chance of success, to give the market a truly level playing field, and to get us all out of withering, interminable negotiations (or worse still, stalemates!), the pass through of TUOS must be mandated at 1OO%. This change will be all the more important to the success of the measure in view of the fact that the distribution NSPs are not strictly speaking even a liable party under the measure, and so have no particular incentive to co-operate with prospective embedded generators.
The embedded generator must only pay for the demonstrated cost of the connection asset (usually a transformer), and any reactive power in excess of the Code's technical standards. Large embedded units may quite legitimately also be required to pay for network augmentation.
Proposed draconian changes to the Distribution Code in Victoria, where any embedded generator over 1MW has, in effect to be "dispatched" by its local NSP must be thrown out. Since much of the technology is new, all jurisdictions must introduce uniform national requirements for connection of embedded renewables and cogeneration. Regulatory requirements on NSPs (regarding mandated responses to a generator's application for network connection) must be enforced.
Portfolio vs. Open bidding: "Don't let Howard's measure be torpedoed."
A least-cost approach strongly favours open bidding/tendering. As suggested by one workshop attendee, a continuing modified Green Power scheme could survive and expand nationally if used for "boutique" niche markets such as 100% photovoltaics or 100% wind power, with the bulk of the measure's megawatts coming from non-sexy renewables such as bagasse, solar hot water displacement and other least-cost technologies. As with the current Green Power scheme, the niche markets can be designed to be cost-neutral (or nearly so) for retailers by recovering costs from customers prepared to fund the differential above least-cost renewables. Thus the technology mix outcome will not be set arbitrarily, but will depend on the success of technologies such as photovoltaics in creating and maintaining the market perception of increased value. The measure cannot afford to subsidise them, politically or financially. Caution is required in a situation where the ESAA is clearly talking up the "need" for a portfolio approach: a cost blowout will be seen as making the measure unworkable, and it will be torpedoed by the incumbents.
As a more radical olive-branch to the photovoltaics industry and the general public, the AGO should consider approaching all jurisdictions to allow up to 100 watts of grid-interactive PV to be installed by any domestic franchise customer where the existing meter has the ability to net-off the exported and imported energy i.e. the meter runs backwards on sunny days when no energy is being consumed by the household. No tariff changes to be allowed without the consent of the customer. This would be a no-regrets measure producing only 0.18 MWh p.a. per household, fully offset by the enormous public relations benefits of the industry being seen to make "sacrifices" to renewables. Cost of course fully borne by the customer, for about 5% of typical annual household consumption (around 3.6 MWh p.a.). The fifty year payback time will make customers realise the true cost of renewables, and the economies of scale available through cogeneration, wind farms, bagasse, etc. An educational opportunity not to be missed. However what if a community craze was to develop?: five million rooftops each with a 100 watt PV would produce around 900 GWh annually, or about 10% of the measure. This unlikely scenario would be "people power" on a grand scale!
Such a scheme would not prevent a network owner allowing customers to install large grid-interactive solar arrays, say 1 kilowatt, by mutual consent but clearly special tariffs and meter charges may be appropriate.
Both of the above classes of PV system should be capable of aggregation towards credits under the measure, but only by the franchise (local) retailer for reasons of verification/certification.
Maintaining existing renewables: a new displacement category "such as solar hot water" should be fudged.
The problem of maintaining existing hydro capacity was not resolved at the workshop. Perhaps a jurisdictional certification process should be used to verify the need for investment to maintain a particular ageing hydro unit when threatened with withdrawal from service. (It may be difficult to avoid blackmail situations) The cost of refurbishment could then be covered by the hydro generator finding a long term buyer for "re-born renewable" megawatts, which should attract credits on a one-for-one basis with the new renewable megawatts.
Another perfectly legitimate possibility would be for hydro generators to be allowed to claim the displacement credits of any solar hot water system installed through their actions. This displacement, unlike the SHW credits allowable to retailers, would be justified on the basis that el Niño is associated with drought and increased sunshine, at least in SE Australia. Thus, there is a nice synergy between drought years (= reduced hydro capability) and increased sunshine hours (= reduced [electric] boosting requirement for most solar hot water systems).
Similarly, hydro generators who are instrumental in persuading companies or individuals to change from heat-pump air-conditioning to evaporative cooling should have that counted towards maintenance of existing renewables. The cooling available from evaporating a megalitre of water is much greater than the amount of heat-pump cooling that can be achieved using the same megalitre to produce hydroelectricity. It is acknowledged that reticulated water and hydroelectric water are rarely in the same storage. But then Michael Gabriel did exhort us all to "fudge" the PM's statement! Perhaps such a blatant fudge could be kept in reserve for 2005 if the target starts to look difficult to achieve.
If there is anything set out above which needs further development, does not make sense and/or has been badly expressed, I am happy to liase with AGO staff, ministerial advisers or relevant ministers to assist in achieving the 2% target at least cost to the whole Australian economy.
Michael Gunter, owner Breamlea Wind Generator
Copies of the above letter were emailed to the following people on 16 November 1998:
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