Distributed Energy Flashcards
a. Discuss three types of drivers for demand side management.
Environmental: DSM is concerned with achieving environmental goals by reducing energy use, increasing EE and reducing GHG emissions.
Network: DSM reduces demand in ways which maintain system reliability in the short term and defer the need for augmentation in the long term.
Market: DSM provides short term responses to electricity market conditions particularly by reducing load during periods of high market prices caused by reduced generation or network capacity
Security: future opportunities for DSM to provide frequency/voltage services
b. Why is there increasing interest in demand response and distributed storage? How might these resources be harnessed?
Changes to the way in which the electricity industry is organised, increased competition and new technologies have driven interest in DR/DS. New interval metering, control and storage technologies create the potential of a new level of demand side controllability allowing consumers to modify their energy usage to reduce their energy bill and carbon footprint. These resources can be harnessed through:
- Cost-reflective tariff structures including time of use, capacity peak pricing and real time pricing
- Direct control, whether that is requested by retailers or a contract is signed with the network to allow load control
- Distribution Market is under discussion by AEMO and AEMC → networks might be the market operator.
c. Describe three types of barriers to Energy Efficiency and appropriate policy instruments to address each of these barriers.
- Cost/capital: EE requires up-front capital, with payback periods often being years. The exact savings are also estimates based on future cost reductions, so there is an element of risk. Is mitigated through fiscal incentives e.g. STC (Small scale Technology Certificate) which rewards adoption of renewable technology and effectively lowers the initial cost.
- Inertia: Energy costs are only a small part of total operational costs for most businesses, and better returns can be made by funding core business activities (i.e. higher return, shorter payback). Introduction of mandatory minimum investments in EE along with standards for generators/appliances.
- Split incentives: occur when the person with the ability to make a change is not the person who benefits from the change, e.g. a landlord installing solar panels yet the tenants’ energy bill is subsidised. Can be overcome through subsidies/rebates and regulatory standards such as mandatory building codes.
- Lack of information/capacity: both in terms of lack of technical expertise/training for installation and lack of access to / understanding of EE tech. The only way to overcome this is through education and information programs such as audits that demonstrate the benefits of EE.
- Market/institutional: transaction costs are high compared to the benefits, partly due to price distortion from inefficient tariffs that discourage EE such as declining block / increased fixed component. Also caused by supply-side bias and incentives for utilities. Can be alleviated through cost-reflective tariffs that reflect the true cost of supplying electricity on a consumer-by-consumer basis.
d. Given the cost effectiveness of many energy efficiency measures, why are policies to support energy efficiency activities justified?
Though many EE measures may not be cost effective, they are still justified due to the immense and long-lasting impact they can produce on society in the form of environmental, social and infrastructural benefits. Australia has entered into agreements to reduce global emissions (Kyoto, Paris) meaning we have an obligation to introduce policies that encourage EE even if there is no immediate financial return. Significant non-energy benefits also arise out of adopting EE including:
- Financial savings (usually long term)
- Less maintenance & longer lifetime of equipment
- Higher productivity
- Reduced pollution, traffic congestion, etc.
e. Describe how certificates are created in Energy Efficiency White Certificate Schemes, and the incentive to create them. Describe some of the problems that have been encountered with this type of scheme. (6 marks)
White Certificate = document certifying that a certain reduction of energy consumption has been attained. Each certificate is a unique and traceable commodity carrying a property right over a certain amount of additional energy savings.
Concept is very similar to emissions trading → tradability (in theory) guarantees that the overall energy saving is achieved at the least possible cost while the certificates themselves guarantee that the overall energy saving target is achieved.
Mostly, these white certificates are tradable and combined with an obligation to achieve a certain target of energy savings in volume of electricity or gas. Liable entities must demonstrate that a target has been met by holding sufficient certificates. Under such a scheme, generators, suppliers or distributors of electricity and gas are required to undertake EE measure for the final user that are consistent with a pre-defined % of their annual energy deliverance. The white certificates are given to the entity whenever an amount of energy is saved. The recipient can then use the certificate for their own target compliance or can be sold to other parties who are unable to meet their targets.
f. What is the role of the retailer in restructured electricity markets?
In electricity markets retailers essentially provide a risk management service. Retailers “purchase” electricity at a variable price and re-sell to consumers at a fixed price and in doing so take on all financial risk exposure on behalf of their customers. The retailer ideally acts as the agent of the customer allowing them to optimise their agreement to provide the cheapest rates on electricity including a full set of DR/DM service as well as preferred tariff structure. In the Australian electricity market consumers are free to choose their electricity retailer which should create competition, constrain market power and encourage efficient/fair pricing. Retailers are licensed and regulated by the Australian Energy Regulator which oversees a National Energy Customer Framework (NECF) that unifies arrangements on a national scale.
g. Discuss two barriers to demand side participation. Give examples of regulatory reform aimed at reducing these barriers in Australia.
Lack of a pricing signal
Stemming from accumulation metering, temporal and spatial smearing in prices (tariffs), prices obscured by interaction of retail and network tariffs.
Ability of small customers to participate
Cost of market monitoring is prohibitively expensive for small players in the space, leading to information limitations aka market failure. Also prevents small players from forecasting market movements to make informed decisions about their energy use.
h. Describe one example of innovative financing and one example of a ‘product as a service’ business model in the clean energy space.
Business model = system for creating and delivering value
Innovative financing → ICOs (essentially crowdfunding)
ICO = fundraising mechanism in which new projects sell underlying tokens/coins (Initial Coin Offering) in exchange for money/cryptocurrency. Allow projects to raise an unregulated amount of capital in exchange for these tokens.
Some examples:
Power Ledger (P2P energy trading platform)
→ raised AUD $34m
WePower (blockchain-based green energy trading platform)
→ raised US $40m
Innovative financing → Solar leasing, PACE/EUAs, on-bill financing
Consumers lease/rent an item that they can’t afford or don’t want to buy outright. Customers pay a recurring fee, usually monthly or annually, to gain ongoing access to the product/service; model has been used to lower barriers to entry to the purchase of green innovations.
Product as a service → third party PV ownership, renewables PPA, energy supply contracting
Consumers pay for the service a product provides without the responsibility of repairing, replacing or disposing of it.
