Network Tariffs
Existing network tariffs were developed for an energy system in which power only flowed in one direction: from large, centralised generators to small consumers. Network tariffs are a set of charges which determine what proportion of the overall cost of the network is paid by each customer i.e. it reflects the cost of transporting electricity to houses (not the cost of the generation of that energy). The tariffs are calculated by each DNSP and are regulated by the AER. Every five years, DNSPs submit their proposed tariffs for the next five years (the current regulatory period is 2021-2025).
Current network tariffs are a major barrier to the feasibility of neighbourhood batteries in the NEM, because Distribution Use of Service (DUOS) tariffs are charged for both the incoming energy for charging the battery (paid for by the battery owner) as well as for the energy flows from the battery to households (paid for by households). In this way, DUOS is double-charged for the same energy (although paid for by different parties).
As the energy exchanges between the battery and local households only use a tiny portion of the distribution network, there have been suggestions to replace DUOS costs with a discounted local use of service (LUOS), to reflect the real cost and benefits of network use by batteries. Alternatively, timed tariff arrangements that pay the battery for charging and discharging at times that benefit the network could be used. Innovative network tariffs are being trialled for neighbourhood battery projects e.g. that offered by Citipower for the YEF battery (See here). Neighbourhood battery tariff trials are also underway in other Australian jurisdictions. Ensuring that your DNSP will offer a special network tariff should be one of the first steps in your project, as the project will be financially infeasible without it.
Below is an example and comparison of some network tariffs that have/are being trialled.
| Tariff name | Import rate from the grid (c/kWh) | Import rate from the local solar (c/kWh) | Export rate (c/kWh) | Max. demand charge (c/kVA/day) | Charge capacity (c/kVA/day) |
|---|---|---|---|---|---|
| Ausgrid | 1.6 | 0 | NA | NA | NA |
| EvoEnergy | 4.1 | 4.1 | 4.1 | •37.532 (Spring and Autumn) •43.050 (Summer and Winter) | 2.789 |
| PowerCor | •-1.5 (10am – 3pm) •25 (4pm – 9pm) •0 other times | •-1.5 (10am – 3pm) •25 (4pm – 9pm) •0 other times | •-1.0 (4pm – 9pm) •0 other times | NA | NA |
| Tariff name | Import rate (c/kWh) | Export rate (c/kWh) | Free to charge from local solar | Max. demand charge (c/kVA/day) | Capacity charge (c/kVA/day) | Critical peak event charge |
|---|---|---|---|---|---|---|
| Ausgrid | Yes | NA | Yes | NA | NA | Yes |
| EvoEnergy | Yes (flat) | Yes (flat) | NA | Yes (season varying) | Yes | Yes |
| PowerCor | Yes (time-varying) | Yes (time-varying) | NA | NA | NA | NA |
Energy market participation
In Australia, we have a gross pool market which does not allow parties to trade energy without settlement on the market. Only financial derivatives can currently be traded directly e.g. power purchase agreements (PPAs). The use of the battery to participate in the wholesale and ancillary services markets requires the operator to either register as a market participant or to recruit the services of a registered market participant. Some of the rules around market participation, for example, requiring FCAS bids to be greater than 1MW, will make it difficult for single battery owners to participate. Therefore, projects with only one or a few batteries will likely partner with organisations who are already market participants and can aggregate the battery with their other assets to more efficiently provide renumerated services into the spot and FCAS markets.
Network support services
In general, DNSPs respond to network support needs with internal investments and upgrades. However, network services provided by other entities can also be procured. For example, a neighbourhood battery increasing solar hosting capacity without a network upgrade. Revenue from network service provision would make the business case for neighbourhood-scale storage much more favourable. However, an issue identified in ANU’s social research was that DNSPs are concerned about reliability in the provision of network services by third parties.
DNSPs can procure network services via four mechanisms. As mentioned above, a special network tariff can financially reward the battery for behaviour that supports the network e.g. solar soaking. Three further schemes are designed to promote non-network solutions relating to demand management: the demand management incentive scheme (DMIS), the innovation allowance, and the regulated investment test for the distribution grid (RIT-D). For the RIT-D, a DNSP can state a need for network support (e.g. voltage management) and seek a solution by tendering on the competitive market for it. The DMIS scheme provides electricity distribution businesses with an incentive to undertake efficient expenditure on non-network options relating to demand management. The innovation allowance on the other hand, will reduce the risk distributors face with research and development costs in demand management projects that could reduce long-term network costs. In practice, both RIT-D and DMIS are likely to be too cumbersome to be of interest for smaller-scale neighbourhood battery projects.
To promote DNSP procurement of network services, mechanisms for valuing network support are needed. In the US, such services can be secured via scarcity pricing and capacity markets, or through resource adequacy payments. In the UK, new flexibility markets enable owners of DER to be paid for flexible electricity demand or generation. More recently, flexibility services are being trialled in WA. Following the extreme events over the summer of 2020, AEMO is also calling for regulatory processes to consider how to better consider energy security and resilience benefits in network projects.