Experts predict a new chapter for solar, as tariffs are set to be retired

Experts predict a new chapter for solar, as tariffs are set to be retired.

According to IRENA and Bloomberg New Energy Finance, renewable energy subsidies will largely cease to operate from 2020 in a move that will be welcome news for many taxpayers. In Western Australia alone, tariff subsidies cost in excess of $17 million  per annum and global tariff subsidisation is thought to be of the order of billions of dollars.

And while this may look like bad news for the solar panel industry, many commentators welcome the move and say that it represents a healthy milestone in the development of renewables.

According to Dr Jemma Green from Power Ledger, “tariffs for a long time have been bad news for the industry by creating surpluses of electricity which have in turn produced problems for the grid.

“With the retirement of feed-in tariffs, there will be a greater emphasis on P2P trading which will send much more accurate market signals and start to solve the problems that have sprung up - problems of excess production, and injecting power at the wrong time and the wrong place.”

Many industry commentators agree, pointing out that  tariffs have given renewables a bad name by their perverse incentives.

In California, CAISO spokesperson Anne Gonzales said that due to surplus solar in parts of the grid “ there’s been a steep rise in the number of curtailments which all point to too many and too much of the wrong kind of incentives.”

Curtailments, the term that the industry uses to describe switching off generation capacity and essentially throwing the energy away are substantial, and on the rise. Ontario curtailed enough electricity in 2019 to power 720,000 homes. In Denmark, nearly 6 percent of renewables output is being curtailed.

Arguably worse than curtailments are reverse flows and overvoltage which are as expensive as they are damaging to the grid and its components, and these too are on the up. It is estimated that by 2025, one in four substations will be subject to reverse flows and require more substantial investment to overcome.

The retirement of tariffs isn’t the only change on the horizon as Dr Green points out. It comes at a time when major changes are occurring around the regulations which govern electricity markets, with topics like ‘smart metering’ and ‘flexibilities’.

“These regulatory changes are coming to the fore and will also propel the industry forward”, says Green.”

“In the US, rule change, FERC2222, in the UK, Elexon P379, in Europe, the Clean Energy Package and in Australia two sided markets are all regulatory changes that will allow DERs to trade energy P2P and participate in the electricity market in new ways and signs the industry is waking up and smelling the coffee. In many ways it’s analogous to the kinds of innovation that was made possible by the liberalization of telecoms markets some 25 years ago, and everyone in renewable energy should be very excited about this.”

Background

Peer-to-peer (P2P) trading of electricity began around 2016, some seventeen years after P2P music trading. In many ways it was trying to solve a similar problem set: How can ordinary ‘little people’ challenge a centralised system that sets and enforces pricing on them? How can ordinary consumers become producers as well, or ‘prosumers’?

The idea behind P2P is a simple one: Households with surplus rooftop solar electricity, which they were not going to use, could put power back into the grid and let their neighbours make use of it instead. Because this was P2P, a more realistic price is achieved which ultimately sends more useful market signals to encourage demand and helps the system run smoothly.

With P2P communities trading between themselves, the effect of this new way of doing things was to emphasise a revolutionary kind of grid architecture, one born out of the non-hierarchical structure that the internet itself had established. This is a radical change. It also means that the network operator will be under pressure to offer better network pricing to avoid reverse flows of energy to encourage people to use the grid as opposed to self-consume their own renewable energy.

From command and control, center to hub, P2P electricity trading offers a complete shift of paradigm. It emphasised a so-called distributed model of trading electricity, one that brings many advantages. Resilience, when hurricanes and tornadoes wiped out elements of the grid, was one. Another advantage is the ability to tolerate and support intermittent sources, an important and problematic feature of solar and wind power. In other words, P2P facilitated the uptake of renewable energy in many different ways, often quite subtle ones.

Peer to peer benefits

There are more benefits with P2P that soon became apparent. P2P electricity trading, with its online marketplace circumnavigates the need for intermediaries who typically might charge a ‘house’ fee. The back office bookkeeping function can be handled by a distributed ledger system, known as blockchain, and because this can be so efficient and frictionless, trading even quite small amounts of electricity makes financial sense; so large numbers of small transactions can start to build value.

In various pilot schemes, and now increasingly in commercial service, P2P has demonstrated an important emergent feature of highly agile pricing. Namely, that people modify their behaviour around electricity so that they help the grid stabilise its natural ups and downs, shortfalls and over production. These twin problems of over and under production are increasingly problematic in the modern grid, as renewables become more and more prevalent.

There are two types of intervention that are frequently required. Curtailment, which is a euphemism for switching off over-production, is a frequent occurrence in many sunny geographies; this helps protect grid equipment from reverse flows and overheating. But with P2P, and its highly agile pricing, prices can frequently go negative when the grid is awash with power, and so the necessity of  curtailment is reduced.

Services and interventions

The opposite intervention, when there’s a shortage of electricity, is also highly problematic for the grid. This situation requires peaker power plants to spool up and bring large amounts of power to the grid at short notice. It is a very expensive intervention and is designed to prevent frequency and voltage issues which, again, can damage equipment on the grid. But with solar and storage with P2P and so called virtual power plant, VPP, distributed dispatchable loads can meet the need.

As P2P and VPP take off, it's increasingly likely that these kinds of functions could be handled by the prosumers in a network, rather than the contractors of the past. This has implications for the profitability of some of the big generators.

Essentially this is the coordination and aggregation of many distributed batteries that effectively becomes like a small power station that can provide electricity and grid services. Examples might be an aluminium smelter with a battery, a bottling factory or a data centre with solar panels, who can collectively now look towards P2P instead of a big fossil generator for their needs.

Malaysian Pilot Run

In June 2020, the Sustainable Energy Development Authority (SEDA) of Malaysia and Power Ledger completed an eight month P2P trading trial.

This project was to effectively trade surplus solar energy, with SEDA’s goal being to grow the country’s solar PV rooftop market in a scalable way, avoiding the need for curtailment and without causing issues to the grid.

The main highlights of this project included:

• Balancing prosumers and consumers to prevent excess in supply and reverse flows.
• System access and network charges provided appropriate market signals to stimulate the market.
• Reduced energy costs and improved ROI for prosumers.

IRENA also hosted a webinar about the project with follow up Q&A here. Explaining the benefits of P2P and CEO Sanjayan Veluatham said “even in the early days of evaluation, the concept of P2P trading was appealing to consumers in many ways. As in any P2P model, the concept leverages sharing economic benefits, underpinned by digital technologies, brought about by the combination of blockchain, the internet of things, smart contracts, big data, and cloud applications.”

The project is leading to a live deployment through Malaysia's national utility where they plan to use P2P in a localised energy market downstream to a substation for a range of network support applications including balancing local demand and generation, managing voltage and capacity constraints and network power losses. This model could be a blueprint for orderly uptake of renewables in developing countries enabling consumers to get cheaper, cleaner energy, prosumers with improved return on their renewable energy investment and improved resiliency for the grid.

P2P around the world.

There are two major P2P trading platforms in operation at the moment. LO3 Energy who operates the Brooklyn Microgrid. And Australian company Power Ledger’s platform, which is operating in Australia, China, India, France, Japan, Thailand, and the United States (US) (Ledger Insights, 2019).

Further reading

IRENA’s report “Innovation Landscape for a renewable powered future” identifies 30 key innovations around renewables in today’s power systems.

IRENA 2019

IRENA 2020a