No arbitrage market: Roofjuice’s Nigel Morris on hindrances to Australian storage

Nigel Morris has been working on solar in Australia for 23 years. Credit: Jess Christiansen
Australia recently celebrated reaching 5GW of solar capacity not long after hitting a landmark 1.5 million solar systems. It has the largest penetration of rooftop systems per capita in the world making it a hugely attractive proposition for the energy storage sector.

Last November, US analysis firm GTM Research predicted that by 2020, Australia will be installing 244MW of storage capacity on a yearly basis with as much as 132MW of this deployed behind the meter and paired with PV in homes. Residential storage was also expected to “explode” from 1.9MW deployed in 2015 to 44MW in this year.

However, the transition to energy storage faces significant barriers from the incumbent power industry and regulatory stagnation.

Nigel Morris, chief executive at solar firm RoofJuice Australia, who has been in the solar game for more than two decades, explains what stands in the way of Australia's significant energy storage potential.

How do Australian electricity networks view renewables such as solar energy?

Electricity networks never expected power demand to fall in Australia and a reverse was unthinkable, yet there has been a reverse. Furthermore, the 1.5 million solar rooftops in Australia also take another 10% out of the capacity market, so the utilities and the networks are fighting back as they are losing customers.

They have reduced the energy component of electricity pricing by flattening it and in some cases dramatically increasing fixed charges to protect their revenue streams. That significantly diminishes solar’s ability to reduce people’s bills.

In New South Wales (NSW) and Queensland somewhere between 15-20% of state revenue comes from coal and transmission and distribution networks, so as you diminish demand you also diminish state revenue and the states can’t afford to give this away. The networks are also trying to keep the status quo through very subtle regulatory changes.

What role does energy storage have to alleviate this?

Every complaint that the networks have about renewables from a technical or operational perspective can be solved with storage and yet the first entities that started trying to impede the use of storage were the networks themselves.

For example, one year ago, the network in South Australia successfully lobbied the state government to announce that consumers who install energy storage devices will lose their Feed-in-Tariffs (FiTs). They immediately dis-incentivised every single solar consumer in the state, because it is they who will jump on storage first.

Ironically, this state has also signed a deal with Tesla to distribute their batteries.

Is storage becoming more main-stream in Australia?

FiTs in Australia have rolling expiration dates that go up to 2028, but the subsidy in NSW is expiring at the end of this year, which is fairly major. This means the case for storage is rising and rising.

However, issues arose from Elon Musk’s firm Tesla announcing that their home batteries are going to cost US$3,000. Not a day goes by without someone calling up wanting one of these US$3,000 systems, but the trouble is that these batteries are in the market at closer to US$12-14,000 dollars retail.

At the moment, this requires a massive consumer education campaign and selling storage is complex.

Original forecasts were that if just 5% of NSW solar owners adopted storage, it would create a market of 15,000 systems installed per year. So far this year there have been just 1,000 grid support systems installed, and we have brought down our forecast to 5,000 systems for the year.

There is a big consumer confidence hit. Customers are confused and disgruntled that they were told the batteries were going to cost US$3,000 when they are not.

What else is blocking uptake of storage?

We have also got the networks subtly but consistently making life harder for people to put storage on and we don’t have the right regulations in place.

Historically, the networks would have around 20 hours of the year with extraordinary peak demand and roughly 20% of all electricity revenue came from those 20 hours. Everyone paid massive amounts for networks to meet their obligation to deliver energy to consumers. There was no signal of this cost to consumers, so they just switched on their air conditioning and pull pumps and away they went.

Nowadays, because there is so much renewable energy in the national electricity market, these big peak events where energy would surge to AU$10,000/MWh are almost non-existent. This is becasue the peaks were typically on hot summer days - those same days where we have now got loads of solar.

We now also have the potential to install, for example, one million battery storage systems distributed around the network to provide electricity to avoid the peak events. Of course, the networks don’t want that – they like peak events – that is where they make their money.

How have the networks reacted?

There are two issues here. Firstly, we do not have an arbitrage market to financially reward the shifting of electricity loads to counter peaks.

Secondly, the times at which networks are penalising consumers for using energy are no longer related to peak events, because there are 5GW of solar out there. Peak times are now completely arbitrary. All the signals are screwed up and the peaks are actually happening much later now.

Unfortunately there is no incentive or regulation for the networks to change their behaviour.

We do have some price signals in the form of time of use pricing. So there is a peak time between 2-8pm, but again the networks have priced those really cost reflective tariffs extortionately.

Thanks to Freedom of Information Acts, consumer groups and solar advocates these issues are much more openly talked about and well understood than ever before. So far we are winning the PR battle, but we have to fight a machine that is 100-years-old and substantially wealthier.