People power: the revolution in electricity
The Tiwai Point closure announcement has put the spotlight on a gnarly and potentially expensive problem in our electricity network - the gap between where a lot of our power is produced (the South) and where it is used (the North), not to mention the more than 5 percent of our electricity that’s lost as it moves through the wires. Will 'distributed generation' be the solution?
'Distributed generation’ is an unsexy term for a revolution over the next 20 years which could see an increasing proportion of our electricity being generated close, or even at, the place it’s used. Where our homes, our cars and even our household appliances could play a role in cutting our power bills, avoiding millions of dollars in energy infrastructure, and helping New Zealand get to Carbon Zero.
But it isn't going to be easy.
Dr Keith Turner is an electricity generator. Or rather his house is.
The Rotorua-born engineer was involved in the electricity industry pretty much all his working life - 50 years or so, including being chief executive of Meridian Energy and COO of its state-owned predecessor the Electricity Corporation of New Zealand.
He led organisations devoted to generating large quantities of electricity from big power stations and then shooting it all over the country over long stretches of wires.
But now, semi-retired in Tauranga (he’s still on several boards, including the power/broadband company Trustpower), Turner and his house are involved in sending power in the opposite direction - into the grid.
Thirty two solar panels on Turner’s house take energy from the sun and turn it into electricity. If there’s more electricity being produced than he needs at any particular time, the surplus heats a 600-litre hot water cylinder, which can feed the shower and underfloor heating.
If there’s still extra, Turner sells it into the grid.
If he needs more power than he can make himself, like when the sun doesn’t shine, he buys from the grid like everyone else.
During the winter, Turner reckons he cuts his power bills in half by generating some of his own electricity. In the summer, when the sun shines more and he doesn’t use so much power at home, he makes about $500 in profit. He’s thinking about joining Trustpower’s ‘solar buddies’ scheme, where you can sell (or give away) your cheap excess power to friends and family.
Turner - and his house - are part of a revolution in the energy sector. A revolution which has already transformed electricity systems from Australia to the US to Germany. And which is set to radically influence how New Zealand’s energy system works over the next 20 years.
But it's also causing no end of headaches for engineers and regulators tasked with enabling households and businesses to go from being customers to being suppliers and back again pretty much on a minute-by-minute basis.
Engineers like Turner talk about “distributed energy” or “distributed generation” - unsexy-sounding terms for a system which includes a multitude of small electricity generators or storage devices dotted (distributed) throughout the grid. They can include household solar panels, batteries, community wind turbines, or hydrogen fuel cells and they will increasingly add to, rather than replace a few big power plants at the ends of the wires.
Distributed generation can't solve the problem of a whole heap of cheap hydro electricity that at the moment goes to Tiwai Point, but in the future will be going spare. But it could help reduce the wastage when electricity travels long distances through power lines. And it could play a significant part in an energy future where renewably-sourced electricity replaces carbon-intensive oil, gas and coal, particularly in transport and factories.
The solar revolution
Around the world, the biggest component of distributed energy is people with solar panels on the roofs of their homes or workplaces. Internationally, household solar has taken off exponentially over the last decade.
In the sunny south-west of Western Australia, for example, almost 40 percent of homes (or more than a million houses) now have rooftop solar systems, and 2000 households a month are connecting up.
Customers in the region have invested more than $1 billion in electricity generation over the last decade, according to the WA government’s Distributed Energy Resources Roadmap.
And that’s because solar has bought their electricity bills down. Rooftop solar is the largest energy source in the region, with more than 1100 MW of installed capacity - three times as much electricity as the largest power station.
Our solar capacity
New Zealand is way behind. It's increased a lot since 2013, but still, from our 1.8 million or so households, we have only around 115MW of distributed solar capacity.
Solarcity, the country’s biggest solar energy company, has only 4200 customers. CEO Neil Cowie hopes to push that to 15,000 in 3-5 years. But still, our numbers are low.
A big part of the problem is cost. The economics of rooftop solar are still "nuanced" (read: expensive) in New Zealand, according to a report from grid operator Transpower outlining some of the challenges and opportunities of solar.
Our moderate climate means solar generation peaks in summer in the middle of the day, when domestic energy use is mostly at its lowest. And some places get significantly more sunshine than others. While Blenheim gets 2800 hours of sunshine a year (a third of total hours), Balclutha gets only 1600 (less than a fifth).
Then potential solar customers need to think about whether their roof is angled in the right direction and whether sunshine might be blocked by trees or buildings.
Electricity Authority general manager market design Rob Bernau urges consumers to be cautious.
"Anyone thinking about purchasing solar generation needs to carefully consider how much of the self-generated electricity they can consume and to what extent it will meet their needs year round, particularly during winter peaks."
Part of the problem is that while the price of solar panels has dropped dramatically, and efficiency has improved, the battery that allows you to store daytime power for when you get home in the evening is still pretty expensive.
Unless you run a business from home or have an electric vehicle or two in the mix (which saves heaps on petrol), it's often hard to justify the expense of a solar panel/battery combination.
Tipping the scales
Overseas, subsidies have tipped the scales. Australia offers a variety of incentives, including grants and interest-free loans. The South Australian Home Battery Scheme gives people up to $A6,000 to help pay for the installation of home battery systems, with higher subsidies available for eligible low-income households.
Another key way to incentivise solar is through so-called “feed-in tariffs”, which pay people generously for electricity they “feed into” the grid.
The Green Party announced this week that if elected, it will offer government grants to private homeowners to cover half of the upfront cost of a 4kW solar and battery system. The scheme will cost $269 million over three years, Green Party co-leader James Shaw says, but the party estimates it will save households $500 a year on their electricity bill.
New Zealand’s solar industry has been hamstrung, ironically, by the fact we are already pretty renewable when it comes to electricity generation.
Countries like Germany and Australia have promoted solar panels as a way to reduce their reliance on fossil fuel generation.
But New Zealand is in the smug position of making more than 80 percent of its electricity from renewable sources.
And when you compare the cost of installing new solar panels and batteries on people’s houses to the cost of producing electricity from our existing hydroelectric dams, it’s difficult to make the maths stack up.
“The problem is that with hydro, the plants are already built, so the capital is already sunk in the project,” says Richard Hobbs, general manager of strategy for Transpower, the company that operates New Zealand’s electricity grid.
This makes the cost per unit for that electricity comparatively cheap.
The embodied energy conundrum
There’s also the gnarly problem of ‘embodied energy’ - the energy (and emissions), required to make solar panels.
Canterbury University mechanical engineering professor Susan Krumdieck has little time for thinking of solar as a “saviour technology”
“Solar panels require extensive mining and processing of materials, so while the solar energy is renewable, the panels themselves are carbon intensive.
“The first generation of PV panels have been deployed without any plans for end of life recovery, disposal or recycling. The panels are starting to get to the end of their life, and nobody knows what to do with them, because they are toxic waste.”
An inefficient market
Meanwhile our pricing structure for electricity is a significant disincentive. Residential customers pay about 30 cents/kWH for their power, but if they sell solar electricity back, they get only eight cents.
Peer-to-peer markets, like the one where Keith Turner could sell power to his friends and family, can increase that to 15-20c/kWH.
But they are pretty small scale and early stage.
So why does solar work in Australia, but not in New Zealand?
Hobbs says even without the subsidy, solar’s still “half the cost” in Australia as here.
Competition, scale and a more mature market, Hobbs says.
It aint just about solar
‘Distributed energy resources’ isn’t just solar; it encompasses a raft of other cunning technologies, says Richard MacGeorge, a former infrastructure finance specialist at the World Bank, and now lead special advisor to the chief executive at Infracom, the New Zealand Infrastructure Commission - Te Waihanga.
These include smarter metering, smart appliances (heat pumps, pool pumps and electric hot water systems, for example) and - critically - battery storage.
Storage closer to home
On a local level, most newly-installed home solar systems now come with a battery, which can store electricity during the day when the sun is shining but often no one is at home. Then they release it in the evening, after the sun has gone down and everyone arrives back and turns on the jug, the shower and the computer.
Where batteries are too expensive, water tanks can play a similar role, as Keith Turner’s house shows.
Timo and Valerie Reitnauer have 12 solarcity-owned panels on their roof. These power their Waikanae home and run two electric vehicles they use for their home-based gift basket business We Love Local. Timo says his weekly electric bill is around $20 in summer, when there's lots of sun and longer days. It's $80 in winter, when they turn the heating on. But their power bill includes the electricity they use working from home and - critically - all fuel costs for the cars.
In the past, he reckons they spent around $500 a month on petrol alone.
Reitnauer says having a bigger battery would bring his bills down.
“In the evenings in the winter the battery kicks in when peak rates start, around 5pm and it probably lasts two and half hours, so we still have to pay for some power.”
For the time being, though, bigger batteries are just too expensive.
Using your EV to power your home
In the future, MacGeorge anticipates, the power stored in the Reitnauers’ electric car batteries could also be part of their overall household power mix - providing electricity as well as using it.
“Think about a battery like a buffer tank. So let’s say the EV [electric vehicle] battery charges during the off-peak times in the middle of the night when power is cheap. It might be able to supply some of the household needs in the morning when everyone switches on the lights and has a shower.”
Companies like Amazon and Google are already investing in home automation systems - mostly around lights, security systems and smart speakers.
But Turner says in the future, smart control systems will be able to optimise how the power goes in and out of your home - working with electricity tariffs, storage batteries, weather forecasting software, and your family’s historical electricity usage patterns.
I see a power industry where the management and the manipulation of data is going to become a very big part of the future game.
“My optimiser might tell me my battery’s only a quarter full and electricity prices are low, and it can gauge that over the next five hours prices are going to rise. So it’s going to buy power for me now and fill up my battery quickly.
“But on the other hand, it might be that prices are actually going to go down. In that case, it’s going to let me use my battery right up, and then buy when prices go low.”
“I see a power industry where the management and the manipulation of data is going to become a very big part of the future game.”
Think what’s happened in broadcast media. A generation ago, TV programmes went from a few large media production and distribution companies to the consumer sitting on the couch. Now there are multiple media channels, and punters can contribute as well as consume.
Transpower’s Richard Hobbs predicts that by 2030 there will be more than 2 million smart appliances across this country interacting with the electricity network in real time - and 4 million by 2035. That will include 1.5 million electric vehicles.
Heat pumps could play a big role.
Imagine a winter evening peak electricity period. If usage spiked the power retailers would simply turn consumers’ heat pumps down a couple of degrees for a few minutes.
Consumers would receive a payment to compensate.
“The market is still quite young - we’ve barely scratched the surface of the potential value there, but it’s coming,” Hobbs says. “In time there will be significant opportunity for consumers to realise value through their energy resources, be they batteries, solar, electric vehicles or smart appliances.”
And that means “a significant opportunity in the future to alleviate the pressure on the lines networks, and also on generation”, he says.
“I think we could start realising some real value by 2025 in the space, and the market will be fairly well developed and mature by 2030.”
What about wind?
Wind isn't economic at a residential level, says Grenville Gaskell, chief executive of the NZ Wind Energy Association. (Even if it was, there are a few problems with putting a wind turbine on your suburban plot, he says, like trees, neighbours, noise - and whether the wind blows enough in your garden.)
But Gaskell says there's good opportunities to see more small wind generators going in on farms, into some commercial operations and in rural communities.
"We are keen to support more wind farms at a local level," Gaskell says. "These would not be big wind farms like the ones being built by Mercury Energy and Tilt Renewables, although these are still needed. They would be smaller scale turbines to power a community."
Gaskell says wind tends to provide a consistent source of power and is particularly good when it comes to managing winter peaks.
But local wind generation is stymied by a "one size fits all" consenting process, which makes it very expensive and complicated for a small project to get off the ground, he says.
"Social enterprise Blueskin Energy tried to get a consent to develop an 800kW, three-turbine project in the South Island, but couldn't get a consent. It was a long and expensive project and in the end the consent was declined."
On the other hand, Christchurch-based renewable power developer Energy3 has had more success with its small-scale Weld Cone wind farm development in Marlborough.
No gain without pain
Even with solar panels, where consenting is far less of an issue, the transition isn’t going to be without pain. But in this case, much of that pain is potentially going to be felt by the existing industry players - the ones with the billions of dollars-worth of existing electricity infrastructure embedded in the system.
In a paper entitled “Disrupted infrastructure - the case of the unemployed power station”, MacGeorge argues renewable energy and “the revolution of solar photovoltaic generation” will increasingly make thermal power plants redundant.
“Grid-connected batteries could flatten the peaks significantly," MacGeorge says. And because energy infrastructure is usually designed for peak demand, this could enable companies to make significant savings.
Still, existing power companies operating with traditional business models could need to adapt as buildings become “zero energy” and eventually “net energy producing”.
"This could challenge utilities even further as electricity networks change their orientation towards enabling energy swaps from one household to another using, for example, blockchain,” MacGeorge says.
Microgrids are on the rise
A New York-based project, the Brooklyn Microgrid, already allows a group of residents with solar panels on their roofs to trade electricity with each other via blockchain, by-passing the traditional network.
There are similar projects in Australia, Germany and Bangladesh.
In Otago and Southland, not-for-profit electricity retailer Blueskin Energy Network is working https://www.blueskinenergynetwork.nz/faq/on peer-to-peer and “vehicle-to-grid” energy transactions.
Distributed generation will really come into its own once New Zealand starts getting serious about reducing our climate change emissions and getting to net carbon zero by 2050, Hobbs says.
The Green Party's pre-election announcement at the weekend includes a $537 million plan to create a "virtual power plant", by installing solar panels and batteries on 30,000 State homes and then sharing the electricity generated with other households.
The announcement follows a Transpower report released in March, which argues for a massive electrification of our economy to replace oil, gas and coal used in transport and as a heat source in factories, with electricity.
“New Zealand appears to be unable to meet its climate change commitments without electrifying its economy with low-emission, renewable electricity,” the report says.
The national grid operator believes nearly 60 percent of our total energy requirements will be from electricity by 2050, up from 25 percent in 2016. For that we are going to need a 68 percent increase in electricity generation over the next 30 years.
Of course, Transpower would say that. It’s like an apple producer urging us to eat more fruit so we can be more healthy and live longer.
Even this month's announcement of an end to aluminium production at the Tiwai Point smelter, which uses up to 13 percent of New Zealand's electricity, won't be nearly enough, Transpower says.
It will also require expanded transmission capacity to move surplus electricity from the Manapouri hydro station north to where the demand is, it says.
We need resilience
Christchurch-based future strategist Roger Dennis argues decentralised power is the “logical response to de-risking climate change”. For example, he worries about our heavy reliance on hydro power if rain patterns change significantly.
You aren’t going to replace hydro dams, but you could mitigate the need for coal-fired peak electricity and increase resilience in the system.
Boosting solar and other distributed energy sources is about increasing resilience in our electricity system, he says.
“There’s always a trade-off between resilience and efficiency. If you have a very efficient system, you have little resilience - and vice versa.
“But resilience is what the world needs right now.”
We’re not talking rooftop solar versus hydro, but both, Dennis says.
“You aren’t going to replace hydro dams, but you could mitigate the need for coal-fired peak electricity and increase resilience in the system.”
How much of our future power could come from rooftop solar?
Maybe 20-25 percent of the power we need - if we got at least 50 percent of households to install panels, Turner says.
And would that completely stuff up the network?
Not necessarily, Hobbs says.
“In simple terms, we could accommodate 4-kilowatt solar systems on a million Kiwis’ roofs if we also have the right level of investment in distributed batteries.”
Rob Jamieson is chief executive of Central Canterbury lines company Orion. He says adding hundreds of thousands of customer generators and potentially millions of smart gadgets while at the same time avoiding crashing the system means lines companies like Orion will need to get smarter.
"At the moment we are an asset owner. But in the future our role will also be as a distribution system operator." Lines companies will play a key role managing the power going through their networks - to, from and between customers, Jamieson says. And that will need a pretty sophisticated system of sensors, smart meters and other equipment to measure and transmit data about what's happening on the network.
"We've got a few years before [distributed generation] is going to be a significant thing, but we need to prepare our network so there is far more visibility about what's happening at the customer end of the electricity system. It's an exciting opportunity, but we need to get it right."
The right regulation
Oh, and most players say we need a pretty major revamp of the regulatory system and the pricing models.
“Good regulation leads to the right signals to the market, and utilities respond to those signals,” Hobbs says.
At the moment, price signals largely encourage consumption.
That’s crazy, even for the electricity generators and distribution companies.
Most people Newsroom talked to for this article agreed there needs to be a major change to the way we set electricity prices, so they send better signals to the market.
The problem at the moment is most transmission and distribution costs are rolled up with generating costs into one cents-per-kilowatt hour charge for customers - often 30 cents/kWH - set by the retailer.
But that price doesn't reflect the cost of electricity at a particular time.
On a warm summer's day, for example, with good hydro lake levels, the cost of producing electricity won't be anything like 30 cents. This sends the wrong signals - both for consumers and for investors.
Take Turner and his solar powerhouse.
“I can put solar panels on my roof and save 30 cents a kilowatt hour. But actually, of that 30 cents, 40 percent of it is fixed cost.”
And that's fundamentally unfair because the present pricing structure means people with solar panels aren’t paying their share of the fixed infrastructure - the lines and the power poles etc. And that means, the more “haves” (households with solar panels) there are, the more the “have nots” are left stumping up for more than their fair share of the fixed costs.
Rob Bernau says it's something the Electricity Authority is very aware of.
"The authority recognises the benefit of efficient network alternatives, but seeks to ensure that network pricing reflects the (mostly fixed) costs of being connected and having access to the network."
Most people won't want to go off-grid, however much power is coming off their roof, so there needs to be a fair way to allocate the costs of basic infrastructure.
"Our focus on efficient prices includes our transmission pricing methodology review, distribution pricing project and real-time pricing. All these projects aim to ensure efficient electricity-related prices for consumers," Bernau says.
“The technology is changing faster than the institutional structures” - Keith Turner
Split pricing is already happening in one part of the central North Island. Turner gets two power bills for his holiday home on the shores of Lake Taupo - one from Te Kuiti-based distributor The Lines Company, one from Trustpower.
It’s a more equitable model, he says.
Orion's Rob Jamieson says the distorted signals from bundled pricing have the potential to stymie investment in cheap electricity alternatives like wind or distributed generation.
Turner says most international infrastructure network regulators are not responding quickly enough - and New Zealand is no exception.
“The technology is changing faster than the institutional structures.”
Turner sees two other sticking points.
First, making sure distributed generation integrates easily into the system.
“The rules of the market were designed for big generators offering their electricity to the market and discovering price on the supply side. There’s no provision for lots of little generators offering themselves to market. We need rules to allow the small ones to be able to offer their energy to markets and supply a very fast response.”
Avoiding the Betamax/VHS problem
The second thing Turner says a regulator needs to be looking at - and soon - is standards around solar. Home owners need to be sure their panels and batteries are reliable, safe, and won’t fly around the neighbourhood in a storm.
At the same time there needs to be a common connection standard.
Without that you’ve got a potential VHS/Betamax video player problem - solar systems, particularly batteries, that use different ways of talking to the grid.
The Electricity Authority is monitoring the need for standards in its Open Networks Project, Bernau says.
And Orion's Rob Jamieson says New Zealand is in the enviable position of being a fast-follower, not a leader internationally, with the opportunity to make use of work around technical equipment standards going on overseas.
"I have real confidence this is being managed and we will get the benefits without doing all the work."
Move over big power
MacGeorge says once industry structure, regulation and pricing is right, the private sector could start to have an increased role.
Dennis sees solarcity as one of the most interesting players in the distributed generation space in New Zealand at the moment - providing innovation around both the pricing and the ownership model.
But there will be plenty of private sector innovation in the future.
US clean energy and electric vehicle company Tesla has started manufacturing what it calls a “solar roof” - normal-looking grey tiles that are fully functioning solar panels.
And researchers at New Zealand’s own MacDiarmid Institute for Advanced Materials and Nanotechnology are looking further.
“Imagine flexible, bendy solar panels, supple enough to skim a curved roof, pliable enough to be rolled up and transported easily, lightweight enough to be a thin film for the roof of a tent, and portable enough to be rolled out to generate power for emergency relief operations or taken into remote areas," says MacDiarmid's Professor Justin Hodgkiss.
The team is also working out how to create solar panels so black they don't 'leak' energy.
And Turner? Turner is just frustrated he’s at the end, not the beginning, of a working life in the electricity industry.
“I remember when I was little, and to make a phone call you used to dial up on a party line, and it was a one-way thing and there was a lady sitting in an office somewhere pulling the plugs. And look at telecommunications now.
“It’s going to be the same in electricity. It’s going to explode. Electricity is going from being a very mundane, coal fired power station, transmission line, distribution line business, to being a multi-directional, multi-data, massive data, information system.
“I just wish I was starting my career again.”
The ‘Beyond the new normal’ infrastructure series is a content partnership between Newsroom and Infracom (NZ Infrastructure Commission, Te Waihanga). Infracom seeks to lift infrastructure planning and delivery to a more strategic level and by doing so, improve New Zealanders’ long-term economic performance and social wellbeing. It is developing a 30-year strategy for infrastructure and invites input from anyone interested in the future of New Zealand’s infrastructure.
The first article was ‘Home is where the water is’
Newsroom would like to thank the following people for their input into this article: Electricity Authority general manager market design Rob Bernau; Solarcity CEO Neil Cowie; future strategist Roger Dennis; NZ Wind Energy Association CEO Grenville Gaskell; Transpower GM strategy Richard Hobbs; Orion NZ CEO Rob Jamieson; Canterbury University Professor Susan Krumdieck; Infracom special advisor Richard MacGeorge; Environmental Defence Society chief executive Gary Taylor; and Trustpower board member and former Meridian Energy CEO Dr Keith Turner.
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