The proposition that it is time was advanced by Lachlan Blackhall whose views are greatly respect. The question to be asked, however, was why we ever thought the VPP model made sense. Back in the days when Energy Networks Australia (ENA) was interested in broader policy issues their Electricity Network Transformation Roadmap was developed with extensive consultation.
A question frequently posed at workshops was how 'value' was captured. That is, of course, management consultant speak. Economists define value very differently. But the essential concept comes down to a pricing question. If an action by person A creates a financial benefit for person B, how do we provide and incentive to A with a share of that benefit to itake the action.
I this language, the problem with VPPs is that they only capture the value created in the whlesale energy market. They are blind to the benefits (or costs) that they might impose on distribution networks.
The ENA Roadmap identified the way to capture the network value was distribution level markets:
Establish active distribution system operations and markets for technical stability and optimising investment by procuring distributed energy resource based grid support. Evaluate cost benefit analysis of procuring these services through a digital market platform.
The contemporaneous Australian Energy Market Commission (AEMC) Distribution Market Model asked ENA to:
explore what minimum level of control DNSPs need to have over distributed energy resources in order to enable higher levels of distributed energy resources for future distribution level markets,
The combined result was Open Energy Networks, an ENA and Australian Energy Market Operator (AEMO) joint project. That this project never landed a single tangible outcome reflects, as far as I can see, the inappropriateness of AEMO as the partner in the project.
AEMOs one job (in electricity) is to operate the energy only market. Other functions exist in support of that, e.g. ancillary services markets, short term demand forecasting. Because of AEMO's forecasting expertise they were assigned the function of long term network planning - the Integrated System Plan. They know nothing about distribution networks. (Note that the AEMO forecasting expertise gets in the road of long range planning because they confuse forecasts and scenarios - the long range expectations shouldn't look like any of the scenarios. Scenarios are boundary conditions, the outcome is somewhere in nbetween).).
That VPPs were a dead end was known to everybody. I'd suggest even the retailers who promoted VPPs knew they were a dead end, but they were the right strategy to ensure DER caused minimum disruption to their business model - primarily the generation side of their businesses. Their business model relies on the simple fact that in the wholesale energy market there is only one buyer - AEMO. Generator bid strategy is much easier with the specification of the required generation in five minute intervals than in the face of demand schedules bid by consumers.
Yes, I am suggesting that the gentailers actively promoted the VPP model because they knew it would fail and that it would forestall the development of the Distribution Market.
In the interim between the 2017-18 work referred to above we have had the ESB's disastrous Post 2025 Market work, and we have more recently had the NEM review. AEMO is acting on the one piece that they can contribute - making access available to the standing data held in the DER register.
There are simple remedies to avoiding a repeat of these policy and implementation failures, and they start with Governance.
1. The Commonwealth should use its corporations, foreign affairs and national security powers to take full legislative responsibility for energy. ideally the States will refer powers just to make it robust. The model of key decisions being made by a collective of energy ministers is anti-democratic (the legislation is never fully debated in any parliamen) and demonstrably fails.
2. Create an Australian Energy Agency that has all the powers of the AEMC plus the power to self-initiate rule changes plus the long term planning functions of AEMO, and all the AER functions except price setting (of distribution networks or default retailers).
3. Rewrite the Australian Energy Objective to simply state 'Manage the transition to a zero carbon energy system at least cost to consumers, while at least maintaining reliability and quality of service.' All the qualifiers used in the current objective are unnecessary - they are all just dimensions of reliability (meaning energy is available when i want it) and quality (electricity is at the right voltage and frequency).
4. Redesign the wholesale electricity market model so that all 'demand side' connection points bid into the market with a price schedule. Appoint a Distribution Market Operator for each demand side connection point - depending on model choices this is either a separate agency, the DNO, or the default retailer for the distribution area.
5. Recreate default retailers for each distribution area that is regulated in some way (could be by auctioning the right to be the retailer) - move the competitive model to energy system service providers, people who manage whatever a household has to be managed, and trades in the distribution market.
6. Recover fixed network costs measured as the minimum cost of providing the distribution network for street lighting and other public goods (NBN nodes, traffic lights) from land taxes (i.e. charge LGA councils).
That is a model that has a chance to work. But reform has to start with the governance model.
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Life is what happens while you are busy making other plans JWL
Life is what happens while you are busy making other plans JWL
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