OpEN for business – but not just yet

The first phase of the Open Energy Networks program (OpEN) came to a close with the release of a position paper last week. Unlike most releases in the energy space which promise bright futures of renewables, storage, natural gas, hydrogen or whatever the authors’ technology/fuel of choice happens to be, this hit a rather downbeat note by coming to the conclusion that a full-scale rollout of distribution markets can’t be justified at this stage.

The program, which is a joint project between Energy Networks Australia and AEMO (though the report, which also contains a bit of judicious lobbying on behalf of the networks is clear that it is purely an ENA point of view) looked at different options to create a more dynamic energy sector at the distribution level. Key to this were the creation of two new roles, the distribution system operator (DSO) and the distribution market operator (DMO).

The DSO manages the network within the technical constraints of the assets, identifies when network issues emerge and act to manage these issues. The DMO orchestrates the market in energy, network support and other services amongst distributed energy sources (DER) such as rooftop solar and batteries. In doing so, it interacts with the main wholesale market so that supply and demand balances across the whole system and settles at the lowest price (note that there will be 13 of these distribution markets, assuming one for each current distribution network).

Where these respective roles should sit were tested by modelling the costs and benefits of four different options:

  1. An AEMO-based single integrated platform (SIP) that co-optimises across wholesale and distribution markets
  2. A two-step tiered platform (TST) where the distributor controls their own network and the platform for trading services on that network and then provides the aggregate outcomes to AEMO who factors these into its wholesale market dispatch.
  3. An independent system operator (IDSO) that is neither AEMO or the distributor, but would need an interface with each of these parties.
  4. A hybrid of options 1 and 2

Although the options had different costs and benefits, the headline result is that the high upfront costs of setting up the platforms outweigh the benefits until around 2039 – unless there is a step change in the rate of DER take-up by customers. The hybrid model was the most promising option.

The conclusion was that instead of diving in to setting up the DSO role and the DER market, the networks should focus on some “least regrets” next steps that will help them manage the network in any case as well as lay the groundwork for moving to DSO/DER when the cost/benefits are more favourable. These include:

  • Defining network visibility requirements and network export constraints through real-time monitoring;
  • Industry guideline for operating envelopes for export limits;
  • Defining communication requirements for “operating envelopes” – these are the states within which the distribution network can operate securely, and;
  • Continuing with tariff reform.

As the grid develops and as other reforms such as the two-sided market are implemented, conditions may emerge that allow the bottom-up emergence of market-like platforms. These would be developed by competitive businesses such as retailers and aggregators. Providing interoperability issues can be overcome, these could ultimately provide a much cheaper route to developing DER markets than the regulated models envisaged in the position paper.