A friend asked me to explain how it all works from a technical and economical perspective. So here is my take on a simple explanation of how the electricity grid works in Australia.
I like imagining the electricity grid like a water network.
The Transmission & Distribution Network
The big overland powerlines (275,000 V) are like large pipes. Then you have the substations that divert some of this power off into smaller pipes (going from 132,000 V to 66,000 V to 33,000 V to 11,000 V to 400 V power lines you see in the street). These deliver the power into our homes at 230 V (3 phase and single phase look after that). The voltage is basically with how much “pressure” the electricity flows through them. In Queensland Powerlink looks after the high voltage transmission lines while Energex & Ergon manage the distribution lines. All are owned by the state.
Transformers change the voltage, they are a bit like valves to regulate the pressure to make sure the right amount of power is passed onto the smaller pipes.
The “pressure” (Volts) reduces towards the end of the lines. Distributors need to balance the voltage at the beginning of the line with the voltage at the end of each line. This is due to resistance in the lines, which leads to losses. The official range in Australia is +10% and -6% (252 V max and 216 V) with 230V being the perfect target.
Electricity Consumption
The other complication is that the amount of electricity that flows through the grid varies . Most electricity is used in the mornings between 6 and 9 am (when many people get up, cook breakfast, turn on airconditioning, etc.) and in the early evening between 5pm and 9pm.
In addition, there are freak events (like really hot weather), where suddenly more power is required because everyone takes the same action (e.g. turning on air conditioning).
So the transformers need to be sized in such a way that they can deal with the peak demand (which often happens on less than 4-5 occasions per year). This is one of the reasons the costs for the grid are so high.
Electricity Charges
About 50% of what we pay for electricity pays for the grid. You might have seen the option to have “controlled load” which provides power only at certain times, but it is cheaper. This is mainly used to move some of the flow of energy to times when there is little overall demand.
Most tariffs charge a daily “connection charge” and a usage amount per kWh (consumption charge). There are also a range of other tariffs (especially for larger business users, but Energex is planning to introduce them to residential customers as well). They are made up of 3 charges and introduce the “demand charge”.
Demand charges are calculated based on the highest electricity usage in a half hour period each month. It distributes the costs of building a grid that can deal with the spikes to the users who create the biggest spikes.
On the demand tariffs, the consumption charge is lower, sometimes substantially (e.g. 0.5c , instead of the normal 8c per kWh).
Electricity Production
For the grid to have electricity to transport, it needs to be generated. It is like water being tipped into the pipes.
In Australia, we have 20 coal fired power stations and about 150 gas fired power stations. There is also some hydro and other large scale renewable power generation, but basically only a few large, centralised generators. Some are state owned (especially in Queensland), some private. For them to know how much power to generate, AEMO (the Australian Electricity Market Operator) sets the electricity prices for each 5 minute period. (They are then settled at the half hourly average, which will change to 5 min settlements in 2022).
Over the last five years, the average price in Queensland has fluctuated between 6c and 12.5c per kWh (in the water example, litres are the equivalent to kWh or the volume of electricity actually transported through the grid), but it can go up to $140 per kWh or go negative (down to -$10), which means producers need to pay to push power into the grid and whoever consumes it gets paid.
Retailers
This brings the energy retailers into the picture. They manage the variability of costs and bundle it all up into one simple cost per kWh that does not change over the course of the contract term.
They also take care of some additional mandatory charges such as loss factors that are calculated by estimating how far electricity travels to get to a site; and the renewable energy target charges that mandate 23.5% of our energy to come from renewable resources in 2020.
Anyone who produces renewable energy basically sells the right to say “I am using renewable energy” to consumers. Retailers have to buy these rights to reach the mandated renewable energy target. In addition, the green power scheme allows individual consumers to offset up to 100% of their own usage.
(These rights are called LGC’s for large scale solar systems and STC’s for smaller rooftop solar).
Just as water from different sources gets mixed up in larger rivers or pipes, so does electricity.
The retailers use some other risk management tools (such as futures and options) and they go into long term contracts with generators (where prices of about 5-6c per kWh are possible) or even invest in generation themselves to firm up pricing.
There are innovative retailers now that have unbundled these costs and make the spot prices available to consumers. At my office, we are using Powerclub.com.au and have been able to substantially reduce the costs to us.There is also Flowpower.com.au for large business customers. It is essential that you understand your own energy consumption patterns before deciding that this is a good choice for you.
Rooftop Solar
The grid and pricing mechanism were developed for large centralised production that dealt with a largely predictable consumption pattern.
Rooftop solar is the complete opposite. Imagine all these water taps that normally spout out water to suddenly having the ability to suck water back into the pipe. One consideration is that they need to do this at higher pressure than what is in the pipe, so that it goes in.
This means, a solar system inverter has to measure the current voltage in the grid and transform the solar energy to a voltage slightly higher (provided it is not greater than the maximum allowed 253 V), so that it can be pushed into the grid. Once the maximum voltage is reached, inverters just switch off and the energy is not only lost, but any electricity used in the house is now imported from the grid. (There is a standard AS4777.2:2015 which tries to be a bit more discerning of how inverters need to deal with this. But in the end, renewable energy is lost.)
The other complication is the highly variable output of solar systems. Imagine a sunny day with a single cloud sailing over a suburb. All of a sudden, all these exporting solar systems stop exporting and instead the flow of energy is reversed. The grid needs to be flexible enough to manage that.
Frequency
In addition to an impact on voltage, the frequency of the grid is also affected. In Australia it is 50 Hz (our devices are designed to be “tuned” to 50 Hz. Just as your radio sounds great when it is tuned to a station and loses clarity when you have a slightly wrong frequency, our devices suffer when the frequency of the grid is not stable).
There is a pricing mechanism called FCAS that helps to manage this. Large scale batteries are excellent in fast response to offset that (and it was a large portion of the profits that the Tesla battery in South Australia made). In addition there is discussion about large scale demand management rewards where large consumers get paid to turn their consumption on or off as required by the grid.
Peer to Peer Trading
Retailers offer a Feed in Tariff for solar power that is exported into the grid. This starts at 8c and goes up to 16c (Energy Australia is offering that at the time of writing in Queensland)
Some commentators have criticised retailers for paying such low feed in tariffs when they are selling that same energy at much higher rates (22-26c). I think this is not the right view and in fact consumers who export more electricity than they import, create a loss for retailers through the feed in tariff. Overall, it must be seen as a marketing cost to attract clients.
Why? Because energy can be bought more cheaply elsewhere and most of the grid and other charges still apply.
Where does that leave peer to peer trading? In the current market, it would not lead to exporters getting more, because the importers still have the grid charges to pay.
Decentralised Solutions
So it is the grid charges we need to look at to make peer to peer trading viable. The single biggest driver for that should be the voltage. We want a grid at 230 V. Anyone consuming energy reduces that (remember the water? Removing water from the pipe reduces the pressure) and anyone producing energy increases it (adding water increases the pressure).
In the past, there has been far too much focus on the production side to manage the balance. This is slowly shifting to the consumption side, but the same large scale approach is taken (large consumers can be rewarded for the right behaviour).
The real solution should be a decentralised system where autonomous consumption (especially hot water heaters, pool pumps, freezers and air conditioning) and decentralised production assets (solar, wind) all help to keep the grid stable.
Any device that pulls the grid voltage to where it should be is rewarded, any device that does the opposite pays for these rewards.
Batteries are both (consumers and producers) depending on whether they store or release energy.
Companies like Red Grid are already working on the Internet of Energy that will make this possible.
Vision for Noosa
The longer term vision for Noosa Power is to turn Noosa into a testbed for this smart grid of the future. We want to showcase that it is possible to run a whole suburb on 100% renewable energy and do that while reducing costs for everyone involved. We want to use smart technology to minimise the impact on our habits. And we want to increase awareness of how the grid operates so that conscious choices lead to positive outcomes.
We see this much more worthwhile as a community effort instead of making individual homes self sufficient. By orchestrating the production and consumption of electricity between neighbours, streets, suburbs, we can take advantage of varied usage patterns and minimise the cost of storage.
We want to use the grid as a great asset that we own as a Queensland community and hope to gain the support from Energex to make this possible.