Essential Services Commission – Value of distributed generation

ESC – Essential Services Commission of Victoria

May 10
Essential Services Commission – Value of distributed generation

As reported in February 2016, the Essential Services Commission (ESC) is currently undertaking a review of the energy value of distributed generation (DG) which will be followed in the second half of 2016 by a review into the network value of distributed generation.

On 6 May, the ESC published its draft report.  The ESC defines the energy ‘value’ of DG as “equal to the wholesale market price at the time of the export, adjusted for (i) the cost of line losses that would have applied at the location of the distributed generator, plus (ii) an amount to account for the market fees and ancillary charges (which vary each year) avoided by not purchasing that electricity via the wholesale market”.

In the report, the ESC proposes that the pricing framework should be amended to allow the setting of multi-rate FiTs so that payments can vary based on the time and location of DG exports.  This translates into 11 draft recommendation on how the FiT could be managed to better reflect the economic, environmental and social benefits of DG.

Recommendations include:

  • Eligibility for FiT payments: Solar photovoltaic (PV), wind, hydro and biomass remain eligible technologies up to a generating capacity of 100kW.
  • Multi-rate FiT: a framework that allows for a time and location varying FiT that more closely reflects the underlying wholesale price of electricity.
  • Time-varying FiT: a multi-rate FiT to align with the time blocks operating for flexible retail prices, e.g. peak, shoulder and off-peak, supplemented by a ‘critical peak’ tariff that would be paid when the wholesale price of electricity is equal to or exceeds $300 per MWh.
  • Environmental and social value: should be reflected in an output tariff paid to a distributed generator based on the output of the distributed generation system, such as for solar and wind systems.

The ESC is now entering into what it describes as an extensive round of consultation across the state, taking the form of public forums, working groups and written submissions.  Responses to the draft report are to be provided by 3 June 2016.  The final report is due in August 2016.

The review into the network value of distributed generation begins with a discussion paper in June 2016 followed by a draft report in October 2016 and a final report due in February 2017.

Background
In recent years, Victoria has operated a single, flat Feed in Tariff (FiT) at all times of day and across the whole state. The payment made is the same irrespective of whether electricity is being delivered at a time of high demand or at a time when supply is in abundance.  Similarly, FiT payments do not account for regional differences, e.g. where a considerable amount of electricity is lost as it is transported across the State compared to areas where electricity can be delivered with significantly fewer losses.  As such, the current FiT arrangements do not provide a price signal that distinguishes between investment in distributed generation in areas or at times of the day when the electricity produced (and exported) provides the greatest benefit.

The ESC’s is tasked with identifying the various direct and indirect benefits resulting from distributed generation electricity and, to the extent possible, place a monetary value on those benefits.  It is then to provide advice to Government on how those monetary values might be reflected in an appropriately designed payment mechanism.