Consumers in Australia can expect billions worth of increases in energy transport costs after a watchdog said a “quantum leap” was needed in spending on poles and cables to cope with the shift to renewable energies.
Key points:
- Experts say tens of billions of dollars in additional spending on poles and cables will be needed
- An economic watchdog has ruled in favor of $1 billion in extra spending by WA’s utility network
- Across Australia, grid providers are being forced to seek big increases in funding to deal with the rise of renewables
In a decision heralded as a landmark, Western Australia’s economic regulator this month said the state’s main electricity grid provider should be able to spend $9 billion over the next five years, $1 billion more than that he asked
The chairman of the Economic Regulatory Authority, Steve Edwell, said the draft decision reflected the urgent need for upgrades to Western Power’s network to ensure it could cope with increased flooding from ‘renewable energy in the system.
But Edwell, who was also the inaugural chairman of the Australian Energy Regulator, said it was also a sign of things to come across the country, where pole and cable companies face a race against time and a huge increase in costs to ensure that they can keep up with the energy transition.
“The period between now and 2027 is critical,” Edwell said.
“We have to get it right and we have to make sure the grid is in the best possible shape to allow this transformation to continue apace.
“That’s the broad context and it’s a context that can be repeated across the country.
“With the arrival of a lot of new technologies and the generational mix changing fundamentally rapidly, we are in a different paradigm.”
Much of the need for additional spending is being driven by the rapid uptake of rooftop solar panels. (Provided by Project Symphony)
Across Australia, pole and cable companies that carry electricity between generators and consumers have their spending plans reviewed by regulators.
This is because network providers are considered to be what are known as natural monopolies, which would otherwise not face competitive pressures in their spending and pricing decisions.
The biggest changes on a small scale
According to its draft determination, the ERA said Western Power’s five-year spending plans to 2027 could increase significantly compared to the past five years.
The watchdog noted that while much of the increase was explained by the effects of inflation and higher interest rates, there also needed to be a “material bump” in spending on new parts.
Chief among these were renewable technologies such as medium- and large-scale batteries to help “firm up” the grid as the amount of wind and solar power on the grid increased.
But Edwell said there was also provision for smart meters, which gave those responsible for keeping the lights on much greater visibility into things like rooftop solar output.
The growing complexity of the power grid has increased spending on cybersecurity. (Unsplash: Taskin Ashiq)
On top of that, Western Power could spend more to put power lines underground to reduce the risks of storms, floods or wildfires, while the power company could speed up the deployment of so-called autonomous power systems in regions and regions. remote areas
Crucially, Edwell said there would also be room for a big increase in spending on cyber security, an area identified as a key risk as things like smart meters made the grid more vulnerable to attack .
As a result, it said Western Power’s capital spending would increase from $2.9 billion between 2017 and 2022 to $3.7 billion over the next five years.
“What’s happened is that the distribution system, the little poles and wires, didn’t have a lot of visibility before,” he said.
“In some ways, it has been the quiet part of the network – all the action is happening upstream in the transmission area.
“What’s happening now with so much solar PV and bi-directional flows and then battery storage … is that the owners of the distribution grid need to have a lot more visibility into what’s going on in that part of the grid “.
The precedent “doesn’t go far enough”
Matt Rennie, a partner at Brisbane-based renewable energy consultancy Rennie Partners, said he agreed with the need to increase spending on networks but doubted the ERA’s decision went far enough.
He said that once inflation was removed, Western Power’s allowable spending was flat or even lower compared to 15 years ago.
Rennie says the pressure for a “step change” in network spending comes from two sources.
One is the broad move to electrify Australia’s economy, which he says will require a massive increase in demand for resources and workers.
Second, and just as important, was global warming, which Mr Rennie says will require a significant increase in spending to ensure the grid is more resilient.
Matt Rennie says the network is facing big changes and spending needs to keep up. (Provided by: Rennie Partners)
“I’m of the opinion that they (Western Power) should have asked for more and been given more,” Rennie said.
“We know those two things are coming, there’s no debating them. The only question is, ‘When are they coming?'”
According to Rennie, there is a disconnect between the ERA’s statements about the need to increase spending on networks and its decision on Western Power’s latest access deal.
The “extreme change” will not be cheap
He says the mismatch suggests Australia’s regulators will need to change their thinking about what is required to deal with a once-in-a-century grid transformation.
“The most interesting thing about the access agreement decision to me is that the ERA says they allow for transformation in the future, but there is no increase in actual spending levels,” he said.
“I think our whole system looks back to predict the future.
“And I think the only certainty we’re going to have in the next 10 to 15 years is that everything is going to change.
“The other thing is that the grids in the east have been dealing with bushfires, storms, floods, cyclones that point to the need for grid resilience spending.
“It means that climate change has a cost. And it means that global electrification has a cost. But those costs cannot be avoided.”
Electricity has never been more important to the modern Australian economy. (ABC News: Andrew O’Connor)
Edwell says the ERA will make a final decision in March.
In the long term, he says, regulators will have to deal with competing needs to address the energy transition while protecting households and businesses from unnecessary spending.
“This should be a concern for regulators,” Edwell said.
“It was definitely a problem for us here.
“I just don’t think it’s well appreciated by the average consumer — the very extreme nature of this transformation.”