The state of things: pace of progress towards electrification

Earlier this year, we talked about the electricity sector needing a plan to coordinate a highest value and least cost transition to a low emissions future.

We talked about how a flexible electricity system is a cheaper electricity system and the importance of upgrading the regulatory settings so households and businesses can maximise the value available from distributed energy resources (DER).

We talked about some immediate priorities and the desirable features of a plan for unlocking the value of DER and flexibility and to accelerate electrification. 

We talked about urgency.

Now, let’s talk about a plan 

We now want to talk about the plan to unlock the value of DER and flexibility and how both can help with accelerating electrification.

We want to talk about the vision for the future. The outcomes needed to unlock the value of DER and flexibility. The priorities for achieving those outcomes. The approach.

There has been some progress 

There has been some progress this year towards developing a coherent and coordinated plan for unlocking the value of DER and flexibility and to accelerate electrification. For example:

  • the Commerce Commission published an open letter on ensuring our energy and airports regulation is fit-for-purpose on 29 April 2021 asking for views on emerging issues for electricity networks and the priority for responding to them, particularly relating to the input methodologies review to be completed by December 2023;

  • Wellington Electricity published its EV Connect draft roadmap in May 2021 asking for input to inform a final roadmap which articulates the steps required to support EV adoption and accommodate EVs onto the electricity network;

  • the Climate Change Commission handed the government its advice on 31 May 2021 on the first three carbon budgets and 2022-2025 emissions reduction plan. Among its broad-ranging recommendations were actions to decarbonise the energy system and ensure the electricity sector is ready to meet future needs;

  • MBIE asked on 3 June 2021 for input into the energy and industry component of an emissions reduction plan. The emissions reduction plan is meant to describe the settings, policies and strategies for meeting the carbon budgets, focusing initially on the 2022-2025 budget;

  • the Electricity Authority published a discussion paper on updating the regulatory settings for distribution networks on 27 July 2021 asking for views on issues with regulatory settings for distribution networks affecting the transition to a low emissions economy; and

  • the Aotearoa Circle announced progress on a  Low Carbon Energy Roadmap to 2050 intended to inform the proposed Energy Strategy by defining a pathway to a low carbon energy system that ensures energy security, affordability, a healthy environment, and a just transition.

Various distributors, retailers and energy sector investors are also trying things out.

But, progress has been fragmented

But progress has been fragmented with no obvious coordination of the activities listed above to ensure the most important tasks are being undertaken in the right sequence with appropriate urgency.   

There is not yet a coherent and coordinated plan listing the actions required to accelerate electrification and decarbonisation. Several parties are at work on parts of a plan – the Electricity Authority, Commerce Commission, MBIE – each concentrating on their narrow area of responsibility. 

The most likely vehicle for outlining the plan in the near term is the emissions reduction plan being developed to achieve the carbon budgets. The national energy strategy recommended by the Climate Change Commission (#20) is on a slower track, with the suggestion that a draft be available by 30 June 2023 – this is after several milestone decisions setting the critical path.

It is not clear that the narrow focus of each policy and regulatory agency will result in a long term view which focuses on the actions which set the critical path, and no guarantee actions will be sequenced appropriately.

What would good progress look like?

Good progress would be confidence that work was underway on something like this Smart systems and Flexibility Plan 2021 published in July by the UK Government. It’s a plan with specific actions and timeframes for transitioning to a net zero energy system.

Good progress would be a clear line of sight between the prize (value of DER and flexibility), the problems and barriers preventing us from claiming the prize, and the solution development process.

A plan needs vision, outcomes, priorities and approach

Plans tell us what, when and how we will produce the thing we want.

The vision provides the context.The outcomes are what we want to produce. The priorities are just that. And the approach is the how.

But as Mike Tyson once said, “Everyone has a plan until they get punched in the mouth”. So don’t expect the plan to be a static thing. It needs to be flexible too and give us a basis to modify as the future evolves.

Vision: electrification of as much economic activity as possible

The vision for the future must reflect the electrification of as much economic activity as possible to support our decarbonisation goals. 

The electricity sector must work towards the Climate Change Commission perspective that ‘wider electrification of energy use is an essential part of the transition and will require a major expansion of the electricity system.’ 

Achieving and exceeding these decarbonisation goals are even more important in light of the recent Intergovernmental report on climate change.

In our view, this expansion can’t just be physical or about resolving ongoing woes and tribulations of wholesale and retail electricity markets. Making full use of flexibility and integrating DER is actually the necessary condition for achieving electrification and decarbonisation.

Electricity networks are being asked to do a very different job from what they have been doing. At the low voltage (LV) level that most of our homes and businesses connect to, networks are typically designed and operated on a static, set-and-forget basis reflecting quite predictable usage patterns. 

But things like solar, electric vehicles, batteries and electrification will fundamentally alter these usage patterns and, without action, will lead to reduced reliability and quality (because DER causes performance to diverge from the operating parameters), more cost (from upgrading network capacity to meet changing usage) and probably constraints on what DER people can buy and use (to deal with the performance issues).

It’s clear to us, and we think to most observers, that a significant amount of the electrification action will occur at the LV level. Changes are needed to how things are done to ensure the electrification action happens at a pace that doesn’t stop people from electrifying their lives and businesses and also doesn’t result in poorer network performance or unnecessary costs.  

The value to society, the economy and environment of DER and flexibility has been estimated by Sapere in a ‘Cost benefit analysis of distributed energy resources in New Zealand’, prepared for the Electricity Authority. The headline numbers are impressive – the estimated economic surplus from DER uptake from 2020 to 2050 is $7.1 billion (net present value).

In contrast, the electrification action at the transmission level is ultimately about making sure there is ‘enough’ investment in transmission and in grid-connected renewable generation to produce and transport the extra electricity needed in a decarbonised economy. Solving this challenge is a necessary, but not sufficient, condition for electrification and decarbonisation.

Focusing on outcomes over outputs 

Focusing on outcomes over outputs means distinguishing between what you produce and the things needed to produce the outcome. 

Put another way, outcomes over outputs means emphasising the end over the means.

An example is developing capability to use DER to provide flexibility services (an outcome) versus obtaining greater visibility of the distribution network and DER capabilities (an output needed to achieve the outcome).

Outcomes over outputs or ends over means is about trying to maintain perspective, avoid finger-pointing, and focus on the function and service, not the supplier.   

The outcomes we really want – to quote the Western Australian Distributed Energy Resources Roadmap – are:

  • A safe and reliable electricity system where customers can continue to connect DER and where DER supports the system in an efficient way. 

  • DER capability offers value throughout the electricity supply chain. 

  • DER benefits flow to all customers, both with and without DER. 

If we achieve these outcomes then the electricity system and market will be well on its way to electrification and decarbonisation. 

And if we achieve these outcomes there is a good chance the electricity system and market will be substantially more resilient and more able to easily respond to mismatches of supply and demand without the lights going out…  

There’s lots to do, so priorities need to be those that set the critical path

The electricity sector has a lot to do to meet the challenge and realise the promise of electrification and decarbonisation, so priorities will need to be the things which set the critical path.

We think there are three overarching priorities needed to accelerate electrification and decarbonisation are:

  • A flexibility-first approach to network operation and asset management is the key to unlocking the value of DER and flexibility  

  • Making flexibility a feature of network and system operation by defining technical envelopes for network operation and connection and use of networks designed around the dynamic capability of DER and which harness the full capability of digitalisation (digitalisation is the 3rd D of Decarbonisation, Decentralisation and Digitalisation)

  • Introduce a flexibility services market because an organised flexibility market requires organisation.

The approach to making it happen must be inclusive 

The approach taken by the electricity sector – government, regulators, generators, distributors, retailers, and everyone else – to upgrading the regulatory settings to accelerate electrification and decarbonisation needs to be as inclusive as possible to avoid the lack of public (and political) confidence that persists with the ‘Bradford reforms’. People power (the demand-side) needs to be explicitly designed into the electricity market and system.

As importantly, policy,regulatory and business processes must embed learning by doing together because going it alone won’t yield the least cost, least regrets answers.


Next time

To be continued…in the next article we’ll talk about how the key to unlocking the value of DER and flexibility is to take a flexibility-first approach to network operation and asset management.

Cortexo and Our Energy are committed to action that results in the electricity system and market being able to meet the challenges and opportunities of accelerated electrification. 

We want to help lead the conversation about how, when and what the electricity sector needs to do to accelerate electrification and to show the way by trying things out. 

To see what Our Energy and Cortexo are doing together to accelerate electrification you can have a look at this blog entry


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