New Energy Insights: The Integrated Resource Provider, VPPs and the DC Coupled Future.

This article is part of our New Energy Insights series from our Energy, Infrastructure and Resources team. Stay tuned for regular updates and commentary on topical issues across the sector.

This article is the second in our three-part series considering AEMC’s much-anticipated draft determination to address current and anticipated impediments to the integration of energy storage and hybrid (generation + energy storage) in the electricity network.

These reforms are arguably the most significant change to the market since the NEM was created.

The centre piece of this reform is the creation of a new registration category of integrated resource provider (IRP).

Who is (and do you want to be) an IRP?

If you are or will be providing storage or hybrid energy services with a capacity of more than 5MW you will be required to register as an IRP and energy storage units will be classified under a new classification category, the integrated resource unit (IRU).

This includes existing participants currently registered as both a market customer and market generator in relation to the same facility. The timing, process and cost of re-registering is unclear however we expect the transition period will be relatively short given the final rule determination is anticipated for October this year with implementation 18 months later in April 2023.

Participants who are not required to re-register as an IRP may choose to do so. This will be particularly relevant for existing and planned small scale aggregation businesses (less than 5MW) as registration as an IRP will provide access to the energy and ancillary services markets (and resulting revenues).

Aggregators win, and VPPs boom

Allowing aggregated small-scale generation and storage to participate in the ancillary services market will provide a significant boost to the household and commercial & industrial (C&I) rooftop sections of the market. For C&I focused businesses this will provide an additional potentially significant revenue line in addition to the behind the meter PPA with the owner or tenant of the premises.

Similarly, we should see a competitive market for household battery capacity develop. This will likely manifest in two ways:

  1. “all in one solution” where the aggregator installs rooftop PV and BESS in return for the customer signing a PPA for a much larger proportion of their energy consumption and the aggregator owning any excess generation and storage capacity which they can sell in the wholesale market. This will likely provide yet another incentive for these aggregators to obtain retailer licences; and
  2. for households who own their rooftop solar and battery, a market to contract that generation and capacity to an aggregator. Again, we can see retailers offering “free” network access (ie paying not passing on the network charges to the customer) in return for control of the customer’s battery and the customer only paying for energy consumption above the daily roof generation.

Behind the meter BESS also facilitates retail demand side management – which has struggled for traction due to our expectation that electricity will be available whenever we want it. All of this points to exponential growth in virtual power plants and corresponding challenges for network operators.

Controlling rooftop solar generation to balance the electricity system has and continues to be a significant challenge for AEMO. It would appear to be more than a happy coincidence that the development of a strong aggregation market will assist AEMO to control this extremely disparate, widely distributed, increasingly dispatchable (via the increased adoption of energy storage) bidirectional generation in the context of a market designed and a network built for centralised one-way generation.

Some big decisions yet to come on DC coupling

The future of renewables is dispatchable – if anyone needed convincing then the proposed IRP category should put it beyond doubt.

The deployment of BESS as part of new renewable generation projects and the retrofitting of BESS on operating renewable generators to manage grid risks has in large part driven (if not forced) the creation of the IRP category.

How quickly the future arrives for the NEM will in large part be set by how DC coupled systems are treated. Either they are encouraged to facilitate the future and promote deployment of existing and new BESS technologies, or else obligations, restrictions and costs are imposed making the NEM less attractive to the global developers of these technologies.

Buried in section G on page 145 of the draft determination is perhaps the most important part of the draft determination for the long-term future of the NEM – how DC coupled grid scale hybrid facilities will be registered, regulated and dispatched.

AEMO’s view is well known to anyone who has registered DC coupled systems – they are scheduled generators (despite the NER not exactly saying that). The scars from forcing the square peg of a DC coupled system into the round hole of the NER are worn by those that have tried (irrespective of success) as a badge of honour. However, it should not, and must not, be that hard.

DC coupled systems are the future of electricity generation – they will provide dispatchable renewable energy which will keep the lights on day and night for our children’s children.

AEMC has not come to a definitive view as to how to classify and therefore regulate these generators and is seeking further feedback. The decision can be boiled down to the easy road and the hard road.

It will be easy to designate a DC coupled system as either scheduled or semi-scheduled based upon some arbitrary criteria in relation to the size, response, resource etc. However, this will likely discourage DC coupled systems that would be classified as scheduled generators, and hence stymy deployment of large DC coupled generators.

The hard road is a variable (dynamic) system where the obligations of DC coupled systems switch between scheduled and semi-scheduled based on the constraints and availability of the respective system. This would allow the maximum use of the capabilities of these systems to the benefit of both system owners, the grid, and the market.

AEMC’s draft decision is to allow proponents of DC coupled systems the ability to choose from four different classifications once registered as an IRP, being:

  1. a non-scheduled IRU (only for systems under 5 MW);
  2. a scheduled IRU;
  3. a semi-scheduled generating unit; and
  4. separately as a scheduled IRU and a semi-scheduled generating unit, which would be treated as two separate units for dispatch purposes.

The outcome from AEMC’s consultation will be critical to the deployment of DC coupled systems in the NEM and we are currently working with developers of DC coupled systems to provide feedback to AEMC on this proposal.

In our third and final article in this series, we consider how these reforms will be incorporated into the redesign of the NEM and what that future landscape might look like.

The Hamilton Locke team advises across the energy project life cycle – from project development, grid connection, financing, and construction, including the buying and selling of development and operating projects. For more information, please contact Matt Baumgurtel.