Chapter 9: Connecting to the transmission and distribution network Key findings 9.1 Victoria’s transmission and distribution network was designed before the introduction of renewable energy. The Victorian grid is tailored for: • large, centralised coal-fired plants located at a distance from major load centres; • relatively controllable and constant generation; • the unidirectional flow of electricity from large-scale plants to consumers; and • management practices that focus on altering the supply of energy rather than demand. The variable and intermittent nature of renewable energy generation and the location of renewable energy resources in areas remote from the existing infrastructure, make renewable energy generation difficult to integrate onto the grid. 9.2 Systemic changes across the stationary energy sector are needed if Australia is to increase the contribution of renewable energy to its electricity supply. The Committee concluded that environmental concerns should be incorporated into the objectives of the National Electricity Market (NEM). 9.3 The Victorian Government should begin preparing for the investments needed in grid infrastructure in the medium to long-term. A more proactive and strategic approach to investment in transmission for renewable energy sources needs to be adopted by the Victorian Government. 9.4 Historically, it has not been possible for investors in renewable energy to take advantage of economies of scale where a number of generators in a similar location want to connect to the grid. However, the Ministerial Council on Energy has recently endorsed a proposal by the Australian Energy Market Commission (AEMC) for facilitating economies of scale in the provision of network infrastructure, to clusters of renewable generators. The AEMC proposal for the strategic planning and funding of generation clusters has potential in terms of its ability to address a number of the issues identified by stakeholders in relation to grid connection in Victoria. However it is difficult to assess how effective the proposed reforms will be, as detailed policy and legislative provisions have not been released by the AEMC. 213 Inquiry into the Approvals Process for Renewable Energy Projects in Victoria 9.5 The Committee received evidence from the renewable energy industry that the process for negotiating a connection to the transmission and distribution network in Victoria is unnecessarily complex, costly and lengthy. 9.6 A consequence of the structure of the energy sector in Victoria is the many obstacles to timely and cost efficient grid connections for the renewable energy industry. This includes the requirement that proponents negotiate with multiple parties with different requirements and risk profiles. In particular, proponents must obtain their connection from network service providers (NSPs) who are natural monopolies. Proponents expressed concern about a lack of transparency, power imbalances and information asymmetries in the relationship between NSPs and renewable generators. 9.7 The Victorian Government needs to take a more proactive approach to the facilitation of renewable energy grid connection applications at the project level. 9.8 Regulatory reform in relation to the distribution network is required in order to make the transition to a decentralised, energy efficient, demand-sensitive grid. 9.9 Many local governments and businesses exploring the potential for distributed generation will face similar challenges stemming from the complexity of current connection requirements. The Committee has concluded that there is a role for the government in facilitating the connection process for distributed generation. 9.10 Smart grids address a number of challenges currently facing the energy sector by modernising the transmission and distribution systems, providing greater consumer choice, increasing efficiency and facilitating the incorporation into the electricity network of new generation technologies. 214 Chapter 9: Connecting to the transmission and distribution network Introduction On the commissioning side of things, connection to the Victorian electricity transmission system is fraught with unexpected and unnecessary costs and delays, and the entire risk profile is really transferred onto the project proponents. We would recommend that there be a review of the transmission network connection process and a specific emphasis on increasing the transparency, cost-effectiveness and attention to time frames within that process; the establishment of a single- connection facilitation entity which would negotiate to provide clear timings for us early in the process; and increasing project financial certainty by reforming processes to match international experience in markets which are very used to a large-scale renewable as part of their power supply — so countries such as Spain, Denmark or Germany are probably a long way ahead of us in this regard and we should probably look to them to see how they are doing it — and that technical requirements for connections should be fit for purpose. Finally the network service provider should contribute to the costs where there would be a broader net benefit, or a deferred cost, obtained by the development of a wind farm promoter or weaker parts of the grid.818 Acciona Energy Access to the transmission and distribution grid819 is essential for a renewable energy project as transmission lines carry electricity long distances and distribution lines carry low voltage electricity to consumers. The Committee was advised by proponents that grid access is a major constraint on investment for the renewable energy industry. Many of the obstacles to grid connection identified by the renewable energy industry during this inquiry, are indicative of broader systemic issues within the stationary energy sector.820 This is acknowledged in the Victoria Government’s recent Climate Change Green Paper which states that: Victoria faces some particularly difficult challenges in reducing emissions because of our heavy reliance on brown coal (a high greenhouse gas emitting fuel) to generate electricity. To move to a low carbon future, we will need to adopt a new approach to managing and using our energy resources. Our stationary energy sector will need to undergo a significant transformation, especially in the production of electricity.821 This chapter addresses part (a) of the terms of reference for the inquiry by examining the obstacles encountered by proponents of renewable and distributed generation attempting to connect their projects to the transmission and distribution network in Victoria. These obstacles include the following: • the physical infrastructure and regulatory framework of Victoria’s energy sector were not designed to facilitate renewable energy generation; • historically there has been a lack of strategic planning for network infrastructure investments in Victoria; • systemic issues associated with the role and regulation of network service providers make the process of connecting renewable energy to the grid costly and time-consuming; and 818 Dr I Lawrie, Manager, Planning Acciona Energy, Environment and Natural Resources Committee public hearing – Melbourne, 10 August 2009, transcript of evidence, p.108 819 The terms ‘grid’ and ‘network’ are used interchangeably by the energy industry 820 Victorian Government, Victorian Climate Change Green Paper, Melbourne, 2009, p.33; Stationary energy is the production, supply and use of energy that is not transport related, including electricity and gas 821 Victorian Government, Victorian Climate Change Green Paper, Melbourne, 2009, p.24 215 Inquiry into the Approvals Process for Renewable Energy Projects in Victoria • on the basis of the evidence received in this inquiry, the Committee concluded that many of the systemic issues encountered by renewable energy proponents as they try to connect to the electricity network are shared by smaller-scale, decentralised, low-emissions generators located close to consumers, often described as ‘distributed generators’. Given the potential of distributed generation to provide significant gains in the efficiency, security and sustainability of Victoria’s energy supply, the Committee has considered the issue of network connections for distributed generators as part of this chapter. In making recommendations to address these obstacles to efficient grid connections for renewable energy proponents, this chapter is concerned with part (c) of the terms of reference, which require the Committee to identify opportunities to reduce risk and delays for investors in renewable energy projects. The Committee has also examined innovations which have the potential to address network obstacles to renewable energy generation in the future. ‘Smart grid’ technology has the potential to integrate increasing levels of intermittent and decentralised renewable and distributed energy into electricity networks. Smart grids apply information and communications technology to improve the efficiency and effectiveness of the generation, transmission, distribution and consumption of power. 822 This chapter finally considers current government measures aimed at developing and implementing smart grids. This inquiry took place in the context of significant policy and institutional changes in national energy policy and regulation. A number of institutional reforms have occurred and several reviews have been conducted that impact upon the uptake of renewable energy in the NEM.823 These reforms and reviews are discussed in this chapter.