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House of Assembly - Fifty-Fourth Parliament, First Session (54-1)
2018-09-20 Daily Xml
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Parliamentary Committees

Public Works Committee: South Australian Virtual Power Plant Project

Mr CREGAN (Kavel) (11:03): I move:

That the fifth report of the committee, entitled South Australian Virtual Power Plant Project, be noted.

It is intended that the South Australian virtual power plant will comprise a network of decentralised, small-scale renewable energy systems made up of five-kilowatt solar photovoltaic, or PV, arrays and five-kilowatt and 13 kilowatt hour Tesla Powerwall 2 lithium-ion batteries. The powerplant will be virtual because it will utilise aggregating software to synchronise separate battery units to operate simultaneously. Operating in this way, the combined units can provide electricity and stabilising services to the grid.

The $800 million project will be delivered in three stages. Stage 1 comprises 100 systems installed on SA Housing Authority properties. Stage 2 comprises 1,000 systems installed on SA Housing Authority properties to demonstrate the aggregation platform. Stage 3 comprises 24,000 systems on government-owned—mostly Housing Authority—properties, plus 25,000 systems on private properties. Stage 1 is complete. The VPP project is supported by a $2 million grant to finance stages 1 and 2. Pending the successful completion of stages 1 and 2, a $30 million loan is contemplated as seed funding for stage 3.

Once fully operational, the virtual power plant will have a combined generation and energy storage capacity of 250 megawatts and 650 megawatt hours. This is 2.5 times more capacity and five times more storage than the 100 megawatt Tesla battery near Jamestown, in the state's Mid North. It is expected that the virtual power plant project will deliver the following benefits:

the systems will provide participating South Australian Housing Authority tenants a reduced price for electricity below current market prices;

services to the South Australian electricity grid will include system security, frequency regulation, voltage support and backup; and

the VPP project will also support local manufacturing and installation employment.

The Public Works Committee will monitor the progress of the South Australian virtual power plant project, as required by the Parliamentary Committees Act 1991, through quarterly reports from the Department for Energy and Mining.

The Public Works Committee has considered written and oral evidence provided by Tesla and the Department for Energy and Mining in relation to this project. Having regard to the evidence considered, and pursuant to section 12C of the Parliamentary Committees Act 1991, the Public Works Committee hereby reports to parliament that it recommends the proposed public works.

Mr PATTERSON (Morphett) (11:06): I also rise to support the report from the parliamentary Public Works Committee. The report examines the history of the proposal and the efficacy of the application of South Australian taxpayer funds to the South Australian virtual power plant project, which was referred to the Public Works Committee by the Department for Energy and Mining.

In 2017, the South Australian government established a renewable Renewable Technology Fund to incentivise the development of next-generation storage technology to provide systems services, such as fast frequency response and peak generation capacity. One of the submissions for support for the Renewable Technology Fund was from Tesla for a virtual power plant, which was approved by the state government on 14 December 2017. The $800 million South Australian virtual power plant project is intended to be delivered over three phases and commenced in January 2018.

The project was referred to the Public Works Committee on the basis that the proposed public work is to be constructed on Crown land, or a state instrumentality, and during phases 2 and 3 the total construction value is expected to exceed $4 million. It is intended that the South Australian virtual power plant will comprise a network of decentralised small-scale renewable energy systems with each being made up of five-kilowatt solar photovoltaic arrays, and five kilowatt and 13 kilowatt hour Tesla Powerwall 2 lithium-ion batteries, in conjunction with smart meters and associated software.

The power plant will be virtual because it will utilise aggregating software to synchronise these separate battery units to operate simultaneously. It is important to note that, without this aggregating software, the combined generation and storage units become stand alone to each house on which the units are installed. So a very important part of the virtual power plant is this aggregating software that comes with the proposal.

The intention of a virtual power plant is that it assists in a number of areas. One such area is in terms of backup and resilience because it allows the improving of reliability during outages. Of course, the batteries take in the electricity provided or generated by those solar photovoltaic arrays on the rooftop and then they enhance the system resiliency by dispatching aggregated installed capacity on all these batteries from the virtual power plant.

It has been found that, in areas of increasing solar and wind penetration not only in South Australia but throughout the world, utilities are seeing the need to increase the hosting capacity of substations situated throughout their network because, on occasions, the distributed generation from these renewable sources starts to surpass the load that is required at those substations during certain times of the day. Peak generation oftentimes is in the mid-afternoon, as opposed to when peak usage is in Australia, which is often when people come home from work after 5 o'clock.

The traditional solution to cope with this calls for a significant upgrade to these substations that will allow the load to be covered, and of course they have to forecast up to 50 years in the future. It has high up-front costs and bears the risk of long-term forecast inaccuracy, especially as the electricity systems we know of today are going through a significant transition. The system itself, via these smart meters being installed, will also assist with situational intelligence because it will provide visibility of the network on a second-by-second basis across the systems. This will help improve operations of the network and forecasting of loads as well.

I might just mention the three phases of the project to give you an understanding. The first phase involved 100 systems that were installed on South Australian Housing Trust properties. The primary objective of this phase was to streamline the installation processes and to refine customer engagement. Households have retained their existing energy retailer during this period. It is also important to say that this phase of the project is complete.

Phase 2, which is what the Public Works Committee considered, involved 1,000 systems being installed on South Australian Housing Trust properties. The primary objective of this phase is to start demonstrating the aggregation platform for the system's security services and also the retailer model and then to prove the commercial viability of the virtual power plant at some form of scale. The installation of this phase 2 home energy storage system is due to take place once our report has been considered and will go through until approximately June 2019.

Phase 3, should it proceed, noting that it is conditional on the success of phase 2 and attraction of sufficient third-party investor and finance, is the most expensive phase of the project. It envisages a further rollout of up to an additional 24,000 systems on government-owned properties, mostly South Australian Housing Trust, but not exclusively, and also 25,000 systems on private properties, which would be via an opt-in approach.

Frontier Economics, when they did their study into this, suggested that there may be a saving for customers using the program of around 30 per cent. Frontier Economics also identified benefits to non-participating customers as well, via greater retail competition, as this virtual power plant effectively can become another retailer, and also general generation capacity into the network.

The state will have ongoing strategic oversight of the project through its lifespan through the membership of the virtual power plant advisory committee. To ensure that Renewal SA is not left with any unfunded maintenance liabilities as a result of this project on the South Australian Housing Trust properties, all costs associated with the operation and maintenance of the home energy system have been included in the operation and maintenance services for the duration of the 20-year program.

The project has been developed, and the trials are being managed in consultation across a range of relevant government agencies, including Housing SA, Renewal SA, the Department of Treasury and Finance, the Crown Solicitor's Office and the Office of the Industry Advocate. As I have mentioned previously, prior to phase 2 commencing this project was referred to the Public Works Committee. The committee received written and oral presentations and submissions from witnesses. In fact, the oral submissions were heard on 2 August this year. The witnesses were representatives from the Department for Energy and Mining and Tesla.

It is also worth mentioning that the 2018-19 state budget focuses on reducing the cost of energy for households and businesses and delivering on the government's energy solution. It proposes $184 million in expenditure to ensure more clean, reliable and affordable power for South Australians. The budget delivered on our election commitment of $100 million for the Home Battery Scheme to provide subsidiaries for home owners to purchase batteries, in addition to this virtual power plant. The Home Battery Scheme is a key component of the government's plan to deliver cheaper electricity to South Australian households and businesses.

The state budget committed $50 million towards grid-scale storage, to aid with the development of new storage technologies to back up our abundant renewable energy and help stabilise South Australia's network, and also $30 million to better manage demand and help consumers benefit from helping to reduce peak demand to lower system costs. These themes also play out in the virtual power plant.

The Public Works Committee will monitor the progress of the South Australian virtual power plant project, as required by the Parliamentary Committees Act 1991, through quarterly reports from the Department for Energy and Mining.

Mr MURRAY (Davenport) (11:16): I also rise to talk to the fifth report of the Public Works Committee, in this the 54th parliament, entitled South Australian Virtual Power Plant Project. The project is a child of the Renewable Technology Fund. As has been alluded to by the previous speakers, the project constituted a proposal by Tesla for a virtual power plant that was approved in December 2017. The project has a net value of about $800 million and will be delivered over three phases.

Phase 1 is essentially concerned with streamlining the installation processes, as well as refining customer engagement strategies. To that end, there are roughly 100 systems installed on South Australian Housing Trust properties. Phase 2 will crank things up somewhat by a factor of about 10 and aims to put about 1,000 systems on South Australian Housing Trust properties. The primary objective of this particular phase is to demonstrate the aggregation platform for the system security services and the retailer model.

Translated, this effectively means, as the member for Morphett has described, that without the software these are stand-alone systems on each of the properties. The inherent software in the systems enables the aggregation of the power so generated, and in particular power stored, so that they can be deployed to other homes, other properties or to the wider market. The system security services, on the other hand, are a by-product of the capacity of the systems to provide to the general network stabilisation and security efforts.

The Public Works Committee spent considerable time and effort understanding the processes and the systems to be deployed in order to achieve these objectives. The Public Works Committee was especially keen to ensure appropriate undertakings were provided regarding South Australia's long-term access to these enabling technologies. I am pleased to report that, in our view, we achieved those goals in order to deliver those objectives.

Phase 3, as has been detailed, will entail roughly a further 50,000 systems with, in all probability, half those being South Australian Housing Trust, or other government-owned properties, and a further 25,000 or so systems on private properties via an opt-in approach. The key thing is that, whilst phases 1 and 2 have a commoditised approach using common photovoltaic and power storage technologies, phase 3 may well entail alternative system configurations and/or alternative property styles. That will, in turn, be determined over the course of phase 2. Phase 2 is due to take place from September of this year through to about June of 2019. Phase 3 is scheduled to run from 2019 through 2023.

The project itself is supported by a $2 million grant and a $330 million loan from the renewables fund to finance the initial trial of 1,100 home energy systems—that is, phases 1 and 2 on South Australian Housing Trust properties. That will additionally provide seed funding for phase 3, which is by far the biggest part of the phase. As previously stated, some of the primary objectives are system security services as well as cost savings for low-income households, improving electricity market competition and there is also anticipated to be follow-on or spin-off, with local manufacturing and site installation jobs generated as a result.

Again, as has previously been alluded to, the VPP, once fully operational, is anticipated to have a combined generation and storage capacity of 250 megawatts and 650 megawatt hours, which translates to 2.5 times and five times respectively more storage than the battery stored up at Horndale. The estimated total cost of the project is about $800 million. In particular, I make the point that improvement of electricity market competition will be by virtue of the contribution of the net power generated by the aggregated system back down and into the grid or the market itself.

In terms of the public value of the proposed project, which of course is one of the criteria the Public Works Committee is charged with, there will be a variety of benefits. There will be direct benefits to low-income households with, as has previously been alluded to, anticipated savings somewhere in the order of 30 per cent per home courtesy of Frontier Economics modelling. The system has scope to generate further income for use in whatever form is desired, including cross-subsidisation of other housing tenants' power costs by virtue of the aggregated power generation and collation and sale down into the grid.

There is anticipated to be reliable grid services provided. They include, in no particular order, dynamic capacity, flexible ramping, frequency regulation, voltage support, backup and resilience, and situational intelligence—things I am sure that the member Morphett, given his background, would only be only too happy to further enlighten members on, should they wish. A further benefit is the system security services being provided, which are anticipated to improve the security of the South Australian network, given the combined generation and energy storage capacity I have previously referred to in comparison to the battery itself.

In terms of the cost of the project for phase 2, the virtual power plant assets will be installed and remain the property of a special purpose vehicle dubbed, for the purposes of discussion, Project Co, which will be incorporated by Tesla specifically for this project. Again, that was the subject of considerable discussion and analysis by the committee. An important point to make is that all costs associated with the operation and maintenance of the home energy systems have been included into an operation and maintenance services agreement with Tesla, which guarantees the operation and serviceability of these assets, given that the agreements in place, if phase 3 is to go ahead as planned, are anticipated to be of the duration of something in the order of 20 years.

In relation to the estimated net effect of the work and its use on public funds, it is anticipated that there will be greater retail competition. There will be greater generation competition as a result. The independent analysis tends to indicate a reduction in wholesale prices and therefore the generation of approximately $90 million per annum in reduced wholesale charges as a result of the increase in capacity. It is anticipated that there will be, as previously described, an industry value chain, ranging from the production of some of these units as well as the jobs associated with their installation.

Insofar as management of the process is concerned, there will be a VPP advisory committee. Project management resources reporting to that committee will be provided initially by the Department of the Premier and Cabinet and subsequently by the Department for Energy and Mining so as to ensure that the people of South Australia get what it is they thought they were getting. I would draw the house's attention to the fairly standard but nonetheless pertinent point that the committee will monitor the progress of the South Australian virtual power plant project as required by the Parliamentary Committees Act.

The committee will provide a further statement to parliament in the event that subsequent information provided renders this report inaccurate or misleading. Based upon the evidence considered, and pursuant to section 12C of the Parliamentary Committees Act, the Public Works Committee reports to the parliament that it recommends the proposed work, and I endorse the report accordingly.

Mr PEDERICK (Hammond) (11:26): I rise to speak to the Public Works Committee's fifth report of the 54th parliament. The report is in regard to the South Australian virtual power plant project. This is obviously a project that is being looked at by the Public Works Committee because part of the phases of this work is around how much money is invested in the project. The issue is the potential for the project to go over $4 million, so for obvious reasons it goes direct to the Public Works Committee, which has looked at this issue.

I think it is a great opportunity for South Australians to reduce their power costs after having the worst costs in the world inflicted on them by the previous Labor government, who, even though they make out they have green eyes for energy, invested over $100 million in dirty diesel generators, which, if all fired up at once, would burn 80,000 litres.

The Hon. D.C. van Holst Pellekaan: Nearly 400.

Mr PEDERICK: I have been corrected: it is nearly $400 million on dirty diesel generators that would burn 80,000 litres of diesel an hour. I remember saying to the former energy minister that he would not need just a truck to fuel these diesel generator; he would need to hire a ship to make sure that we had enough diesel on board to power these plants. That is just a reflection of what has happened with power policy by the previous Labor government.

What happens is that so many private people have had to invest tens of thousands, even hundreds of thousands, on an individual basis, depending on what they are trying to power at home. It is not hard to spend in excess of $20,000 to have a diesel generator. In fact, I have spoken to people who have spent over $20,000 to have a generator in place on an automatic switch so that when the power does drop out, if it does, especially in the dark days of Labor, they do have continuous power.

I have talked in here before about vital industries, such as dairies. Many of them have spent tens and tens of thousands of dollars to make sure that, when they are powering those rotary dairies that host 50 or 60 cows, they do not have to have put their cows through missing a milking and the associated issues with managing the dairy herd when they do miss a milking. I also reflect on what happened on a broader scale when hundreds of millions of dollars were lost to production. Olympic Dam had to shut down after the breakdown on 28 September 2016, when, because of the previous government's policy, one circuit-breaker dropped the whole state out. It is just outrageous that the previous government gave us the most unreliable grid but the most expensive power, and that is if you could get it.

This virtual power plant is helping follow through on our policies to save money for the good constituents of South Australia. I have 14.1 kilowatts of solar panels on my properties. I wish I had a lot more, but there is only so much roof space. The issue for South Australians is the ever-increasing price of power, as it was under the previous government. We are now trying to clean up Labor's mess with battery programs, solar panel programs and energy programs for industry and also getting that vital interconnector built through to New South Wales. The previous government was in favour of it until we decided we were going to implement it. We put that seed money in for the energy companies to look at that vital connection to the 53 per cent of green power from this state through to the coal power in the east.

A lot of people are allergic to coal-fired power stations. They talk about climate change and get emotional and that sort of thing, but I believe that we are the biggest exporter of coal in the world and that we cannot get enough ships into the east coast of Australia. If we are serious about climate, we need to look at it on a global basis and understand that coal plants are being built every second of the day somewhere in the world. Whether that is right or wrong is a bigger policy debate.

Certainly, people have to have power—that is the issue—and they have to have stable power. We need to have a mix of base load, so there is still a place for coal. There is obviously a big place for gas, but then we see some people pushing back against the gasification of the Leigh Creek coalfield, which, sadly, had to shut down because the previous government forced the destruction of a perfectly good power station at Port Augusta. I think if they can get this gasification project up and going it will be a great project for this state.

However, you do need to have that base load and transition power also in gas to work alongside the bulk of green energy, and it is the bulk of green energy in this state. Green energy is intermittent. What we are doing on this side of the house is making sure that people can connect to the system so we can have storage. Power options are getting cheaper every day. They have been very expensive over the last few years but, as time goes on and there is more uptake, people come on board. However, we still need those other sources.

This project came about with the establishment of the Renewable Technology Fund, and that was about incentivising the deployment of next-generation storage technology to provide system services such as fast frequency response and peak generation capacity as well as broader community benefits such as affordability, which I have been talking about, and job creation. I note that Tesla was involved in the virtual power plant that was approved by the previous government back in December 2017.

This $800 million South Australian virtual power plant project will be delivered over three phases, and that commenced in January this year. During phase 1, 100 systems were installed on South Australian Housing Trust properties. The primary objective of this phase was to streamline installation processes and refine customer engagement. Households have retained their existing energy retailer during this period. This phase of the project has been completed.

In phase 2, 1,000 systems are going onto South Australian Housing Trust properties. The primary objective of this phase is to demonstrate the aggregation platform for the system security services and retailer model and to prove commercial viability of the virtual power plant at scale. Then we roll into phase 3, which is the full rollout of up to an additional 24,000 systems on government-owned properties, mainly but not exclusively South Australian Housing Trust properties, plus 25,000 systems on private properties via an approach to opt in if you think you can manage that approach.

This was referred to the Public Works Committee, which has contemplated the proposal. They have done some consultation across the housing department, Treasury, the Crown Solicitor's Office and the Office of the Industry Advocate. They have looked at a whole range of issues around it and they have recommended that the public work go forward. I fully commend this project.

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