Up against the stops of the new market

A small 60 kW wind turbine has become a test case of competition principles in the new Australian electricity market. The turbine, at Breamlea in the southern state of Victoria, has been annually supplying about 100 MWh of electricity directly to local retailer Citipower over the past three years. The power is wheeled through the wires of monopoly distributor Powercor. But after three years of operation, there is still no formal connection agreement with Powercor -- a situation that is preventing its operator, the Renewable Energy Development Trust, from further commercial activities.

The wind turbine was originally built by the state government and then sold to the Alternative Technology Association. The trust runs the machine on the association's behalf. Trustee Michael Gunter is none too happy with the patchwork arrangement between Powercor and Citipower for dealing with sales of the power generated. Although Powercor did make an interconnection offer, Gunter alleges that the utility has failed to answer his queries and would be liable for A$7 million in fines if the Office of Regulator General (ORG), the regulator of distributors, would act on his complaint.

According to Gunter, the arrangement for sale of the turbine's power is allowed only as an exemption to the National Electricity Code. This code prevents non-market generators (those not selling directly to the pool) of under 30 MW from selling their electricity. Gunter argues that he should be allowed to sell his to any retailer -- particularly those paying premiums for green power. "If we have a truly level playing field for trading then it should apply for buying energy," he says. Gunter wants mandatory network access and fixed prices for small-scale renewables or cogeneration plants generating less than 2 GWh/year.

ORG project manager Lionel Chin agrees that small embedded generators will have difficulty participating directly in the market. He argues, however, that the code arrangement agreed in 1994 is adequate and will not be reviewed until next year. He adds that Gunter wants all of the embedded generation benefits which accrue to Powercor, but that these benefits in the Victorian regulatory environment are only notional. In Victoria, continues Chin, transmission charges are not distance dependent. On the other hand, the charges paid by a transmission business such as Powercor are reduced when the power is produced within its own network. The charges to distribution businesses are currently fixed as the network has excess transmission capacity. This means that the benefits of embedded generation will only have a value if there are constraints on transmission capacity. It is this issue that Gunter does not want to acknowledge, says Chin.

The Cogeneration Association has weighed into the debate, arguing that the entire market code discriminates against small embedded generators. Director Vic Brassale says the Breamlea turbine is a real problem under existing regulations and that it may become a common problem.

According to Brassale, the code creates a situation where local retailers do not like the generator in their areas because they compete for network service. A local generator, for example, can perform the same sort of service as a network and starts to compete with the distributor for future supply. If a city is growing strongly and more distribution infrastructure is needed, says Brassale, the current monopoly distributors say there is only one option: build more poles and wires. Alternatives, such as demand side management and embedded generation are essentially not accommodated by the code, he says.

Brassale also points out that the current code favours the use of short-run marginal costs to plan infrastructure, while substantial market access fees also create a barrier for small generators. National electricity market officials would prefer not to have embedded or small generators at all, he claims, adding that the current market system is not user-friendly to cogeneration or other renewables dispersed through the generation system.

Integrating the long term

Chin responds by saying that a change in the regulatory framework to take long term costs into account would allow cogeneration companies a chance to compete and to increase prices. "When you are competing in the environment that exists now you are trying to get costs down. You can't say to them [generators] they must use long term costs if they are happy to compete with short run costs.

Chin admits that ORG can, at times, provide pricing signals for customers to reduce energy consumption, such as at peak times where generation might not be sufficient -- but only where they see a need to provide that signal. Environmental considerations are not a major driver. "Given the tools that we have, it is difficult to factor in the environment unless the government steps in and imposes a carbon tax," he says. As for participating in the market, Chin believes that a consortia of small generators could be formed to gain enough size to operate directly.

Managing director of the National Electricity Code Administrator (NECA), Steven Kelly, says the current code holds some technical advantages to large generators -- such as reactive power requirements -- but that NECA is addressing these concerns and will make any exceptions to ensure competition. He emphasises, however, that the code specifically disallows a competitive advantage to any technology and is based on a model where all electricity is traded through the pool. It does allow for non-market generators to be registered as well as independent financial contracts between generators and retailers.