Could a partnership between a small town and a large utility help to transform the Australian electricity grid?
FIVE years ago, Geoff Park and his neighbours began investigating whether their village, Newstead, could become Australia’s first 100 per cent renewable-powered town.
Newstead is in south-eastern Australia, one-and-a-half hours drive from Melbourne. It has a population of 800, but boasts more than fifty volunteer groups, and, among its most active residents, fierce civic pride. “Now you’ve visited,” one man told me, “you will decide to move here.”
Motivated by rising electricity costs, Park and the group began by completing energy efficiency audits of 400 out of the town’s 500 households – an extraordinarily high participation rate. But when I first spoke to them, two years ago, the project had stalled.
Together with a commercial partner, they had researched creating an embedded micro-grid, and attempted to contact the private company that owns the poles and wires, Powercor. “We needed their cooperation to find out how much power was being used in the town,” Park said in 2013. “But they refused to even answer our letters or emails or phone calls.”
The situation has since changed. In early 2015, the group received a A$200,000 grant from the state government to develop a business case. Then in September, a high-level delegation from Powercor visited. Afterwards, the parties began negotiating a Memorandum of Understanding to govern the project.
Park and the other volunteers from “Renewable Newstead” haven’t settled on the technical details. “It could be anything from panels on people’s roofs, to big clusters on community buildings, to some sort of solar farm. I suspect it will include battery storage,” Park said to me. “The biggest issue is to get the network to cope with whatever we’re doing. Will Powercor collaborate with us?”
What happens next in Newstead matters. It is a case study for an emerging global phenomenon: the shift from a centralised, fossil fuel–powered grid to more decentralised, renewable electricity systems. Can the old system work with the new? Can communities protect their worst-off and keep the profits? And will governments help or hinder that change?
A tough couple of years
Central Victoria, the region surrounding Newstead, is becoming a hub for community-owned renewable energy – but nothing has come easily.
Daylesford and Hepburn are twin towns only a short drive south of Newstead. On a Saturday morning in early November, over 100 people seated themselves at the Daylesford town hall, and waited politely for the annual general meeting of their community wind farm – the Hepburn Wind cooperative – to begin. Outside, the footpaths thrummed with city tourists, there to relax in day-spas and visit the mineral springs.
The Hepburn Wind cooperative is Australia’s first and only community-owned wind farm; it took six painstaking years to recruit over 2,000 member-owners, raise capital, gain planning approval and build the two turbines, which they named Gale and Gusto. In 2011 the turbines began generating; they produce more electricity than the households in both towns use. In the last two years, however, the cooperative has been buffeted by federal government policies.
The nation’s electricity consumption had peaked in 2008-2009 and then fallen, and that had caused a political problem. Instead of simply supplying extra demand in the network, new clean energy would now have to displace established coal-fired generators.
In 2013, Australians elected a conservative government – led by then-Prime Minister Tony Abbott – that was determined that coal would not be displaced. Abbott had previously described climate change as “absolute crap” and campaigned hard against the carbon price by repeating a slogan: “Axe the tax”. In office, he described wind farms as “ugly” and “noisy” and, while opening a new coal mine, declared: “Coal is good for humanity”. His government set about abolishing or undermining the nation’s suite of climate change policies, including the carbon tax and a target for renewable energy.
Back in Daylesford town hall, the Hepburn Wind directors reported that as a result of those policy changes, earnings had fallen by nearly one-quarter. The cooperative had stripped back its staffing and devoted its income to paying down debt. No dividends would be paid to members. “Gale and Gusto are pumping out electrons, they’re doing fantastically,” said one director. “But the political environment we’ve been operating in has been vile.”
Taryn Lane manoeuvred around the hall, checking the sound, fixing PowerPoint presentations. Formerly an international development worker, Lane has been employed by the cooperative since 2011, and also for its offshoot, Embark, a not-for-profit consultancy promoting community renewables.
“It’s been a tough couple of years,” she told me later. “The whole industry has gone backwards.”
According to Bloomberg New Energy Finance, new investment in large-scale wind and solar farms in Australia fell by nearly 90 per cent in 2014 compared to 2013, while elsewhere in the world it rose by 16 per cent. But all the while, householders continued to purchase solar panels. Surreptitiously, Australians have been installing rooftop photovoltaic systems at a higher rate than anywhere else in the world, with panels now on one out of every seven houses.
And, even more quietly, a parallel movement has developed: community energy. In 2011, Hepburn Wind became the first community-owned electricity generator in Australia. Now, there are 22 completed projects nationwide, mainly solar installations, and 70 more in various stages of development: the townsfolk of end-of-the-line Tyalgum want to cut themselves off from the grid, while professionals in Sydney are putting panels on the city’s convention centre. Another town, Yackandandah, is aiming for “energy sovereignty” by 2022. Calling themselves “Totally Renewable Yackandandah” or TRY for short, residents explain the meaning of community energy by way of “three D’s”: “decarbonising, decentralising and democratising”.
Lane travels often to meet and support these people. “Over the past couple of years I saw that communities and local councils are identifying their own renewable energy targets,” she said. “They’re stepping up, because the federal government wasn’t delivering on their expectations.”
In the months before the Hepburn Wind meeting, the outlook for renewable energy improved abruptly. After nearly two years of uncertainty, the Abbott government finally set a reduced target for renewable energy. Even though it was lower than before, the policy was now clear for investors. Then, in September 2015, Abbott was ousted by a more moderate leader, Malcolm Turnbull – who in a previous stint as leader of his party had supported a carbon tax. The market price earned by larger-scale renewable generators, such as Hepburn Wind, increased by 50 per cent in just three months.
The state government in Victoria had changed too, and among its early decisions were the reversal of strict planning rules for wind farms and the awarding of two grants for community energy proposals – one of them for Newstead.
It also commissioned Lane and others to draft a new Guide to Community-Owned Renewable Energy. The state energy minister, Lily D’Ambrosio, attended the Daylesford meeting to launch the guide.
The event was unexpectedly emotional – a collective, tentative, sigh of relief. During her speech, D’Ambrosio removed her reading glasses and looked up from her notes. “It’s dangerous when I go off script,” she said. “But empowerment is so important in all of this. My view is that for ordinary citizens, energy has been something that happens to us. I think people are drawing a line under that.
“Dramatic change will have to happen in the way our energy is produced, how it is supplied, and how much we use of it. Community energy, community organisations, are going to be such a vital part of that transition.”
Disruption to the grid
Newstead was founded in the mid-19th century when farmer-settlers took land on the region’s grassy river flats, at the expense of the Dja Dja Wurrung people. It became a farming community, then a home for miners in the gold rush, and then a century later, a haven for artists and musicians.
Today, one-fifth of residents have solar panels on their roofs. The rest of the town sources its electricity from brown coal–fired generators about 400 kilometres away, in the Latrobe Valley. It arrives by means of a vast system of poles and wires, greased by layers of bureaucracy and market ideology.
When Bruce Mountain completed his engineering degree in Cape Town, he found himself drawn to those greasy layers; he was more interested in the economics and regulation of energy than its technology. Years later, he moved to Australia and set up as an independent energy economist. “I got really exercised by what happened in networks in Australia, which has no parallel internationally,” he said. “It’s been a complete train smash.”
In Australia as elsewhere, Mountain said, electricity generation began as a local concern: “Typically tallow – animal fat, whale fat – and a little bit of hydro around rivers here and there – those were the sources of energy production from the 1870s onwards.”
Over time, production became more centralised, as larger, cheaper generating stations were built. In Victoria, the Yallourn Power Station was first proposed in 1919; from then on, brown coal generators in the Latrobe Valley powered more and more of the state, and eventually Newstead, in 1958.
“That’s been the pattern everywhere in the world,” Mountain said. But the pattern is being disrupted. Over the last decade, the price of solar energy has plummeted, and, because rooftop panels produce electricity where it is used, they bypass the extra costs imposed by distributors and retailers. “The network still has value when the sun isn’t shining,” Mountain said. “But even that value is under threat from the revolution going on in energy storage technology. The underlying economic value of networks has declined massively.
“Solar PV is basically taking the industry back to its roots with new technology. In Australia we’ve lead that seismic shift, principally because of the economics: our solar is so abundant and our networks are so expensive.”
Electricity prices vary from state to state in Australia, but they have risen sharply everywhere, approximately doubling since 2007. (In Victoria, distribution charges are less responsible for the spike than elsewhere. According to Powercor, their costs comprise under a quarter of householders’ bills, compared to nearly half in other states.)
Between reports for clients, Mountain has been chipping away at a PhD – “It has no end!” – analysing the way electricity regulation has failed in Australia. The networks are regulated monopolies (some were privatised, others are state government–owned corporations) and they receive a return on the value of their assets.
Mountain describes the set-up as a “golden goose”. He has been among the most vocal of the analysts who argue that the regulatory system has permitted enormous over-investment in infrastructure. He argues the value of distribution assets must be written down – a sunk cost of A$60-70 billion – otherwise, network owners will seek only to protect their guaranteed returns.
“Local production is often the cheapest,” he said. “It must be allowed to compete fairly with centralised generation. The issue is: will the institutional arrangements allow it, or will they continue to stand in the way?”
For now, despite the sheer numbers of solar rooftops in Australia, they contribute only 2 per cent of the nation’s electricity generation. Community energy projects comprise only a tiny fraction again.
Mountain pointed to another barrier, especially for community energy projects such as Newstead: complexity. It’s a daunting task for volunteers: they must find a large sum of capital to pay for the generation technology; they need expertise in metering and billing; and their systems must allow for customer choice. They have to negotiate backup supply in a wholesale energy market that has very volatile prices.
“What they need is smart business people slaving away for a period of time. Those people cost money. And you’ve got to fund them and manage them and make them accountable so they don’t just extract rents from the process,” Mountain said. “Quite a lot of people who are attracted to community energy are people with a good dose of wishful thinking.”
An unlikely partnership
In mid-October, I met Powercor’s head of corporate affairs, Melissa O’Neill, and its head of strategy, Lara Olsen. Both of them, along with their CEO, had joined the company recently – after Newstead’s first, unsuccessful attempt to collaborate. Their network spans the sparsely populated north and west of Victoria. (Under the name CitiPower, they also manage the network in Melbourne’s west.)
Olsen previously worked at the Australian Renewable Energy Agency, one of the clean energy bodies the federal government has vowed to abolish. “When I was approached to work at Powercor they said, ‘We’re looking for someone with a different background’,” she said. “As customers adapt what they’re looking for, then as a service provider we need to adapt to deliver that.”
The pair insisted that it is in Powercor’s interests to collaborate with Newstead. The company wants to see if the project is replicable. “You’ve got a community saying they want to make a decision about how their energy is generated, transported and used,” O’Neill said. “Really, who better to help with the solution than someone who owns and operates the grid?”
Despite Powercor’s enthusiasm, the negotiations with Newstead dragged on. Park had hoped for an agreement by late October. On a Saturday in late November, he reported back to a small group of volunteers gathered in the Newstead community garden – a project they had conceived and built, doggedly, during Australia’s long drought last decade.
The draft agreement outlined the information to be shared: data on local consumption and network costs, tariff forecasts, and an analysis of possible business models. He estimated it was still a fortnight from completion. It had seemed a fortnight away for the last two months.
In his spare time, Park –a landscape ecologist – is a prolific bird photographer. On his blog, Natural Newstead, he only posts images from within 15 kilometres of the town; the blog is one of the top 100 bird watching websites in the world.
“I’m motivated by climate change and responding to that, but this is not about saving the world,” Park said. “Our main interest is not so much in renewable energy; it’s in community building.
“We’re driven by the questions of how we work as a community into the future, solve problems, and get everybody involved. Newstead is very cohesive and organised. We put our energy into things we think we can win.”
In the case of Renewable Newstead, their motivations are to keep people on the grid, and keep it cheap. The town has comparatively low average income, and scores highly on measures of socio-economic disadvantage. Many residents already struggle to pay their bills. Park and the others want to save their grid: to find a new economic model that keeps it affordable for everyone.
Newstead’s main advisor, Tosh Szatow, runs a consultancy called Energy for the People and a crowdfunding platform called The People’s Solar. He’s also advising Tyalgum, the hamlet planning to go off-grid altogether. In a video promoting that project, he wears a blue t-shirt that says: “Stick it where the sun shines”.
In the Australian media, he is often asked to talk about the so-called “death spiral” for networks: the scenario in which householders install solar and batteries, and leave the grid, which drives up network prices, which causes more people to leave the grid – and so on.
“If network companies don’t adapt and find a way of partnering with consumers, then people will leave the grid,” he said. “It really is a matter of time.”
In Newstead, however, he believes there is a way for the old and new technology to combine. His advice is to establish a micro-grid, still owned by Powercor but managed by the community – it’s the kind of model used by shopping centres, apartment buildings and caravan parks, but it has never been used for an entire town. Under those circumstances, residents could run a local generator-retailer, which returns profits to the community.
“We’re talking about a model where the assets aren’t written down. People stay connected to the network,” Szatow said.
Most importantly, it would allow the coordination, planning and investment necessary to reach 100 per cent renewable energy. If it’s successful, Szatow believes it will be an example for others to follow. “The only thing that stops it being replicated is: does a community have leaders like they have in Newstead? Do they have that pragmatism? Do they have the ability to build consensus locally? That’s the magic ingredient.”
While they waited to sign the agreement with Powercor, the Newstead volunteers turned their minds to what would come next: in-depth community consultation, data collection and hard-headed business models. In the December edition of the local newsletter, the Echo, they wrote: “Current, rapid, changes in the energy and power industry are making everyone uneasy about the future.” They asked for feedback about what they’d done so far, and asked for “people of energy” to join the team. “Your views will help us plan for the next stage.”
Finally, in early January 2016, an entourage from Powercor drove to Newstead. Alastair McKeown, the chief finance officer, arrived in a silver Porsche to sign the agreement on the company’s behalf.
Geoff Park had pushed together two tables in the town’s only café. He expressed his gratitude for the unlikely partnership between the corporation and the small community, two entities “poles apart”. A surprising and satisfying conversation ensued, as the out-of-town professionals and local volunteers traded speculation and frank questions about the future of energy, for more than an hour. “We know there’s change coming,” McKeown said.
Park summarised the long history of the project so far: five years, only to reach the beginning. Now, many will be watching, from near and far.
“One of the things we respond to very well in this town,” he said, “is when people say: ‘You’ll never be able to do that.’”