Globally, the electricity sector is shifting from large, centralised grids powered by fossil fuels to smaller and smarter renewable local networks.

One area of strong interest is “energy arbitrage”, which allows users to buy and store electricity when it is cheaper and sell or use it when the cost is high.

But Aotearoa New Zealand is slow to take this up — even though it is a crucial part of the transition to a zero-carbon future. Why is this?

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Small-grid technologies and infrastructure are still in the experimental phase, being tested for effectiveness and desirability of different set-ups, ownership models and commercial arrangements.

And intelligent energy-management systems that can provide a prescient forecast of market dynamics are not used widely.

To better understand these dynamics, we have modelled a theoretical “microgrid” in a residential subdivision, Totarabank, in the North Island of Aotearoa.

We used the model to forecast the expected commercial returns from investing in microgrids and to unlock potential revenue streams from energy arbitrage.

Smart scheduling of batteries
Energy arbitrage requires battery storage and intelligent control to make the most of a local renewable energy system’s generation.

This can be achieved by forecasting short-term future electricity consumption and linking this to the spot power price on the market. Sophisticated real-time controllers then decide if the local system should store or sell to the market (or store and sell later).

Battery storage systems can vary in size, from community-scale batteries supplying a neighbourhood to batteries within a fleet of electric vehicles (EVs). The fundamental controlling processes required to achieve an optimal outcome are broadly the same, except that community batteries are stationary while EV batteries move around.

Community batteries can store electricity purchased from the grid during off-peak periods and then discharge it during peak periods. Neighbourhoods with solar power can charge community batteries in the middle of the day when solar-generated electricity is abundant and discharge during the higher-priced evening peak.

EV batteries can be used similarly, using cheaper night rates or periods of surplus wind during the night to charge. The energy stored in EV batteries can then be discharged into local loads or sold back into the grid when the price is highest, creating an additional revenue stream.

Modelling return on investment
In our modelling, we assumed the primary reasons people will invest in clean-energy technologies are sustainability, energy independence and resilience. We believe energy arbitrage could be an enabler of capital-intensive microgrids, as opposed to an investment made on a purely commercial basis.

Specifically, we considered a grid-connected microgrid integrating solar photovoltaic (PV) and wind turbines. The system is also backed by a community battery and has a fleet of 10 personal EVs to serve.

We considered two scenarios: one with grid arbitrage revenues and one without.

Our results suggest revenues procured explicitly from energy arbitrage could reduce the total cost of the system by at least 12 percent. To put this into perspective, for a typical NZ$10 million town-wide microgrid investment, this means $1.2 million in savings.

Another interesting finding was that the length of time the batteries were able to sustain critical loads during unplanned grid outages was greater by about 16 hours per year, compared to the case without intelligent control. This is a remarkable resilience advantage.

So what does this kind of analysis mean for you? If you are part of a community interested in owning and operating a microgrid, you now have enough evidence to ask your developer to consider energy arbitrage so the community can participate in the electricity market to make a profit.

If you own an EV and are trying to get cheaper night rates, this is a heads-up on future offerings from electricity retailers to get your storage-on-wheels to work with the vehicle-to-grid technology.

On the whole, energy arbitrage is an excellent tool to provide support for renewable energy investment decisions and help firm up revenue forecasts.

Dr Soheil Mohseni, postdoctoral research fellow in sustainable energy systems, Te Herenga Waka — Victoria University of Wellington and Dr Alan Brent, professor and chair in sustainable energy systems, Te Herenga Waka — Victoria University of Wellington. This article is republished from The Conversation under a Creative Commons licence. Read the original article.

By Sri Krishnamurthi with Peter Wilson in Auckland

Solar-powered batteries are the key to a future without electricity grids for Polynesian countries in the Pacific (Samoa, Cook Islands and Tonga), a study has found.

The study is funded by the New Zealand Institute for Pacific Research (NZIPR) to assess the feasibility of a low-cost, energy future – titled “Polynesian pathways to a future without electricity grids”.

The first phase of the research, conducted by Peter Wilson (principal economist and head of Auckland business for the NZ Institute of Economic Research) and his team of Professor Basil Sharp (Auckland University professor and chair in energy economics) and Gareth William (head of Solar City Energy Services), queries whether distributed solar electricity is a practical alternative to grid-based electricity.

“The project is investigating the impact of new technologies on electricity sectors in the Pacific, we are looking at whether solar panels and batteries could augment or eventually replace electricity grids and large diesel generators,” says principal investigator Wilson.

“First phase is showing that the costs of both solar panels and batteries is diminishing very quickly and it won’t be very long before they will be economic in the Pacific and so that you have the potential to start radically changing how energy is delivered to Pacific nations.”

While he believes it is technologically feasible now, the prohibitive cost of the batteries at the moment – the leading provider of solar batteries being Elon Musk’s Tesla Powerwall – is something that has economically got to arrive yet, but the trend is towards costs being reduced significantly.

He says that within 10 years batteries and solar panels together could have a large impact on existing electricity sectors in the islands, and he sees that as a positive development because it will make it easier to extend electricity to people who don not currently have it at a cheap cost.

Decisions needed
However, he says, it does mean that the island governments must consider what they do with their existing generators and existing distribution assets if they are found to be non-competitive against the new technology.

“While it is not economically feasible yet, the trends are there and so it’s something that the Pacific governments should start thinking about,” says Wilson.

“At the moment they’re focusing very much on using solar panels to replace their electricity generation, they’re just connecting to their existing electricity grids and existing technologies.

“We think the batteries are going to change the equation and that is something that should be looked at, and the point is that this is not just something for the Pacific Islands, it’s happening around the world and a lot of countries and a lot of companies are trying to work out what to do, but they don’t really have a solution.”

He is expecting exciting new technological developments in batteries as a means of storing electricity into the future.

“The basic technology is not changing. What is changing is the cost of the batteries and their efficiency, how much power they can hold,” says Wilson.

“We’ve all seen how cell phones have become smaller and smaller over the few last years, and a large amount of that is because the batteries getting smaller and better, electric vehicles are doing the same thing. It is the same technology just using it for a different purpose.”

Hawai’ian benchmark
Hawai’i is an example they studied because it is like the South Pacific countries.

“Hawai’i which has a similar geography to the South Pacific, it’s North Pacific and tropical country with small islands and they too have moved to replace the diesel-fired generators with solar panels,” says Wilson.

“That’s a good benchmark to look at on the technological side but the economics are slightly different because it’s bigger Island, but what we particularly looked is that is an example of what could happen.”

The next phase is due to begin as soon as the NZIPR give it the greenlight.

Peter Wilson explains the way forward. “Hopefully it starts sometime this year and that involves going out to the islands and doing on-the-spot investigations, talking to people, at the moment phase one was desk research based in New Zealand.”

“So far the Ministry of Foreign Affairs and Trade (MFAT) has been very supportive of the project They’ve been funding quite large numbers of solar panels into the Pacific and they are quite keen to look at this next development which is adding batteries to that investment.”

He says the electricity generation industries are facing a major change in the evolution of the technology with what they do in their business.

‘Technological revolution’
“These industries are facing a technological revolution. They have choices, how do they respond? do they try to get ahead the curve, do they bury head in sand, do they try and make it someone else’s problem.

“We are seeing around the world this issue is being addressed, in some countries, some companies are very supportive and wanting to get to get on the bandwagon.”

Ultimately the goal is renewable energy to expand access to affordable, reliable and clean energy in the Pacific. Renewable energy targets feature prominently in all their Nationally Determined Contributions submitted under the Paris Agreement on climate change.

Already a change is underway in Australia and New Zealand with a slow but sure transformation to renewable energy.

“It’s starting to change now. You are seeing in Auckland the lines company Vector is starting to invest in large batteries (Tesla Powerwall batteries) rather than just look at extensions to the grid.

This is a project that can change the economies of scale of Pacific countries and Peter Wilson is banking on it to transform lives in Samoa, Cook Islands and Tonga.

The Pacific Media Centre shares content with the NZ Institute for Pacific Research as part of a collaboration agreement. The video was edited by Blessen Tom as part of the partnership.