Local network credits and local electricity trading: Results of virtual trials and the policy implications

Highlights: • Current market rules stop distributed generation (DG) from serving optimal local load. • Cost-effective DG projects may not be realised under current market rules. • Local electricity trading (LET) & local network credits (LNCs) could increase DG uptake. • LET and LNC could improve sizing & operation of cogeneration and other DG. • LET and LNC could remove perverse incentives to duplicate network infrastructure. - Abstract: Current charging methods for network infrastructure and recompense for distributed energy may not result in optimum system solutions. Once feed-in tariffs to support the development of renewable generation are phased out, the payment for grid exports is usually based on the wholesale energy value alone. Network charges are generally levied in full, with few attempts to offer a partial charge, or completely waived. Local Electricity Trading (LET) and Local Network Credits (LNCs) offer one approach to reforming charge structures. This paper examines the effects of LET and LNC on different stakeholders in four virtual trials of medium scale distributed generation projects around Australia, and the implications for policy. The trials found the large value gap between behind the meter systems and grid exports may lead to duplication of network assets, inefficient sizing and operation of distributed generators, and a lack of incentive for dispatchable generators to operate at peak times. The trials indicated that in most circumstances, the combination of LNC and LET addresses all four problems identified to some degree.