COVER SHEET FOR SUBMISSIONS Independent Review into the Future Security of the National Electricity Market 1. Overview Please include this cover sheet with your submission on the Preliminary Report of the Independent Review into the Future Security of the National Electricity Market.

2. Background The Preliminary Report outlines the Panel’s observations about the current state of the NEM and offers questions on the major issues the Panel has identified. The questions are designed to elicit suggestions or answers that may help form the Panel’s final recommendations. The Preliminary Report serves as an issues paper for broad public consultation. As such, the questions and views will be subject to further consideration and discussion, in anticipation of the final blueprint being produced in 2017. Stakeholders are encouraged to keep their submissions as succinct as possible, and include a one-page executive summary.

3. Contact Details Name of Organisation (where applicable)

Changing Weather

Name of Author

Heather Smith

Phone Number (optional)

0417862206

Email

[email protected]

Address

335 Angas St, Adelaide 5000

Website (optional)

https://changingweatherblog.wordpress.com/

Heather Smith is a Churchill Fellow. In 2016 she looked community energy around the world and its role in provoking change and in defining each country's energy transition. Heather serves on the boards of both CORENA and C4CE.

4. Confidentiality and Privacy The Department will treat all submissions as public documents, unless the author requests the submission be treated as confidential. Public submissions will be published in full on the Department’s website. The Department will publish your name, organisation (if applicable) and state or territory with your submission. A request may be made under the Freedom of Information Act 1982 (Commonwealth) for a submission marked ‘confidential’ to be made available. Such requests will be determined in accordance with provisions under that Act. The Department will deal with personal information contained in, or provided in relation to, submissions in accordance with this cover sheet and its Privacy Policy (http://www.environment.gov.au/privacy-policy). That personal information is collected for the purposes of identifying authors of submissions. It may be used and disclosed within the Department and to other persons for the purposes of carrying out the review, and otherwise as required or permitted by law. Do you want this submission to be treated as confidential?

No

5. Submission Instructions The submission period will be open until close of business on Tuesday 21 February 2017. All submissions should be emailed to the NEM Security Review at the mailbox: [email protected]

Heather Smith is a Churchill Fellow. In 2016 she looked community energy around the world and its role in provoking change and in defining each country's energy transition. Heather serves on the boards of both CORENA and C4CE.

Heather Smith Changing Weather 335 Angas St Adelaide, 5000 [email protected]

Submission for Independent Review into the Future Security of the National Electricity Market Via email: [email protected] My submission makes 7 key points: 

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The best energy system will have substantial neighbourhood / local scale generation and control. A smart, efficient network of decentralised grids was shown by Amory Lovins in the 70’s to be the most cost-effective if one looks at the system-wide economies. This is what we should be aiming for. Our energy transition provides a unique opportunity to challenge the current paradigm. While the system claims to deliver value to customers and long term benefits to the Australian public, it has repeatedly failed on measures of fairness and climate change outcomes. It is clear that changes to the ownership of the system, the control of the system and the immediate beneficiaries could deliver these needs far more effectively. This is what the community energy sector is currently proving. The climate change imperative is more pressing than official reports and your preliminary report states. Remember that the world has agreed to limit warming to 2°C and agrees that 1.5°C would be better. Remember also that the sum of commitments doesn’t get us there yet. Australian government projections rely on the international community to sell us surplus credits while ignoring the sun shining strongly in our own backyard. The technology could give us 100% renewable electricity in the next 5 years if we wanted and I believe we could do it affordably by 2030. We need our electricity systems to race to a target of 80% renewables because the transitions of heat and transport rely on us getting this sector moving first. My international experience showed that other countries are benefiting from stable policy environments, a culture of support around community involvement in the energy system and a specialised NGO sector often with 20 years presence in their communities. Energy markets are often more innovative and experimental because the energy transition is built into the regulatory culture. Australia has done well in its 15+ year support for rooftop solar but is yet to unlock the mid-scale and local opportunities. There is no suitable structure in place for regulatory and system innovation. The community energy sector in Australia is emerging at pace. There are now over 90 groups around Australia, many of whom convened in Melbourne this week. There is much to be learned about why communities are mobilising in this space and the ways that support from all tiers of government can unlock community effort and benefits. This is a sector that warrants significant funding and policy attention. The energy corporations and individual sites are not incentivised to build local scale energy solutions. At the neighbourhood scale, a project carries the overhead of collective decision making and multiple stakeholders. Compounding this are the barriers to entry in the market for a modestly scaled project and a number of market failures which sees financial value and local benefits underpaid in the NEM. Finally, the process by which we arrive at good solutions to the current energy market crisis needs a rethink. A single report such as this one will only start the conversation. Or worse, make no progress at all in the hostile, childish buffoonery that is our political environment on this issue. Heather Smith is a Churchill Fellow. In 2016 she looked community energy around the world and its role in provoking change and in defining each country's energy transition. Heather serves on the boards of both CORENA and C4CE.

Lets recognise that it is worth resourcing a deliberate process of designing, experimenting, listening and doing for at least the next three years. We need to crack open good solutions, get stronger agreement amongst stakeholders and consistently improve the financial, technical and regulatory systems in the NEM. No single entity or Government can lead this process. Creating a neutral space with an independent secretariat and shared understanding of the ability of good process to deliver good changes is the key to success in how our energy transition planning and delivery proceeds.

My recommendations are made against each point below1:

1. Decentralised Future The best energy system will have substantial neighbourhood / local scale generation and control. In South Australia, individuals have already built the equivalent of a new power station – 800MW of rooftop solar. This scale of investment is set to continue and demands a rethink of the future financial flows throughout the system. Unlike many sector commentators, I have spent my time looking at the system beyond the meter and understanding the implications for economic development and climate change policy. It is important to understand that cheap energy efficiency and demand management is available in in almost every household, business and industry and can provide value to system costs – value that remains to be unlocked because current system design does not encourage it. Heat and transport could become part of our electricity system at a faster pace than we appreciate. It is technically possible to leap frog past gas as a transition fuel and preferable to be positioned in a decade without sunk costs in fossil fuel infrastructure. Nuclear propositions cannot deliver in the timeframe we need, will not be supported by communities and cannot integrate usefully with wind and solar. a. Deliver an economic evaluation at the system level, to compare centralised, individualised and decentralised structures for our electricity system and help everyone understand the value of promoting and supporting the emergence of local scale energy systems. Value such as energy security, local economics, integration of heat and transport should also be included as less direct benefits of such a vision. b. Defer large interconnector investments and divert the resources immediately to local scale solutions. c. Evaluate large scale new gas investments with significant and increasing carbon pricing as the key scenario and realistic assumptions about the pricing risks of future

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Time contraints have limited my ability to identify the suitable references and evidence base for each claim I have made. I am happy to conduct further research to substantiate any of my assertions, should the Review be interested. Heather Smith is a Churchill Fellow. In 2016 she looked community energy around the world and its role in provoking change and in defining each country's energy transition. Heather serves on the boards of both CORENA and C4CE.

gas prices. I don’t believe gas is the replacement for coal – we need to jump to technology such as solar thermal for our large scale needs. d. Implement the Garnaut recommendations to plan the closure of our coal systems and phase them out while supporting the communities that rely on coal based jobs.

2. Paradigm shift for ownership, control and beneficiaries Our current system repeatedly fails to deliver the fairness and climate change outcomes needed. The community energy sector is currently proving models that are locally owned and delivering savings, dividends and jobs back into local communities. Local control will develop as battery technology and smart controls improve and communities build enough self-sufficiency into their systems. The fact that our system is in crisis and its failings are on display provides an excellent opportunity for us to revise the goals and governance of the system and better deliver what the community needs. a. Change the National Electricity Objective until the system truly acts in the long term interests of all Australians. b. Encourage local sovereignty. Develop systems to best support local ownership, energy system development and control. c. Ensure all new energy generation is offered for part community ownership and provides a community energy fund on an ongoing basis.

3. Climate change demands we reach 100% renewables by 2030… ….technology could sprint us there tomorrow. The experts within our energy systems need to be actively designing affordable models of an energy system operating with high levels of renewable energy. South Australia has almost reached 50% without trying. Our designers should be playing with scenarios for pushing through our current constraints and experimenting with new options to better understand the technologies and the higher value features. Flexibility, for example, is poorly priced in our current system. Energy security has additional value but not every load needs to pay the cost of essential services. In the global effort to tackle climate change we have a very clear choice to make. Step up to the challenge with the belief that if we serve ourselves well, we will create economic development opportunities for ourselves OR protect ourselves from change by refusing to lose any of the advantages fossil fuels have given us to date. There are enough signs that change is upon us and thus significant risks in relying on the latter scenario – for our economy and for our climate and everything about our livelihoods that depends on it.

Heather Smith is a Churchill Fellow. In 2016 she looked community energy around the world and its role in provoking change and in defining each country's energy transition. Heather serves on the boards of both CORENA and C4CE.

a. Set targets of 60% renewable energy in SA, 50% Australia wide, 80% in a region and 100% in a town and ask how fast we can reach each. b. Put experts (technical, financial and regulatory) in charge of designing new system models and make sure those staff are dragged outside their current bubbles to understand the whole system. c. Resource the experiments that will help our system learn about possible changes.

4. International insights Highlights from my Churchill fellowship include:        

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The effectiveness of the Energiewende in Germany. Stable, long term and consistent. Not without its challenges. The culture in Germany and Denmark that delivers high levels of community ownership. The courage of the New York Renewing the Energy Vision challenge. The promise of new technologies – storage and blockchain in particular. The buzzwords of the energy sector – micro-grids, storage, self-consumption, flexibility, integration (of transport and heat), electric vehicles, heat pumps. The failure of utilities to deliver smart grids despite enormous funding – time for smart homes to lead the way. The hunt by big corporations to unlock behind the meter opportunities through customer relationships – “we will manage energy and energy services (such as replacing a broken hot water system) for you”. The commitment of communities that have fought big budget utilities for the right to own their own electricity grid and deliver renewable energy to their communities. Decade long battles in some cases. Like many of our own communities, battles triggered by fights against nuclear, coal or fracking and focused on delivering positive change instead. The e-Lab process of the Rocky Mountain institute that delivers a safe environment for the energy sector to come together with community and design electricity system innovation. The NGOs, longstanding in the community delivering services like energy efficiency (the never ending marathon) and more recently providing the community infrastructure for building local power stations and innovative solutions. The demonstration by Energinet.dk of their cellular grid – the ability to keep a local area online during a blackout using local energy resources – a mix of small scale wind, cogeneration and storage. The regulators who can see the opportunity for a significant shift. “what does the value of the grid look like if we start from the premise of off-grid systems”. OFGEM’s innovation program in the UK. Many countries have many more 100kW – 5MW systems than Australia and half the sunshine! German and Japanese industry get the cheapest electricity and are protected from the cost of changes in the system.

Heather Smith is a Churchill Fellow. In 2016 she looked community energy around the world and its role in provoking change and in defining each country's energy transition. Heather serves on the boards of both CORENA and C4CE.

a. Don’t underestimate the work that needs to be done at local, state and federal level to understand our own energy assets and unique opportunities from energy transition. b. Listen to community voice. Customers will abandon energy companies that fail to deliver what they want and citizens will overturn Governments that fail to usher in the changes the system needs.

5. Community Energy will play a significant role The community energy sector in Australia is emerging at pace. The Community Energy Congress demonstrated a wealth of experience and stunning diversity of projects and business models. Communities are mobilising in this space because they are fighting fracking, or they are fed up with poor supply security and high prices. You can read more about what community energy is here. Communities are driven by the need to build more renewables, share the benefits of energy supply locally (Enova estimate that being embedded in their community and with profit flow to local investors could be worth about $8m per year to the northern rivers region) or support those on low incomes who will overwhelmingly spend savings locally. In my briefing note for community energy I make six recommendations: a. Government support is warranted b. We need to innovate and experiment more c. We need to see our energy transition as an economic opportunity d. We need to develop our community energy sector e. It is always worth investing in energy efficiency f.

Community values should inform the design of our future energy system

6. Address the barriers to local scale energy solutions The energy corporations and individual sites are not incentivised to build local scale energy solutions. At the neighbourhood scale, a project carries the overhead of collective decision making and multiple stakeholders. Compounding this are the barriers to entry in the market for a modestly scaled project and a number of market failures which sees financial value and local benefits underpaid in the NEM. Examples of barriers to entry include the cost of dealing with more than 20 shareholders, the cost of wholesale or retail licences and the lack of resources from which to startup projects and build organisations. Some examples of market failures are postage stamp pricing of distribution infrastructure and ineffective demand management price signals and opportunities.

Heather Smith is a Churchill Fellow. In 2016 she looked community energy around the world and its role in provoking change and in defining each country's energy transition. Heather serves on the boards of both CORENA and C4CE.

This section warrants a much longer discussion and consideration about how the current energy system finances key parts of an energy transition that are impoverished at the moment. a. Recognise the uniqueness of community scale energy opportunities and work to overcome the barriers in order to encourage this market segment.

7. Resource the process of planning our energy transition My final recommendation is a deliberate change process. The market and its regulators are in a continual chase to catch up to the future and at the same time slow down its disruption. Many commentators have called for planning and I support a deliberate process of designing, experimenting, listening and doing for at least the next three years. If we recognise that the financial, technical and regulatory systems in the NEM all need to change, we need an iterative process to accommodate this. We also need all the actors in the system to learn. Many have not learnt about how to accommodate wind and solar into the system despite a 15+ year signal from the federal government RET that this was going to happen. Many have not explored the decentralised opportunities or behind-the-meter changes despite 30+ years since the oil crisis. No single entity or Government can lead this process or be responsible for it. Creating a neutral space with an independent secretariat and shared understanding of the ability of good process to deliver good changes is the key to success in how our energy transition planning and delivery proceeds. All the well-resourced players in this game need to have a long think about the missing voices and how to fund their involvement. I have started to shape up what this process could look like and would welcome the opportunity to discuss further. a. Develop an energy transition process with shared understanding that good process leads to better decision making. Resource this process and keep it independent.

Heather Smith is a Churchill Fellow. In 2016 she looked community energy around the world and its role in provoking change and in defining each country's energy transition. Heather serves on the boards of both CORENA and C4CE.

About Me HEATHER SMITH: Electrical Engineer, Policy Maker, Energy Consultant. Awarded a Churchill Fellowship to identify robust governance structures in community energy schemes and key ingredients for the transition of our energy systems – Travel to USA, Germany, Denmark, UK and Japan in 2016. I observed the energy transitions of different countries in both rural and urban settings. In my report to the Churchill Trust, I concluded: 1. Every place will have its own unique energy solutions – we need to do the work of understanding ours. 2. Utilities and Governments ignore citizen requests for more renewable energy and local energy at their peril. 3. The energy transition needs disruptive influences such as technology and community energy. 4. The system also needs ‘middle spaces’ where actors across the energy landscape can work together toward understanding and designing changes for the energy system. 5. Community energy builds political support and is our best chance of changing the goals of the system – a key step in changing the energy system paradigm. 6. Incorporating smart grid and demand management technology still holds great promise but needs more work. My full report can be accessed on the Churchill Trust website: https://www.churchilltrust.com.au/fellows/detail/4074/Heather+Smith and further thoughts on energy policy for South Australia can be found at: https://changingweatherblog.wordpress.com/

Resourcing the Sector In the energy sector, one can drown in consultations. At the core, staff across the energy system are paid to engage in this process. More broadly within government and NGOs, organisations juggle priorities in order to spend time and individuals volunteer discretionary effort and time because this is important. For individuals and volunteer-run community groups, attempting to influence the energy sector is done on a completely volunteer basis and detracts from the ‘doing’. This disparity of resourcing means that the community voice will always be the least well expressed and heard. This submission took me 4 hours of personal time to write, excluding prior thinking, reading and attendance at the consultation session. If you value this effort, please donate to CORENA or pledge to donate an hour of your own time to your favourite community cause.

Heather Smith is a Churchill Fellow. In 2016 she looked community energy around the world and its role in provoking change and in defining each country's energy transition. Heather serves on the boards of both CORENA and C4CE.