Distributed energy resources: opportunities and challenges of shifting the power system from a small number of large generators to a large number of small generators

By Australian Energy Market Commission Director, Christiaan Zuur

and Adviser Olga Iaroshevska

A common phrase doing the rounds is that the national electricity market is “in transition”. This is often shorthand for the remarkable developments at the overall system level, particularly the exit of large synchronous generators (mainly coal and gas), and entry of a large number of smaller, widely distributed asynchronous generators (mainly wind and solar).

But a parallel transition is happening much closer to home.  Increased uptake of rooftop PV and battery storage, more commonly known as distributed energy resources, is providing new opportunities for consumers, including more control over meeting their own consumption needs, producing energy for their local community and helping reduce greenhouse gas emissions.  

Consumers are taking advantage of these new technologies at an increasing rate. The Clean Energy Council estimates that 1 in 5 rooftops have solar PV installed, with 6 panels installed each minute in 2018. Solar PV penetration is forecast to increase rapidly, and in the future is likely to be accompanied by rapid growth in battery storage. This represents a major increase in the number of small generators in the system, the majority of which are connecting to the lower voltage, “downstream” distribution networks.

These technologies are here to stay. The focus of the Australian Energy Market Commission’s work is on the least cost ways to integrate them into the grid; maximise the total benefits to all consumers; and keep the power system secure and reliable.

Distributed energy resources (DER) can include many kinds of technologies. For the purposes of this paper, we mainly focus on the impact of increased rooftop solar PV. While battery storage will be increasingly relevant, the large volumes of solar PV already installed means this technology is currently the major driver of changes in the system.

We explore the power system reliability and security implications of increased DER penetration. This includes benefits for individual consumers, as well as provision of new reliability and security services. It then examines some of the challenges that increased DER penetration can present for the reliability and security of the overall system.

The AEMC has a range of projects underway addressing many aspects of DER, including potential impacts on our transmission and distribution networks. The annual Electricity Networks Economic Regulatory Framework review and active participation in the sector’s Distributed Energy Integration Program, for example, are examining how to maximise the benefits of DER for all consumers.

Figure 1: Installed residential rooftop solar PV forecasts


Distributed energy resources impact the power system by changing demand patterns

One of the most significant impacts of increased DER penetration is the way that it changes patterns of residual, or operational, demand. Residual demand is the energy demanded by consumers from the main power system, after they have used the energy produced by their rooftop PV. In aggregate, the more energy is produced from rooftop PV, the less energy is demanded from the main grid, resulting in lower levels of residual demand.

Increased rooftop PV does this in two related ways, by:  firstly, reducing levels of operational demand at different times of the day and secondly, shifting and potentially reducing periods of peak demand.

Reducing levels of operational demand around midday: Rooftop PV output is, unsurprisingly, linked to how brightly the sun is shining.  Rooftop PV has led to lower residual demand during daylight hours, particularly around midday (noting that this depends on how solar panels are oriented, on average). However, in the absence of much distributed storage, this has little effect on residual demand at other times, resulting in a hollowing out of the profile of daily demand, around the midday period where rooftop PV generation is at maximum.

This impact on the residual demand profile is commonly referred to as “the duck curve”. Figure 2 below, produced by AEMO and taken from the AEMC Reliability Panel’s 2018 Annual Market Performance review, shows projected residual demand curves for South Australia. Admittedly, it’s not very duck-like. However, it illustrates how increased energy from rooftop PV around midday hollows out the middle of the demand profile. This is set to become more extreme further into the future, as households install more rooftop PV.

Shifting and reducing peak demand periods: Another aggregate impact of increased DER can be to shift and reduce when peak demand periods occur. For example, if increased generation from rooftop PV coincides with periods of high demand for energy from the main grid (driven by factors such as high temperatures and increased air conditioning load), this can help to reduce the total operational demand, at that point in time.

This effect was observed in Queensland over the period 12th to 16th February 2018, when an intense heatwave drove record breaking levels of peak demand. Figure 3 below shows operational demand in Queensland, which has some of the highest levels of PV penetration in the NEM. The chart demonstrates how rooftop PV helped to reduce levels of peak demand, as well as shifting the timing of peak demand to later on in the day.

Figure 2: Projected changes in operational demand in South Australia



Figure 3: Queensland demand between 12 and 16 February 2018



These impacts on operational demand are relevant to both the range of opportunities and challenges presented by increased DER penetration.

Opportunities presented by increased DER penetration

DER presents many opportunities, for individual consumers directly as well as in terms of better management of the system. DER provides consumers with opportunities to better control their own energy consumption. DER output can also help reduce peak demand, reducing stress on the system and helping to reduce wholesale and network costs. Finally, DER can be aggregated to provide a range of system security and reliability benefits.

Benefits for individual consumers: The first and most obvious benefit of DER is the extent to which it allows consumers to better manage their own consumption of energy. DER such as rooftop PV can be used by consumers to meet their own household demand, provided that consumption patterns are shifted accordingly. This provides consumers with opportunities to markedly reduce their bills, particularly when used in conjunction with time-of-use tariffs, or other cost reflective tariffs.

The extent of these benefits will be enhanced by increased penetration of behind the meter battery storage. While rooftop PV without storage can reduce demand, this is limited to the extent that the PV cells are actually producing electricity. The installation of storage allows for this energy to be used at a later time, providing consumers with even greater opportunity to better manage their own consumption and reduce their bills.

Reductions in peak demand: As demonstrated in figure 3, rooftop PV can contribute to a marked reduction in levels of peak demand, which can drive positive impacts for consumers by reducing stress on the system as a whole. This can in turn reduce wholesale costs, improve reliability outcomes and reduce network costs.

Reliability in the NEM is about having enough generation, demand response and network capacity to supply customers with the energy that they demand, with a very high degree of confidence. Typically, challenges to reliability of the system currently occur at periods of very high demand, which is in turn often driven by high levels of residential demand. During these high demand periods, market reserve levels can be eroded, requiring either expensive interventions in the system, or shedding of customer load.  These peak demand periods can also be key drivers of the need to invest in new network, imposing significant costs on consumers through increased network tariffs.

By reducing demand at these peak times, DER can help reduce the aggregate demand and therefore reduce the need for interventions, or the risk of load shedding, improving reliability outcomes for consumers. Furthermore, as these peak demand periods result in scarcity, and therefore high prices in the spot market, any reduction in the level of absolute peak demand can help to reduce wholesale costs. Finally, by reducing the total demand placed on networks, DER can contribute to reducing the need for new network build. These reductions in wholesale and network costs can reduce final bills faced by consumers.

System services and security: DER can be aggregated to provide a range of services that can support the reliability and security of the system. More generally, the coordination of DER control settings can also act to reduce the severity of power system disturbances.

DER can be aggregated into virtual power plants (VPPs). VPPs consist of coordinated DER that can deliver some of the capabilities of a larger, single power plant. VPPs can deliver multiple services, including the provision of energy as well as services to support the security of the power system, such as controlling frequency. There are several examples of VPPs already active in the NEM, including the ActewAGL VPP which is registered to provide frequency control services, and AGL’s South Australian VPP which can provide of 5MW of energy from 1000 aggregated DER systems.

The AEMC is working with AEMO, the AER, and members of the Distributed Energy Integration Program (DEIP), to set up a series of VPP demonstrations. These demonstrations are a part of a broader work program considering changes to regulatory frameworks and operational processes to effectively integrate DER into the NEM.

The AEMC has progressed a number of other reforms in this area through our frequency control frameworks review, which considered how DER can be utilised to provide security services. This included enabling a new category of market participant, the market ancillary services provider, to aggregate DER to offer frequency control services; there are now several of these aggregators offering these services in the NEM.

DER can also support the power system during major disturbances. This is related to the way that DER is connected to the system, which is typically through electronic inverters. These inverters have protection mechanisms to disconnect from the main grid following unexpected changes in frequency or voltage, which can occur following a major disturbance to the power system, such as the loss of a major transmission line.

As DER volumes increase, the collective operation of DER inverter protection systems can help reduce the magnitude of these disturbances. This occurred on 25 August 2018, when the major transmission line connecting Queensland and New South Wales tripped due to a lightning strike. Following this trip, there was a sudden increase in system frequency in Queensland, which was partly ameliorated by the coordinated tripping of large volumes of DER which helped to reduce frequency. 

“Downstream” changes impact “upstream” systems

Historically, the power system was designed around the concept of a small number of large, centrally located generators, with electricity transported at high voltages to load centres, then delivered through lower voltage distribution networks. This traditional model of electricity supply saw power flowing unidirectionally, from upstream generation centres to downstream distribution networks and small consumers.

While a lot of our electricity is still delivered this way, the model of unidirectional flow is changing as more DER connects to downstream distribution networks.  This increasingly bi-directional system means that DER will have increasing impacts on the rest of the power system.

One of the ways this occurs is through the impact of DER on operational demand, or the amount of power demanded from the main system. This in turn drives changes in the mix of large scale, upstream generation. This impacts both normal operation of the system, as well as how it responds to major disturbances.

Displacement of large scale synchronous generation is the starting point. As shown in figure 2, increased DER contributes to a reduction in operational demand around midday. As less energy is required from the main power system, this tends to drive down wholesale spot market prices. This in turn displaces large, thermal synchronous generators first (typically coal and gas), which have higher running costs than asynchronous generators (typically wind and solar).

This displacement effect influences the ability to control frequency, system strength and voltage on the main power system.

Impacts on system frequency and system strength: This displacement can impact power system frequency and strength. Frequency is effectively the “speed” of the system, while system strength is the system’s ability to maintain stable voltages following a disturbance. Online synchronous generators, typically coal, gas and hydro, are directly and electromechanically connected to the network. Because of this direct link, they provide frequency stability and system strength through their physical characteristics, such as the inertia (energy storage) of their heavy rotating generator turbines and rotors.  Conversely, wind and solar generation has little or no equivalent energy storage, and is connected to the network via electronic inverters. As such, currently these generators typically do not support the frequency and strength of the system in the same way, although this may change in future with developments in inverter technology.

The displacement of online synchronous generation with asynchronous solar and wind generation around midday can therefore make frequency and system strength harder to control when the system is disturbed.  Of course, it is important to note that DER is only one contributing factor to this general change in the generation mix at the upstream transmission level.

The AEMC has introduced mechanisms to deliver minimum levels of frequency stability and system strength, and AEMO has the ability to intervene to deliver adequate volumes. NSPs are also undertaking actions to deliver minimum required levels of fault current and inertia, to maintain the system in the longer term.

Impacts on system voltage: A similar effect can occur for system voltages. Voltage is the “pressure” of the power system, and must be kept stable to prevent system collapse. Increased DER can contribute to issues with over voltages (too much pressure) by: firstly, reducing operational demand, which in turn reduces the loading on large transmission lines, which causes voltages to rise; and secondly, by displacing large synchronous units, which can be used to stabilise voltage.

This effect has recently been felt across the NEM, particularly in Victoria, where AEMO has been required to switch off lightly loaded lines to keep voltages within stable ranges. This reduces system resilience and can increase costs for consumers by reducing the import of cheaper power from other parts of the power system.

Various transmission network planners are investigating the need for better voltage control across the NEM, as this issue is emerging in several regions.  The AEMC and AEMO are also progressing a longer term work program which will consider what kinds of voltage control services may be needed in future.

Operation of system protection schemes: Another important security impact of DER relates to the effective operation of system protection schemes.  These schemes trip distribution network lines to shed residential customer load, which helps to stop the frequency from falling following a major disturbance. As more DER is installed on customer rooftops, these schemes become less effective, as there is less certainty as to how much load may actually shed when the schemes are activated. In the worst case scenario, very high levels of active DER behind a network line means that activation of these schemes could actually have the effect of tripping generation, making the initial frequency fall worse.

Figure 4: Number of times 500 kV transmission lines de-energised to manage voltage in Victoria



The AEMC made a rule in 2017 that requires AEMO to regularly reassess the effectiveness of these schemes, and AEMO has completed two of these reviews. AEMO is also examining protection settings, through its assessment of DER technical standards. Finally, through its review of the South Australian System Black Event, the AEMC will consider whether new contingency events may emerge in the NEM, which may include the kinds of DER related disturbances described above.


The increased consumer led uptake of DER is driving a number of positive outcomes for consumers, and for the reliability and security of the power system as a whole.

DER offers consumers new opportunities to control the way they use energy, which can in turn help reduce bills. DER can also provide energy and other services to the power system, which reduces strain during peak demand times, helps to support security and reliability, and reduces system costs for consumers.

The careful coordination of DER protection settings can also provide the system with better protection against disturbances, helping to reduce the risk of large black outs.

As with most changes driven by new technology, there are also a number of challenges to be addressed, so that DER can be successfully integrated into the power system. In particular, DER is already driving significant changes in patterns of demand, which changes the operation of the large scale generation fleet. These changes can in turn impact the security and reliability of the system.

The AEMC is addressing these system security and reliability issues. This includes our work reviewing the established system strength management frameworks, as well as considerations of how new technologies like DER might be relevant to the management of disturbances to the power system. The AEMC is also considering how DER is relevant to the participation of load in the market, through the three rule change requests that we currently have on foot to facilitate wholesale demand response.

We are actively engaging with the other market bodies, industry, government and consumers to address these issues. We look forward to further engagement with all interested parties to consider how best to integrate DER, with a view to delivering the best possible outcomes for all consumers.