Electricity regulatory framework under further review – changes ahead for both embedded networks and stand-alone power systems

The Australian Energy Markets Commission has recently announced two separate reviews – one into the regulation of embedded networks and the other into stand-alone power systems.

With the national electricity framework having been founded on a centralised electricity supply model, the explosive growth of both embedded networks and large-scale localised generation options has presented challenges to the national regulatory framework.  The lack of clarity and consistency in the regulatory arrangements has become increasingly apparent.

The outcomes from these reviews are expected to make a marked impact on the development and uptake of stand-alone systems, such as solar power microgrids, and the attraction of embedded networks.

Embedded networks

Towards the end of 2017, in response to terms of reference issued by the COAG Energy Council, the AEMC published a report reviewing the regulatory arrangements for embedded networks.  It was clear from that report that the AEMC didn’t regard the regulatory arrangements in the sector as still being fit-for-purpose, and recommended a number of changes to promote competition and improve consumer protection.  In the report, the AEMC proposed:

• new requirements whereby embedded network customers would be visible in AEMO’s market systems;
• standard network charging arrangements between on-market retailers and embedded network service providers;
• requiring registration of embedded network service providers; on-sellers to hold a retailer authorisation; and extending to embedded network customers the metering arrangements applicable to standard supply customers;
• narrowing the network service provider and retail exemption frameworks; and
• enhancing consumer protections through enhanced information disclosure obligations, improving the AER’s monitoring and enforcement powers, and making the NERL and NERR work for embedded networks.

This new review builds on that work, with the AEMC looking to develop a package of changes to the National Electricity Law, the National Energy Retail Law, the National Electricity Rules, the National Energy Retail Rules, and other relevant instruments.

The AEMC will now commence a public consultation process with details to be advised.  An interim report is expected toward the end of this year and the final report in the middle of 2019.

Stand-alone power systems

Also announced, at the direction of the COAG Energy Council, is a review into stand-alone power systems.

With the national electricity framework not generally regulating off-grid electricity supply, regulation falls, to varying degrees, to other jurisdictional frameworks.  The need for a comprehensive assessment of the regulatory environment, and the potential for national consistency, is an understandable response to the growth in stand-alone power options being advocated both by distribution network service providers and third party providers.

Issues to consider as part of the review include:

• the certainty of supply and reliability;
• the monopolistic characteristics of a stand-alone power system, which could adversely impact end users;
• the imbalance in bargaining power and potentially inadequate information for consumers, creating potential consumer protection issues;
• the impact on the rest of the grid, both for supply businesses and end users; and
• barriers, both economic and non-economic, to new products and services that may increase energy productivity and otherwise have potential benefits for consumers.

The initial priority for the review will be to establish a framework, having regard to these types of issues, to facilitate the transition of grid-connected customers to stand-alone power systems provided either by distribution network service providers or by third parties.  An issues paper is expected within the next week, a draft report by the end of the year and a final report by the end of May 2019.

Thereafter, the review will focus on developing a national framework for third party stand-alone power systems by the end of October 2019.

The evolution of electricity production and distribution in Australia continues apace.  The regulatory response will be a crucial factor in determining future direction and trajectory.

Authored by:
Adam Walker