Jun 23 2017

Embedded networks: Same same, but different

At the request of the Council of Australian Governments (COAG) Energy Council the Australian Energy Market Commission (AEMC) is reviewing the regulatory arrangements for embedded networks under the National Energy Retail Law (NERL) and National Energy Retail Rules (NERR)[i].

Embedded networks are private electricity networks which supply the likes of shopping centres, retirement villages, apartment blocks and complexes and caravan parks.

Their numbers have grown significantly in recent years. A range of business models have emerged incorporating both distributed generation and new technologies, such as energy storage. The arrangements within embedded networks are increasingly difficult for consumers to comprehend.

Energy supply and sales agreements are subject to a high level of regulation and oversight, which is consistent with the view that it is an essential service. When an embedded network owner or operator wishes to sell electricity within the embedded network they must obtain either a retailer authorisation, such as those held by the major electricity retailers from the Australian Energy Regulator (AER), or be exempted from holding a retailer authorisation. This exemption means that their customers are not subject to the same high level of regulation and oversight, and as a result the same rights and protections as those of an authorised retailer. Basic rights such as access to an energy ombudsman scheme are not upheld.

This approach is clearly contentious. The supplier of the electricity is subject to differing authorisation and regulation, and the enforcement regime points to more severe penalties on authorised retailers than for exempt sellers for a comparable breach of regulatory obligations around retailing the same good – electricity. Where regulations can be ‘peeled off’ by the exemptions framework we might assume they are superfluous to the minimum rights and protections afforded to all other electricity consumers.

Two-tiered regime

The exemption framework has been compared to other two tiered regulatory regimes, such as those for therapeutic goods or financial services. But they are not analogous. The subject of the differing regulation in those multiple tiered regimes is the product itself, not the supplier. This product based approach means that compliance obligations are uniform across suppliers of the product. In the energy exemptions framework, it is the supplier that is subject to differing authorisation and regulation, even though the product of retailed energy is the same.

Multiple tiered regulatory frameworks that can be applied differently according to the provider’s business model are often popularised as lowering barriers to entry and improving competitive outcomes. At least that’s the theory. In practice, exemptions that lower the cost of compliance for certain business models, when compared to those of say an authorised retailer, create regulatory arbitrage leading to distorted incentives and price signals.

Improved access to competition may improve opportunities for customers of exempt networks in Victoria, South Australia and New South Wales, but embedded network customers in the ACT, Tasmania and Queensland continue to have costly regulatory impediments in place that require them to connect directly to the network should they wish to access retail market offers. The practical effect of this requirement is to deny the customer access to competition.

Change versus status quo

Submissions to the AEMC consultation to date are divided along fairly predictable lines, with consumer representatives and authorised retailers making the case for an alignment of all electricity consumer rights and obligations, and those benefitting from the current arrangements appealing for the status quo. The AEMC will publish its Draft Report in September this year, and make its Final Report and recommendations to COAG by December.

 


[i] http://www.aemc.gov.au/News-Center/What-s-New/Announcements/Review-of-embedded-networks-regulatory-arrangement

Related Analysis

Analysis

Queensland’s pumped hydro plans

In September 2022, then Queensland Premier Annastacia Palaszczuk announced plans to construct two new pumped hydro projects: Borumba Dam – a 2GW facility located in Imbil, 50km west of Noosa, and the Pioneer/Burdekin facility which plans to offer 5GW of storage, located 75km west of McKay. We take a look at pumped hydro and how it can support the energy transition.

Apr 11 2024
Analysis

Gas outlook highlights peaking plant role in transition

Apart from raising some alarm bells over future potential gas shortfalls, the release of the Australian Energy Market Operator’s assessment of gas needs again highlighted the important role gas generation will play in the energy transition.  Gas generation is seen increasingly as a “strategic reserve for power system reliability and security” and “will be critical when it runs”. We take a look. 

Apr 04 2024
Analysis

Reviewing the Reviews, Part II

The first meeting of the Energy and Climate Change Ministerial Council (ECMC) for 2024 brought to the fore the extent of change underway in the energy sector. The ECMC’s communique hints at the breadth of reviews and assessments into the energy sector and operations of the National Electricity Market (NEM). It's part of a now long-established pattern. For well over a decade, energy has been at the forefront of policy developments, largely because of the significant changes to our grid. Along with those changes has come a heightened political involvement. With political interest has come a myriad of reviews, assessments and interventions to make the NEM “fit for purpose”. We take a look at the latest ECMC work and the extent of reviews underway.

Mar 07 2024
GET IN TOUCH
Do you have a question or comment for AEC?

Send an email with your question or comment, and include your name and a short message and we'll get back to you shortly.

Call Us
+61 (3) 9205 3100