Market Review: Open

Overview

The annual review of the economic regulatory framework for electricity networks is part of the AEMC’s work to support the continual evolution of the energy sector.
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The annual review of the economic regulatory framework for electricity networks is part of the AEMC’s work to support the continual evolution of the energy sector. In light of the significant growth in decentralised energy resources, the review examines whether the economic regulatory framework is robust, flexible and continues to support the efficient operation of the energy market in the long term interest of consumers. 

For the 2019 review the AEMC will be consulting on two separate workstreams and will include advice and recommendations for both in the final report. 

Workstream one: network incentives and market development

This workstream is part of the AEMC’s ongoing program to support the continual evolution of the energy sector. 

On an annual basis and under terms of reference from the COAG Energy Council, the Commission monitors key trends in grid usage as well as development and uptake of new technologies and business models.

For the 2019 review, the Commission will commence consultation on alternative approaches to network service provider expenditure assessment and remuneration - as recommended by the Finkel Review. This follows on from the Commission’s finding in the 2018 review that incentives are not aligned and in certain circumstances, a strong capital expenditure bias exists.  

The 2019 review report will also provide a centralised repository of information and an update on the various workstreams supporting efficient investment in decentralised energy resources.

The AEMC has published an approach paper seeking stakeholder feedback on the range of potential solutions available to address the issue of capital expenditure bias. Submissions were due by 14 February 2019 and can be found below.

The AEMC held a public workshop to discuss network expenditure bias in Melbourne on 6 March 2019.

Workstream two: regulatory sandboxes

The emergence of innovative energy technologies and business models can bring significant benefits to consumers, but new concepts can sometimes be inconsistent with the existing regulatory framework. 

The AEMC is exploring potential barriers to trialling new approaches and whether there may be a need for formal regulatory sandbox arrangements in the national electricity market. A "regulatory sandbox" is a framework within which participants can trial innovative technologies, business models, products and services in the market under relaxed regulatory requirements at a smaller scale, on a time-limited basis and with appropriate safeguards in place.

The Commission was requested to consider issues beyond economic regulation of electricity networks and the need for regulatory sandbox arrangements in other parts of the NEM regulatory framework, for example, relating to wholesale electricity markets and consumer protections.

Interim advice

On 7 March 2019 the AEMC published its interim advice to the COAG Energy Council’s Senior Committee of Officials (SCO) on regulatory sandbox arrangements. 

The AEMC’s interim advice is that formal regulatory sandbox arrangements should be introduced in the national electricity market. This would make it easier for businesses to develop and trial innovative energy technologies and business models, with safeguards in place. 

The regulatory sandbox arrangements would consist of a combination of new and existing tools to help facilitate proof-of-concept trials. These tools could include: 

  • a clear process for businesses to access feedback and guidance on regulatory issues so they can get their trials up and running sooner. This process could be developed collaboratively by the AEMC, AER (Australian Energy Regulator), AEMO (Australian Energy Market Operator), ARENA (Australian Renewable Energy Agency) and ECA (Energy Consumers Australia). 
  • introducing a broad power for the AER to grant specific, time-limited exemptions or waivers to allow proof-of-concept trials to proceed, subject to a “sandbox guideline” to be developed by the AER in consultation with stakeholders. This would require changes to the National Electricity Law and National Electricity Rules.
  • a new AEMC expedited rule change process for proof-of-concept trials that involve significant deviation from existing energy market rules. This could involve the AEMC making expedited, time-limited rules, possibly restricted to a certain location or group of market participants. If the trial is successful, a permanent rule change could be initiated. 
  • existing regulatory tools such as the AER’s ring-fencing waivers and retailer exemptions provided by the AER. 

To access regulatory sandbox arrangements, trial proponents would need to meet eligibility criteria and appropriate consumer safeguards must remain in place.

Next steps

The Commission considers that immediate steps could be taken to develop the new process for coordinated guidance and feedback for trial proponents under a collaborative effort involving the AEMC, AER, AEMO, ECA and ARENA. This work could commence in the first half of 2019.

We also propose to work with the AER, AEMO, ARENA and ECA and other stakeholders on the design of the regulatory sandbox arrangements. This includes considering appropriate eligibility criteria for trial proponents to access the regulatory sandbox and whether this should be extended to the regulatory framework for gas. This process would also consider possible law and rule changes to give effect to new AER waiver and exemption powers and the expedited AEMC rule change process for proof-of-concept trials.  We would aim to provide advice on recommended law and rule changes to the COAG Energy Council in the second half of 2019.

Background

As part of the 2019 Electricity network economic regulatory framework review, the COAG Energy Council requested the AEMC to examine regulatory sandbox arrangements and how to best facilitate coordination of proof-of-concept trials. The AEMC was required to provide interim advice by February 2019. 

This work also builds on the findings of our 2018 Electricity network economic regulatory framework review, a recommendation of the Independent Review into the Future Security of the National Electricity Market (Finkel review) and previous work done by state, territory and commonwealth officials to consider the case for introducing regulatory sandbox arrangements.
 

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Documentation

PUBLIC WORKSHOP - INCENTIVES AND MARKET DEVELOPMENT

AEMC Documents