Market Review: Completed
The review, requested by the COAG Energy Council, looked at the law and rule changes required to allow local distribution network service providers (DNSPs) to use stand-alone power systems where it is economically efficient to do so, while maintaining appropriate consumer protections and service standards. The review also considered regulatory arrangements for SAPS that are provided by parties other than local DNSPs.
A stand-alone power system (SAPS) is an electricity supply arrangement that is not physically connected to the national grid. The term encompasses both microgrids, which supply electricity to multiple customers, and individual power systems, which supply electricity to a single customer.
The terms of reference for the review set out two priority areas of work:
- Priority 1 was to develop a national framework to facilitate the transition of grid-connected customers to SAPS supply provided by the current distribution network service provider (DNSP), as well as a mechanism for the transition of grid-connected customers to third party SAPS supply.
- Priority 2 was to develop a national framework for the ongoing regulation of third-party SAPS (that is, those not provided by the local distribution business).
Priority 1: Enabling distribution businesses to provide SAPS
On 30 May 2019 the AEMC published a final report for priority 1. This report recommended a suite of changes to energy laws and rules to enable the use of stand-alone power systems by distributors. The reforms will help unlock the benefits of new technologies that are increasingly allowing electricity services to be delivered through alternatives to a traditional grid connection at a lower cost and with improved reliability, and with other benefits such as reduced bushfire risks.
Under the reforms, customers who receive stand-alone systems will retain all of their existing consumer protections, including access to retail competition and existing reliability and safety standards. As such, customers would not be disadvantaged where a distributor determined that it would be more efficient to supply them on a stand-alone basis. Cost savings arising from the use of lower cost stand-alone systems will flow through to all users of the distribution network, through lower network prices.
An issues paper for priority 1 was published on 11 September 2018, and a draft report for priority 1 was published on 18 December 2018.
Next steps for priority 1
The COAG Energy Council, AER, AEMO, state and territory governments and regulators all have a role to play in delivering the recommended changes, which include changes to national energy laws and state-based regulations. The AEMC has provided detailed information on how to make these changes.
In addition, we have started developing advice for governments on a package of rule changes to enable distribution network businesses to supply their customers with stand-alone power systems where it is cheaper than maintaining a connection to the grid.
In parallel, the COAG Energy Council's Senior Committee of Officials has established a working group to progress recommendations from the priority 1 review, and also from the AEMC's review to update the regulatory framework for embedded networks which considered a number of related issues including consumer protections. The AEMC will liaise closely with the working group to progress this work.
Priority 2: Regulation of third-party SAPS
On 31 October 2019 the AEMC published the final report on priority 2 of the review. The report sets out the AEMC's recommendations for the regulatory framework that should apply to third-party SAPS so consumers have appropriate protections.
The AEMC has recommended a tiered framework to allow for appropriate consumer protections to be provided in a proportionate manner while avoiding unnecessary costs, rather than a one-size-fits-all approach. Under the recommendations, the majority of third-party SAPS would be regulated under jurisdictional frameworks. Very large third-party SAPS, which pass an access coverage test, would be regulated under the current national framework.
The recommended regulatory framework will require community groups, local councils, developers and other third party providers of stand-alone power systems to comply with jurisdictional regulations on reliability, safety and consumer protections. Currently, if customers obtain their own supply using a stand-alone power system, those systems are subject to jurisdictional legislative frameworks that vary in their comprehensiveness.
Next steps for priority 2
The changes will involve input from the COAG Energy Council, state and territory governments, the AER and AEMO.
To implement the AEMC’s recommended framework, jurisdictions will need to develop or amend relevant jurisdictional regulatory frameworks to apply to some third-party SAPS, as appropriate. To assist jurisdictions, the AEMC has provided recommendations on the obligations it considers would be appropriate to be included in the regulatory framework for each category of third-party SAPS.
The AEMC has also provided detailed information in the report on the changes required to the national energy laws to implement the recommended framework.
The COAG Energy Council’s Energy Market Transformation work program, managed by the Energy Market Transformation Project Team (EMTPT), is considering the regulatory response to the emergence of SAPS as a viable option for providing electricity services to customers.
In general, SAPS are currently not captured under the national electricity frameworks. SAPS are subject to jurisdictional legislative frameworks that vary in their comprehensiveness. Queensland is currently the only state that applies the NERL retail protections to all off-grid electricity supply, and also applies the NERL distributor obligations to the 33 isolated systems run by Ergon Energy.
While SAPS may provide benefits, regulation of these systems is justified for many of the same reasons as for standard supply from the national grid. Consequently there is now a need for more robust regulatory arrangements to be developed for SAPS.