Supporting continual evolution of the grid

Networks are the single largest contributor of costs in the power system. In a recent review the AEMC found that the current regulatory framework gives network businesses the right tools and sufficient flexibility to manage changes such as increased rooftop solar.

However, it is important to continue to monitor developments as the role of electricity distribution networks changes to manage a future with high levels of distributed energy resources.

Meeting consumers needs at least cost as the grid transforms

The AEMC's Economic regulatory framework review is an annual review process under standing Terms of Reference from the Council of Australian Governments’ Energy Council. The review examines how the regulatory framework could evolve to support a grid with more decentralised, local generation and storage.

Our 2019 review is assessing how financial incentives for network businesses could change to encourage networks to embrace new technology where it is the cheapest way to help manage the grid. We will work with the Australian Energy Regulator, Australian Energy Market Operator, Energy Networks Australia and other stakeholders to develop options for reform.

Changing the energy landscape with new rules for networks

The AEMC has made a number of changes in recent years to the rules to keep network costs as low as possible. These changes include:

  • Making the AER responsible for establishing values of customer reliability which are used to develop reliability standards in networks and wholesale markets. Knowing the value customers place on having reliable electricity supports efficient investments in infrastructure and goes to the heart of making sure consumers don’t pay more than necessary.
  • A new register of "smart" distributed energy resources (DER) that can inject power into the network either through direct generation or the active curtailment of load. The register will be established by AEMO and include information about what DER is connected where, and how it performs in different scenarios. The register will improve energy market participants' visibility over DER and in turn contribute to better decisions by network service providers, AEMO and other energy market participants about how to efficiently integrate DER into the grid.
  • A Demand management incentive scheme that encourages network businesses to use innovative solutions to deliver network services. Alternatives to building more expensive poles and wires can include demand response and distributed generation (including rooftop solar and batteries) where these can address system constraints at the least cost to consumers. Over the long term, the scheme will promote more efficient investment in network services which will flow through to consumers as lower network prices.
  • New transmission connection and planning arrangements that provide more choice, control and certainty for connecting parties, while at the same time making it clear that the incumbent TNSPs are accountable for providing a safe, reliable and secure transmission network.
  • Facilitating a competitive market in behind the meter batteries and other distributed energy resources by limiting distribution network businesses’ ability to own and control these assets.
  • Options to improve the coordination of generation and transmission planning.

We have also introduced a range of new tools and obligations requiring networks businesses to play a more active role in keeping the power system ‘secure” or operating within its technical limits.

Setting the foundations for network reform

Underpinning the improvements to network regulation is a long-term reform program to strengthen network regulation so that everyone from heavy industry to small consumers are able to make more informed decisions about how they use electricity.

In 2014 the Commission made new rules so network prices reflect the different ways people are using electricity and the actual costs of providing it. These rules put consumers in the driving seat for the first time – to keep pace with modern lifestyles. When prices reflect how much it costs to use electricity at different times consumers are able to make more informed decisions so they can choose energy services that are right for them – whatever technology changes lie ahead in the future.

This future power system will see new energy service providers offer more high-tech choices for consumers. More consumers will buy and sell energy in a dynamic way in response to price signals. In 2017 we considered how a competitive market for distributed energy resources might evolve and set out a vision in our Distribution Market Model report.

A competitive distribution market would enable consumers to optimise the value of their investments in distributed energy resources, but it will require considerable time to build. In the meantime there are a number of first steps we have recommended network businesses take right now to better understand how to integrate more distributed energy resources while continuing to meet their electricity service obligations to consumers.

How networks are regulated

Electricity networks, like water services and rail services, are a natural monopoly. The National Electricity Rules enable the Australian Energy Regulator (AER) to set the maximum revenues that electricity network businesses can charge.

In 2012 we made new rules about setting revenue allowances for networks using a regulatory approach based on business efficiency so that consumers don’t pay higher network charges than necessary for the reliable supply of electricity and gas.

These rules gave the AER additional tools and more discretion when setting network revenues. This included an enhanced approach on setting the rate of return; more tools to determine efficient costs for each regulated business; and incentives to improve business efficiency.

Read more about network regulation.