Should Australia follow Argentina and introduce a National Regime for Distributed Generation?

AU Energy Compliance, Uncategorized

One year ago, I arrived in Buenos Aires for the first time. Heading to a salsa club in the fashionable Palermo Soho district, my partner and I discovered that not only the club, but the entire city block, was pitch black. Chatting with fellow salseros in the dark we were informed that, yes, this kind of power outage was normal and no, power would not be restored any time soon.

Power outages both planned and unplanned are not uncommon in Buenos Aires. In February of this year, a power outage on one of the hottest days of the year left around 370,000 people in the city without power. Of course, unplanned outages and load shedding happen in Australia too. As in Argentina, the catalyst for outages tends to be heat wave events where residential consumption soars.

In today’s article, I look at how Argentina’s new distributed generation regime (the Regime) is intended to strengthen reliability and security in the grid and how this compares with the Australian policy settings for distributed (or ‘embedded’ generation).

Distributed Generation

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By Dr Drew Donnelly, Regulatory Specialist, Compliance Quarter

1. The Similarities in the Argentine and Australian Energy Landscapes 

There are some instructive similarities between Argentina and Australia when it comes to energy:

• Abundant natural gas resources, with a significant quantity being exported;
• Enormous renewable energy potential (solar for Australia and Northern Argentina, wind for the vast Patagonia region);
• A federal system of government with substantial devolution of energy policy to regional jurisdictions (states and territories in Australia, provinces and the capital in Argentina);
• Strong population growth and ‘clumping’ in certain areas as opposed to even distribution (focused on the south-eastern seaboard in Australia, and on the banks of the River Plate in Argentina);
• Extreme temperature variation across seasons, including heat waves in summer.

As mentioned earlier, the last similarity is the catalyst for power outages in both countries. However, the underlying cause of outages in both countries are distinct. In Argentina, the outages are caused by heavily degraded network infrastructure, including low-voltage wiring and transformers. The network infrastructure fails when consumption is high. By contrast, in Australia, a key contributor to outages has been the proliferation of non-dispatchable renewables such as wind and solar and a technical limit on importing dispatchable generation from adjacent states via interconnectors.

Like Australia, Argentina struggles with the same question that guided the Finkel Review; how does any nation in the 21st century balance a secure and reliable energy system with one that is affordable and meets emissions targets? The Australian Commonwealth Government’s response is the National Energy Guarantee (the NEG) with its ‘reliability’ and ‘emissions’ obligations. However other important initiatives that are part of the Government’s response are distributed/embedded generation and demand response initiatives. Distributed generation is electricity generation by many separate electricity users at their point of consumption (such as through rooftop solar photovoltaic (PV) or an in-house diesel generator).

2. The Argentine Response: Distributed Generation

Argentina has not developed a market-based response (such as the NEG) to the ‘Finkel question’. With respect to reducing emissions, the Federal Government has set a renewable energy target of 20 per cent renewables by 2025, which is supported by ‘RenovAr’, a series of public bidding rounds for renewable investment with long-term Power Purchase Agreements (PPA). Through this, the Argentine Government expects US $15 billion of renewable investment.

What about dealing with power outages? The Australian example has shown that, unless other measures are taken, investment in renewables can be negatively correlated with system security and reliability. As a part-solution, as well as an attempt to increase renewable generation, in November last year, the National Congress passed a law titled the Promotion Regime for Distributed Generation of Renewable Energy Integrated in the Public Electricity Grid (the Regime). This is designed to increase the use of solar PV in dwellings and hence reduce the load drawn from the grid during extreme weather events.

The key elements of the Regime include:

• a procedure that the customer, the ‘user-generator’, must follow with the distributor for authorisation to connect to the grid;
• obligations on the user-generator and the distributor to sign a distributed generation agreement;
• a billing framework to compensate the user-generator for the value of their energy ‘injected’ into the grid through a ‘net metering’ mechanism;
• a prohibition on distributors charging access fees or any other kind of tax associated with the installation of distributed generation systems;
• a fund for distributed generation, which will be used for grants, loans and other incentives in order to support take-up by customers;
• a framework for tax incentives and other support (such as preferential financing) for the manufacture of equipment that promotes the distributed generation of renewable energy; and,
• an obligation to incorporate distributed generation systems in national public buildings.

Regulations setting out the operational details of the Regime are under development and should be released shortly.

3. Differences between the Argentine and Australian approach to Distributed Generation

We discussed some core elements of the Australian approach to distributed or ‘embedded’ generation at https://www.compliancequarter.com.au/is-embedded-generation-right-for-your-business-three-questions-to-ask/. What are the key differences between the Regime and the Australian approach?

• It is a federal approach, standardising the rules for distributed generation across the country. While some rules for connecting embedded generation are contained in the National Electricity Rules in Australia (and therefore apply across the National Electricity Market (NEM) jurisdiction), many matters including funding, pricing and licensing requirements differ significantly by state/territory;
• The Regime prohibits connection charging by the distributor. This is permitted in Australia. This could further incentivise distributed generation in Argentina. On the other hand, this will be facilitated by Government subsidies to distributors, the details of which are not yet available. If the subsidies are not sufficient then distributors will inevitably cut costs somewhere (such as cutting investment in new network infrastructure);
• The Regime legislates nationally for distributed generation to be settled by net-metering. That is, the customer’s electricity consumption bill will be discounted by the amount produced and fed into the grid. While Australian jurisdictions have moved to a net (rather than ‘gross’) metering regime in recent years, some argue that this disincentivises solar investment. In particular, this may be an insufficient financial benefit to encourage battery storage of solar. In Australia, at least the tariff structure can be varied by states and territories depending on their success.

On the one hand, a nationally uniform approach to distributed generation, such as Argentina’s, may be beneficial in publicising, simplifying and clarifying for everyone the rules for distributed generation and solar PV. The Australian approach with considerable differences in rules between states and distribution network areas can be confusing and result in some states/territories (with the more supportive distributive generation arrangements) carrying a disproportionate burden. On the other hand, whether or not distributive generation will be successful in reducing the burden on network infrastructure ultimately depends on the economics of that investment. Currently, the prohibitive cost of solar PV equipment in Argentina, and lack of clarity around subsidies means that a substantially increased uptake in distributed generation is some way off.

[1] See http://www.batimes.com.ar/news/argentina/92k-homes-across-buenos-aires-suffer-power-outages.phtml.

[2] It is usually claimed that this network under-investment is a result of utility price freezes by successive Governments meaning that distributors have had insufficient funding to upgrade the network for population growth. For more, see http://americasquarterly.org/content/argentina-invests-in-power-grid-after-blackouts.

[3] See Independent Review into the Future Security of the National Electricity Market – Final Report (the ‘Finkel’ Review), p36-40.

[4] For more information, see https://www.compliancequarter.com.au/national_energy_guarantee_part_2/.

[5] To learn about demand response, see https://www.compliancequarter.com.au/demand-management-incentive-scheme/.

[6] For more information see https://www.pwc.com.ar/es/publicaciones/assets/renovar2-i.pdf.

[7] See https://www.pv-magazine.com/2017/09/14/argentine-chamber-of-deputies-gives-preliminary-approval-to-draft-bill-for-distributed-generation/.

[8] See https://www.solarchoice.net.au/blog/when-do-feed-in-tariffs-end-NSW-QLD-VIC-ACT-TAS-SA-WA-NT.

[9] As a result of high import duties, and lack of local manufacturing, it is estimated it would take 12-13 years for a customer to recover their solar PV investment. See http://www.ipsnews.net/2018/02/citizen-generated-energy-enters-scene-argentina/.

May 2018 Energy Roundup: Budget 2018 and New Renewable Energy Projects

AU Energy Compliance

May has been another massive month for regulatory and compliance developments in Australia. While April was dominated by the National Energy Guarantee and new Consumer Data Right, May was dominated by Budget 2018 and a range of exciting new renewable energy projects coming online. Another theme has been metering; several regulators have commenced action around slow metering installation and the over-use of estimates (see the activities of AEMC, ESC (Vic) and IPART below). As usual, we list all ongoing consultations, both nationally and in the National Electricity Market jurisdictions so that you can have a say in the areas that interest you the most.

new renewable energy projects

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By Dr Drew Donnelly, Regulatory Specialist, Compliance Quarter

1. Budget 2018

Budget 2018 didn’t provide any significant surprises for the energy sector. While the Government announced a funding package of $37.6 million, this is primarily funding to support the development and implementation of initiatives that are already underway. This includes:

• The National Energy Guarantee (NEG). The Government confirms that Renewable Energy Targets will be gone from 2020 and replaced by the NEG. The Government submits, based on modelling by the independent Energy Security Board that this will result in a $400 reduction to the average Australian household’s annual power bill;
• The implementation of the Consumer Data Right for energy businesses;
• Purchase of Snowy Hydro 2.0 from the Victorian and NSW state governments;
• Promoting gas supply by funding geological and feasibility studies and acceleration grants.

Although not part of the Budget energy package per se, another aspect of Budget 2018 that could have a significant impact on energy businesses, particularly start-ups and the tech firms, are changes to the Research & Development (R&D) Tax Incentive Scheme. Note, in particular, the Government’s introduction from July this year of a $4 million annual cap on cash refunds for R&D claimants with aggregated annual turnover less than $20 million. The Government hopes that refinements to the scheme will save $2 billion.

2. New Renewable Energy Funding Projects

Other than the Snow Hydro purchase and any low-emissions generation incentivised by the NEG, there is no major renewable energy investment in Budget 2018. Nevertheless, in May there have been an astounding number of renewable energy funding, financing and implementation announcements from various Government bodies including:

• The launch of phase 2 of the solar energy transformation project in the Northern Territory. On May 31 it was announced that this project, jointly funded by the Commonwealth and Northern Territory Governments to the tune of $59 million will roll out solar PV across a further 17 communities in the Territory from Finke near the South Australian border to the Tiwi Islands;
• The Australian Renewable Energy Agency’s (ARENA) $240,000 grant to the University of Technology, Sydney for a feasibility study on ‘solar gardens’. These are centralised solar arrays enabling customers in apartments or low-income housing to purchase or lease solar panels with the electricity generated credited to their energy bill;
• A $7 million funding initiative trialling how solar parks, wind farms or batteries can provide grid stability and security services.
The Clean Energy Finance Corporation (CEFC) announced financing to support :
• The CEFC’s tenth investment in large-scale wind with the 135 MW Crudine Ridge Wind Farm near Mudgee, NSW;
• An 18-month extension of the CEFC’s innovative green loan marketplace;
• Provision of a $39 million debt facility as part of a co-financing package for the $125 million Pro-Invest Group energy efficient hotel development in South Bank, Melbourne.

3. Consultations and Announcements from Commonwealth Regulatory Bodies

As usual, there has been a heap of consultations and announcements from Commonwealth regulatory bodies over the last month including the Council of Australian Governments Energy Council (COAG Energy Council) consultation on the powers of the Australian Energy Regulator (AER) and civil penalties, due 29 June 2018.

Throughout May, the Australian Energy Market Commission (AEMC) initiated consultations with respect to draft National Electricity Rules and rule change requests for:

• Technical performance standards for generators, due 13 July 2018;
• Metering installation maximum timeframes, due 12 July 2018;
• An AER power to develop new Customer Hardship Policy Guidelines, enforceable by civil penalties, due 28 June 2018;
• Regulating bill estimation, including a proposal to allow customers to have their electricity or gas bill based on their own reading of the meter, due 14 June 2018;
• A new compensation framework for participants who incur loss during a market suspension event, due 14 June 2018;
• A requirement for large electricity generators to provide at least three years notice before closing, due 7 June 2018;
• A new AER responsibility for calculating values of customer reliability. This is a mechanism providing for customer input into reliability conditions in the National Electricity Market, due 7 June 2018.

The AER’s key announcements and consultations in May included:

• AER’s final decision for the regulatory period 2014-2019 that the distributor Essential Energy will recover $1.7 billion less than it originally proposed;
• The release of the March 2018 Quarterly Compliance Report. You can read more, including the AER’s compliance activities with respect to embedded networks at https://www.compliancequarter.com.au/three-reminders-for-exempt-businesses-from-the-latest-aer-compliance-report/;
• Consultation on the AER’s approach to assessing regulatory proposals for Victorian Network Businesses, due 7 June 2018;
• New network tariffs for NSW, Queensland, Tasmania, ACT and South Australia;
• Reviews of the regulatory tax approach and return on debt for network businesses. Read more about the tax approach here.

The Australian Energy Market Operator (AEMO) announced several consultations in May, open consultations include :

• Changes to B2B procedures in light of last year’s Life Support Rule Change. This will introduce two new B2B transactions with respect to Life Support customer details, due 19 June 2018;
• Congestion Information Resource Guidelines (CIR Guidelines), due 29 June 2018;
• Tolerance ranges, due 8 June 2018.

Last but not least, the Department of the Environment and Energy seeks feedback on draft amendments to the National Greenhouse and Energy Reporting (Measurement) Determination 2008. This is intended to improve the clarity of guidance for emissions reporting. Submissions are due 6 June 2018.

4. Consultations and announcements from state and territory regulatory bodies

The Victorian Essential Services Commission (ESC) announced:

• A compliance focus (through audits) on how energy companies estimate bills after concerns raised about customers being over-charged thousands of dollars;
• New consumer protections for embedded network customers;
• A proposed change to powerline voltage standards for bushfire mitigation, submissions due 22 June 2018;
• Proposed changes to reporting guidelines helping prevent Victorian customers from getting into high levels of debt and new safeguards against disconnection, submissions due 22 June 2018.
The New South Wales Independent Pricing and Regulatory Tribunal (IPART) announced :
• Commencement of the annual review of the performance and competitiveness of the retail electricity and gas markets in NSW. Stakeholder views on certain questions sought by 29 June 2018;
• A review of metering installations. Stakeholder feedback on their experiences with digital meter installation, upgrade or repair are sought by 29 June 2018.

The Queensland Competition Authority announced:

• 2018-2019 Solar feed-in tariffs for regional Queensland;
• Regulated retail electricity prices for regional Queensland in 2018-2019;
• The launch of an investigation into whether Ergon Energy has overcharged large regional business customers in breach of the National Energy Retail Law.

If you think we could be of any help in getting your compliance processes up-to-date with any of these changes, please get in contact with us.

[1] See https://theconversation.com/budget-2018-was-old-news-for-energy-policy-the-next-big-headlines-wont-come-until-july-96345 for a critical take.

[2] Read more at https://www.budget.gov.au/2018-19/content/essentials.html.

[3] See https://arena.gov.au/news/solar-rolling-out-in-northern-territory-off-grid-communities/.

[4] See https://arena.gov.au/news/solar-gardens-bring-rooftop-solar-australians/.

[5] https://arena.gov.au/news/arena-launches-7-million-funding-initiative-renewable-energy-deliver-system-security-services/.

[6] For further information see https://www.cefc.com.au/media/media-releases/.

[7] See http://www.coagenergycouncil.gov.au/publications/energy-market-reform-bulletin-no44-aer-powers-and-civil-penalty-regime-consultation.

[8] For more details go to https://www.aemc.gov.au/news-centre/media-releases.

[9] For more details go to https://www.aer.gov.au/news.

[10] For more information see http://www.aemo.com.au/Stakeholder-Consultation.

[11] See http://www.environment.gov.au/climate-change/climate-science-data/greenhouse-gas-measurement/nger/consultation/measurement-amendment-2018-draft.

[12] For more information go to https://www.esc.vic.gov.au/media-releases/media-releases/.

[13] See more at https://www.ipart.nsw.gov.au/Home/Industries/Energy.

AEMC consults on fairer allocation of ‘Unaccounted For Energy’ (UFE) across retailers

AU Energy Compliance

The Australian Energy Market Commission (AEMC) has just begun consultation on a rule change request that would change National Electricity Market settlement in Australia.[1] In short, the request, if it proceeds into a rule change, would spread the cost of ‘Unaccounted For Energy’ (UFE) across all retailers, replacing the current system which leaves it to ‘Local Retailers’ to foot the bill. We explain the rule change request below.

Unaccounted For Energy

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By Dr Drew Donnelly, Regulatory Specialist, Compliance Quarter

Unaccounted For Energy (UFE)

In any electricity transmission and distribution system, there will be a certain amount of electricity that is ‘lost’ in the system. Some of this is accounted for in the National Electricity Market via Marginal and Regional Loss Factors and Distribution Loss Factors (DLF). This ‘technical loss’ captures the energy inevitably lost as electricity is distributed over a distance. Other UFE includes:

• Commercial losses. This includes unmetered connections, theft and metering malfunctions;
• Estimation errors relating to accumulation metering. Raw accumulation meter data cannot be used for settlement as readings are only taking intermittently and covering long periods of electricity use.

This UFE must be ‘settled’ and paid for, somehow, by market participants. Currently, this is done via a mechanism called ‘Settlement by Differencing’. A certain retailer is allocated in a jurisdiction as the ‘local retailer’ and this business is financially responsible for UFE. Through this mechanism, all electricity is billed to the local retailer, including total UFE, with the subtraction of energy consumed by customers of ‘independent retailers’.

The Problem with Settlement by Differencing

The problem with this mechanism is that it makes local retailers fully responsible for UFE and they pass that cost on to their customers. However, as the losses often relate to the customers of independent retailers, the local retailer has little control over those losses and costs. This makes final retail electricity prices less efficient as they do not reflect the cost of customer use of the network. It also means that local and independent retailers are not competing on the same terms in the National Electricity Market, and the independent retailers thereby have little incentive to reduce commercial losses.

Global Settlement

To replace Settlement by Differencing, the rule change request proposes a new ‘Global Settlement’ procedure. This mechanism would calculate as follows:

• The total amount of electricity supplied from the transmission system to the ‘Transmission Node Identity’ (TNI, the point where the distribution network meets the transmission network) plus embedded generation;
• Total electricity consumed at that TNI, adjusted by the relevant DLF would be calculated;
• Total electricity consumed, subtracted from the total electricity supplied;

This final calculated amount would be distributed to all retailers operating at the TNI based on pre-set criteria. At settlement, each retailer would be billed on the sum of its energy consumption and share of UFE.

AEMC asks a range of questions relating to the proposal including:

• the effects of Settlement by Differencing on local retailers;
• the effects that Global Settlement would have on independent retailers;
• the proposed method for calculating Unaccounted for Energy (UFE);
• implementation.

Submissions on the rule change request are to be lodged online at www.aemc.gov.au or by mail by Thursday, 5 July 2018.

As ever, should you wish to discuss unaccounted for energy, or indeed any of our analysis, please contact our team by clicking here.

[1] For the Consultation Paper on the rule change request see https://www.aemc.gov.au/sites/default/files/2018-06/Consultation%20paper.pdf.

[1] See s11, National Energy Retail Law.