Power Purchase Agreements – PPAs – new compliance challenges webinar

Power Purchase Agreements – PPAs – new compliance challenges webinar

AU Energy Compliance, Uncategorized

Solar Power Purchase Agreements are on the rise in Australia. Solar PPAs are regulated primarily through AER’s (and in Victoria, the ESC’s) retail and network exemption framework. This presentation follows on from our earlier webinar on PPAs. We address two current PPAs compliance challenges for solar PPAs: The new lease accounting standard and metering requirements.

Solar Panel installation - PPAs compliance challenges

What is a Power Purchase Agreement (PPA)?

  • A contract to purchase electricity at a pre-determined price for a fixed period.
  • PPAs take a variety of forms physical/virtual, behind-the-meter/market, solar/non-solar.
  • Each type of PPA presents an opportunity as well as certain potential costs.

Regulatory Framework for PPAs

General Rules

Generally, applicable laws and regulations govern PPAs such as:

  • Australian Consumer Law
  • The Corporations Act 2001, including Part 2M.3 Financial Reporting

Sector Specific Rules

Standard solar PPA form is governed by retail and network exemptions frameworks administered by the AER and the ESC (Vic).

New Regulatory Challenges

1. IFRS 16/AASB 16

The new accounting standard, AASB 16, may require PPA purchasers to change the way they report PPAs.
Generally, operating leases will now be a ‘right-of-use’ asset with a corresponding lease liability. They will now be ‘on balance sheet’.

2. PPA METERING

There is some confusion amongst PPA businesses as to metering obligations
Recently clarified by the AER in its Quarterly Compliance report.

AASB 16

The existing (old) standard

Operating and finance leases are distinct for both lessees and lessors.
Operating Leases expensed rather than listed as an asset.
Operating leases ‘off’ balance sheet.

The new test

A contract AASB 16 collapses the distinction between operating and finance leases for lessees. This means that most leases must now be ‘on’ balance sheet. It introduces a new test:

A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration (AASB 16, para 9).

Right to control

The right to obtain substantially all of the economic benefits from use of the identified asset; and the right to direct the use of the identified asset (AASB, Appendix B9)

THE AASB 16 CHALLENGE FOR PPAs

  • PPA purchasers need to consider whether existing PPAs incorporate and are now ‘on balance sheet’. This has a range of effects.
  • Impact on net debt, debt-to-equity, return on assets, quick ratio.
  • Effect on profitability, EBITDA, operating cash flows.
  • Effect on KPIs, including debt covenants, remuneration, bonuses etc.

First Example

PPAs compliance challenges example 1

Deloitte Touche Tohmastu. Leases: A Guide to AASB 16, p100.

Second and third examples

PPAs compliance challenges example 2

From Deloitte Touche Tohmatsu. Leases: A Guide to AASB 16, p100.

Metering and behind the meter PPAs

Metering requirements for ‘on-market’ PPAs supplied through the grid, subject to National Electricity Law, National Electricity Rules and associated procedures including the Metrology Procedure.

In its recently released Quarterly Compliance Report, AER reported a number of inquiries from solar providers about metering requirements for Solar PPAs.

Consequently AER has confirmed those requirements that apply to ‘behind-the-meter’ solar PPAs.

Solar PPA metering

Behind-the-meter Solar PPAs are not subject to the same metering requirements as on-market solar PPAs.

In virtue of the network exemption guideline, they are subject to the accuracy requirements of the National Measurement Act. This means only meters with National Measurement Institute pattern approval are compliant with both the conditions of network exemption and federal law. Go to http://www.measurement.gov.au/Publications/PARequirements/pages/default.aspx

Note. These PPAs also have obligations under Schedule 7.4 of the NER which sets out technical inspection and testing requirements.

Compliance Quarter

If you have any questions or want further information or assistance please contact me at [email protected] or [email protected]

For a confidential chat or free quote for our services, please contact us on [email protected] , phone us on 02 8234 1333 or click here for our contact form.

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

Photo by Sasha • Stories on Unsplash

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/.

GDPR: The Legitimate Interests test

GDPR: The Legitimate Interests test

Uncategorized

On 25 May the EU General Data Protection Regulation (GDPR) came into force. If you need help in working out whether or not your Australian business will be affected by GDPR, please get in touch with us without delay. We have offered updates recently on:

– Cross-country data transfer (https://www.compliancequarter.com.au/gdpr_implications_for_australia/);
– Consent (https://www.compliancequarter.com.au/gdpr-countdown-2-how-to-get-consumer-consent-and-when-is-it-required/).

GDPR legitimate interests

Photo by Yeo Khee on Unsplash

By Dr Drew Donnelly, Regulatory Specialist, Compliance Quarter

Today we update you on one of the more perplexing aspects of the GDPR; the ‘legitimate interests’ ground for processing personal data. On the one hand, the GDPR makes it easier for organisations to know when personal data processing is permitted (or ‘lawful’). The clear-cut definition of ‘consent’ means all organisations can be on the same page as to whether consent holds. On the other hand, the ‘legitimate interests’ ground requires each organisation to engage in a ‘balancing’ exercise where they determine for themselves whether processing in a particular case is justified or not. We explain this ground below.

GDPR Legitimate Interests

Article 6(1) describes a range of grounds under which processing of personal data of EU data subjects is permitted (‘lawful’). Article 6(1)(f) of the GDPR provides that processing is lawful where:

“processing is necessary for the purposes of the legitimate interests pursued by the controller or by a third party except where such interests are overridden by the interests or fundamental rights and freedoms of the data subject which require protection of personal data, in particular where the data subject is a child.”[1]

This might be separated into three tests that the organisation can ask itself in determining whether or not the legitimate interests ground is met.[2]

Purpose test: are you pursuing a legitimate interest?

Necessity test: is the processing necessary for that purpose?

Balancing test: do the individual’s interests override the legitimate interest?

While the necessity test is self-explanatory, we consider the other two tests below.

GDPR legitimate interests – Purpose test

No definition of a ‘legitimate interests’ is given in the GDPR to make it clear when a purpose will be a legitimate, or illegitimate interest. However, the EU’s Article 29 Data Protection working group offered the following in its guidance on the old EU Directive[3]:

  • The purpose must be lawful (i.e. in accordance with EU and national law);
  • be sufficiently clearly articulated to allow the balancing test to be carried out against the interests and fundamental rights of the data subject (i.e. sufficiently concrete);
  • represent a real and present interest (i.e. not be speculative).

On a practical level, an organisation using this ground must document a concrete purpose of the processing, that the purpose is lawful and that it represents a real, not hypothetical or possible future purpose for collecting the data. Other constraints on this test include:

  • it cannot be used by a public authority (art 6(1));
  • The processing of personal data strictly necessary for the purposes of preventing fraud is a legitimate interest (see recital 47);
  • The processing of personal data for direct marketing purposes may be regarded as carried out for a legitimate interest (see recital 47).

Note that this advice is of a general nature (except in the case of fraud). Direct marketing is not automatically a legitimate interest. It may be a legitimate interest (i.e. in some cases) depending on the judgement of the organisation (and always subject to the balancing test besides).

GDPR legitimate interests – Balancing Test

Assuming that the first two tests are met, the organisation needs to then consider whether their legitimate interest is outweighed by the interests or fundamental rights and freedoms of data subjects. Recital 47 emphasises the need for “careful assessment as to whether a data subject can reasonably expect at the time and in the context of the collection of the personal data that processing for that purpose may take place”.

It is worth noting here that ‘interests’ is a broader term than rights, covering anything that might be important to the data subject. Note also that it need not be a ‘legitimate’ interest – even unlawful interests of the data subject need to be taken into consideration. In carrying out the balancing itself, it will be useful to consider:

  • how important the organisation’s ‘legitimate interest’ is;
  • the nature of the data;
  • the way in which the data are processed (e.g. large scale, data mining, profiling, disclosure to a large number of people or publication).[4]

If you think we could be of any assistance in carrying out a ‘legitimate interests’ assessment for the EU Personal data you control or process, please get in contact with us.

 

[1] For the full GDPR see http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32016R0679&from=EN.

[2] See helpful guidance from the United Kingdom Information Commissioner’s Office at https://ico.org.uk/for-organisations/guide-to-the-general-data-protection-regulation-gdpr/legitimate-interests/.

[3]See http://ec.europa.eu/justice/article-29/documentation/opinion-recommendation/files/2014/wp217_en.pdf.

[4] See http://ec.europa.eu/justice/article-29/documentation/opinion-recommendation/files/2014/wp217_en.pdf, pp55-56.

OAIC releases first quarterly statistics report under the NDB Scheme

Consumer, Uncategorized

NDB scheme

By Anne Wardell, Compliance Quarter. 

Photo by Jefferson Santos on Unsplash

The OAIC has published its first quarterly statistics report under the NDB Scheme, Notifiable Data Breaches Quarterly Statistics Report: January 2018 – March 2018. It is interesting to note that the total number of breaches received for the first quarter was 63. Remember that the NDB only commenced at the end of February 2018.

The report provides useful snapshots of the findings such as the top five industry sectors where an NDB occurred:

NDB Scheme

The most common type of personal information revealed was contact information. It is perhaps of some concern that the next two most common types of information disclosed were financial details and health information:

NDB Scheme

Although 73% of the eligible data breaches involved the personal information of fewer than 100 individuals, there were 27% of breaches which involved more than 100 individuals.

NDB Scheme

The OAIC’s acting Australian Information Commissioner and acting Privacy Commissioner, Angelene Falk, commented on the report and indicated that:

‘Over time, the quarterly reports of the eligible data breach notifications received by the OAIC will support improved understanding of the trends in eligible data breaches and promote a proactive approach to addressing security risks.

‘Just over half of the eligible data breach notifications we received in the first quarter indicated that the cause of the breach was human error. In the 2016–2017 financial year 46 percent of the data breach notifications received by the OAIC voluntarily were also reported to be the result of human error.

‘This highlights the importance of implementing robust privacy governance alongside a high-standard of security. The risk of a data breach can be greatly reduced by implementing practices such as Privacy Impact Assessments, information security risk assessments, and training for any staff responsible for handling personal information.’ (Source: Notifiable Data Breaches first Quarterly report released OAIC News, 11 April 2018).

Although human error was responsible for 32% of the breaches, malicious or criminal attacks represented 28% of the breaches.  It is important for data systems which deal with personal information to ensure they are protected from such attacks.

NDB Scheme

The Report provides the following overview:

NDB Scheme

It is important for all Australian businesses to be aware of the quarterly reports and review the findings as a way to ensure they maintain the effectiveness of their systems and the protections installed.

Should you wish to discuss the NDB scheme with the team here at Compliance Quarter please click here.

Solar feed-in tariffs 2018/19 for NSW call for submissions

AU Energy Compliance, Uncategorized

Solar feed-in tariffs

By Anne Wardell, Compliance Quarter. 

The Independent Pricing and Regulatory Tribunal (IPART) has released an Issues Paper for discussion on the solar feed-in tariffs for 2018/19. IPART is seeking written submissions to be made by 16 April 2018. Information about how to lodge a submission are contained in the Issues Paper.

IPART has provided the following useful infographic in relation to the process:

Solar feed-in tariffs

The Terms of Reference set out the following parameters which must be considered in conducting the investigation:

  • There should be no resulting increase in retail electricity prices; and
  • The benchmark range should operate in such a way to support a competitive electricity market in NSW.

The final report is to be provided by 30 June 2018.

Further information about the investigation can be found on the IPART website at Solar feed-in tariffs 2018/19.

Or contact the Compliance Quarter team by clicking here.

February Fintech Roundup: The Open Banking Review and Fintech lending to SMEs

February Fintech Roundup: The Open Banking Review and Fintech lending to SMEs

Uncategorized

February Fintech Roundup: The Open Banking Review and Fintech lending to SMEs. In February we saw the release of two reports that could have a significant impact on financial technology (fintech) in Australia. The first is the final report of the ‘Open Banking Review’ which is currently open for public consultation. The second is a collaborative report from the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), FinTech Australia and the BankDoctor into fintech lending to small and medium-sized enterprises (SMEs).

Today we address the key impacts these reports could have on fintech businesses (fintechs).

The Open Banking Review and Fintech lending

Photo by Fabrizio Verrecchia on Unsplash

By Dr Drew Donnelly, Compliance Quarter. 

Open Banking Review: Final Report

In February 2018, the final report of the Open Banking Review was released for consultation (https://treasury.gov.au/consultation/c2018-t247313/).  The report recommends that all authorised deposit-taking institutions (ADIs) must implement Application Programming Interfaces (APIs) allowing customers to share their transaction data with the third parties that they choose.

There is a range of matters in the report that will impact on fintechs, but the more significant ones are:

  • Eligibility for fintechs to become accredited to receive transaction data. This will be crucial for fintechs that trade in financial products in assessing the creditworthiness of customers;
  • Fintech involvement in the process of developing APIs for transaction data.

All the recommendations contained in the report are being consulted on and submissions can be made to [email protected] by 23 March 2018.

Report on Fintech lending to small and medium-sized enterprises (SMES)

This wide-ranging report (the Report) into the current state-of-play for fintech lending to SMEs, released on February 27, is based on an in-depth survey of fintech lenders (fintechs) to SMEs and deliberations of an industry working group (see https://fintechaustralia.org.au/fintech-business-lenders-move-to-increase-transparency/). The report discusses a range of challenges for the sector with solutions in various stages of development:

  • Compliance with unfair contract terms provisions of the Australian Consumer Law (ACL). Analysis of survey results showed that lenders were aware of their obligation to comply with this law and have been taking steps to comply. The fintech lending industry has committed to working with ASIC and the ASBFEO to review contracts in order to ensure compliance across the industry (the Report, p32).
  • Glossary of lending terms. This is provided as a schedule to the report with the intention of standardising certain terms across the industry. It has been reported that, as fintechs can use different names for the fees they charge, there has been confusion for SMEs attempting to make comparisons between products (the Report, p41).
  • Dispute resolution. It is not currently a requirement for fintech lenders to SMEs to be a member of an external dispute resolution service (unless they are otherwise required to do so, such as when they hold a credit license). This makes it all the more important that fintech lenders have robust internal dispute resolution processes in place (the Report, p41).
  • Comparison. Currently, there are inconsistencies in the comparison tools and metrics used to compare different fintech lending products. Industry participants aim to implement a standardised approach for comparing unsecured fintech business loan products by June 2018 (the Report, p42).
  • Simple loan contract summaries. It is proposed that transparency and disclosure would be aided by a simple loan contract summary page that summarises key industry-agreed rates, fees and costs. Fintechs have agreed to try and resolve what information should be included as part of a standardised simple loan contract summary for unsecured small business loans (the Report, p42).
  • Code of Conduct. The industry working group has committed to developing (after consultation) a Code of Conduct to cover fintech lending for unsecured business loans (the Report, p42). This code will:
    • outline best practice principles;
    • set out legitimate customer expectations;
    • prescribe the comparative measures to be used; and
    • be expanded upon incrementally to include the full range of financial products.

Keep an eye on our website or provide your email in the popup for more curated analysis and content regarding the banking, financial and fintech sectors in Australia. Alternatively, contact us directly by clicking here.

Free Webinars on during the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services

Every Tuesday at 2pm (AEST/Sydney time) we will be running a free webinar to look at the last week’s developments from the Royal Commission. You can signup for our first in the series by clicking here.

The International Energy Agency Review: Are state and territory energy policies evolving in in an “unco-ordinated manner leading to fragmented markets and suboptimal outcomes”?

AU Energy Compliance, Uncategorized

A couple of weeks ago the International Energy Agency (IEA) released a lengthy report (250 pages) on their review of energy policy in Australia – The International Energy Agency Review (http://www.iea.org/publications/freepublications/publication/EnergyPoliciesofIEACountriesAustralia2018Review.pdf).

International Energy Agency Review

 

Photo by Jeremy Bishop on Unsplash

By Dr Drew Donnelly, Compliance Quarter. 

The scope of this review, set by the Commonwealth Government, was to analyse the lessons that Australia can learn from other countries’ experiences in transiting to a low-carbon energy market. The Commonwealth Government mandated two special focus areas:
• the growing role of Variable Renewable Energy (VRE) in the Australian energy market;
• the role that natural gas can play in the transition to a low-emissions environment.

Today’s article is a deep dive into the recommendations contained in this report (the International Energy Agency Review) and our assessment of it.

A. Overview of The International Energy Agency Review

As indicated in the quote heading this article (p194, the Review), the overriding theme of the report is that there is a lack of coherent medium and long-term strategy in the energy market. This results in uncertainty which undermines confidence in the market, the development of low-emissions supply and ends up with high consumer prices.

The IEA recommends (pp 21 and 22, the Review):
• Design of an energy and climate policy framework for 2030 and development of a mid-century low emission development strategy;
• Improved governance through enhanced collaboration and clarified roles with states
and territories through the Council of Australian Governments (COAG) Energy Council and the market bodies of the National Electricity Market (NEM);
• Guide the energy transition through an emissions reduction goal for the power sector;
• Continue to foster well-functioning wholesale and retail electricity markets through
the COAG Energy Council via:

o Review and adaptation of technical generation standards and the supporting market framework
o Ensuring that low-emission technology support is market-based and guided by
locational signals;
o Adapting distribution network regulation through harmonised technical
and consistent economic regulation.

• Development of competitive and liquid domestic gas supplies through completing gas market reforms;
• Supporting the sustainable development of domestic oil/gas reserves by addressing community concerns;
• Regularly updating the National Energy Security Assessment, in order to identify
energy security risks across the system;
• Fostering data reporting and monitoring across all energy sectors.

B. Focus area 1: System Integration of Variable Renewable Energy

The IEA makes a number of recommendations with respect to system integration of Variable Renewable Energy (VRE) in Australia. We consider each recommendation in turn.

1. Review and reform the technical standards for generators in light of VRE

Arguably, one contributor to the blackout event in South Australia in September 2016 was the state’s reliance on a generation system with operating specifications that were no longer fit-for-purpose (p150, the Review). The technical standards for generators are set under the National Electricity Rules which have not been updated to recognise the growing proportion of energy sourced in VRA.

Any such review would need to recognise the standards that should apply to rooftop solar photovoltaic and the implications of distributed battery systems.

2. Review NEM mechanisms to better reflect VRE

In the wholesale NEM, generation is dispatched in quasi-real time (five minutes before actual generation). However, much wind and solar generation must account for variability and uncertainty in supply a few hours ahead. This raises the question whether the temporal responsiveness of the market system needs to change.

But its not just centralised aspects of the market system that need to evolve, the IEA suggests (pp159-162, the Review). The rise of solar PV, for example, means generation investment that does not need to end up in customer bills. Furthermore, tariffs for grid use could change to recognise not the number of kilowatt-hours a that a customer draws from the grid, but the costs that they cause the grid. This might include, for example, pricing that means consumption during peak demand needs to be more costly than when there is extra capacity.

3. Enhance AEMO powers

The IEA suggests providing the Australian Energy Market Operator (AEMO) with the appropriate powers to intervene in the market in a more timely manner to ensure system security (pp161-163, the Review).

4. Better co-ordination between transmission and distribution systems

IEA emphasises that the there is no nationally integrated planning of the transmission network in Australia other than the economic regulation of individual transmission investments by the market regulator. This, the IEA suggests, is bound to lead to system-wide suboptimal outcomes and increase overall cost to consumers.

A strategy for the system as a whole should include consistent expansion of generation capacity as well as increased uptake of innovative flexibility options such as demand-side response and energy storage (pp 161-163, the Review).

C. Focus Area 2: Strengthened Gas markets

The IEA contends that gas trading markets are poorly developed, with most gas sold through long-term bi-lateral supply contracts (pp85-86, the Review). This raises a range of difficulties including:

• Long-term contracts locking in supply that would otherwise be available for short-term trading;
• Contracts that can be locked in at an artificially high price;
• A lack of price and contract transparency;
• Market players having difficulty in hedging their exposure, due to limited liquidity in the gas futures market.

In light of this, the IEA advocates that the Government continue to strengthen transparency, liquidity and competition in the gas market to optimise pipeline capacity and support a more competitive gas market. Other recommendations include (p88, the Review):

• Ensuring effective control of market power in the gas market through further regulation of gas pipeline activities;
• Establishing regular monitoring and publication of gas prices in both wholesale
and retail markets to permit assessment of price and cost trends;
• Strengthening the risk assessments in the east-coast gas market by collecting and developing robust gas data;
• Using export restrictions in the gas security mechanism only as a last resort to avoid
reducing the incentives for investments in new gas production. Market-based solutions should first be tried first to ensure security of supply.

D. Commentary

The assessments of the Australian energy sector, and the recommendations contained in this report, are not radical. They echo many of the recommendations contained in the Review of Governance Arrangements for Australian Energy Markets (the “Vertigan Review”) (Vertigan, 2015) and the Independent Review into the Future Security of the NEM (the “Finkel Review”, 2017).

Furthermore, the key theme of improving medium and long-term strategy and market co-ordination across state lines is a key theme of the National Energy Guarantee with its reliability and emissions obligations which is currently in development.

To some extent, the coordination problems for policy in the energy sector identified by the IEA are inevitable in a country with significant state/territory autonomy which means international comparisons can be unhelpful.

In the gas sector, there are already a bunch of reforms underway following the release of inquiries by the Australian Competition and Consumer Commission (ACCC) and the AEMC, including the establishment of a Gas Market Reform Group (GMRG) and the Australian Domestic Gas Security Mechanism (ADGSM) launched in mid-2017 aimed at addressing potential gas shortages.

The most likely reform for the gas market coming out of this review, in our estimation, is the facilitation of better access to gas market hedging products.

We look forward to the Commonwealth Government’s response.

Should you wish to discuss the review please contact us by clicking here.

ACCC compliance and enforcement priorities for 2018 include energy

AU Energy Compliance, Consumer, Uncategorized

In this article, we examine ACCC compliance and enforcement priorities for 2018, including energy and the consumer data right.

ACCC compliance and enforcement priorities

By Anne Wardell, Compliance Quarter. 

Mr Rod Sims, Chairman of the Australian Competition and Consumer Commission has launched the ACCC’s Compliance and Enforcement Policy for 2018. One of the key areas of focus in 2018 will be energy and its affordability. Also relevant in 2018 will be the introduction of the Consumer Data Right.

In his speech to the Committee for Economic Development of Australia (CEDA) on 20 February 2018, Mr Sims said:

As I have repeatedly said, Australia faces an energy affordability crisis. This has upended one of Australia’s core sources of competitive advantages and caused significant consumer harm. The ACCC’s retail electricity pricing inquiry report and the ACCC’s wholesale gas inquiry have given us, and the wider community, a far stronger understanding of the issues and pressures around rising energy prices.
Armed with the clear findings on the causes of the problem, the ACCC will now focus on making recommendations that will improve electricity affordability across the National Electricity Market and provide recommendations for reform in our final report at the end of June 2018.’

Mr Sims indicated that the Retail Electricity Pricing Inquiry and the Gas Inquiry will focus on affordability.

ACCC compliance and enforcement priorities 2018

The ACCC released the Retail Electricity Pricing Inquiry: Preliminary Report on 22 September 2017. The final report is due to be released in June 2018.

Two interim reports have been released by the ACCC in relation to the Gas Inquiry. On 25 September 2017, the ACCC released its first interim report of its inquiry into gas supply arrangements in Australia. The report focuses on likely supply and demand conditions in the east coast gas market for 2018. On 13 December 2017, the ACCC released its second interim report as part of its inquiry into Australia’s wholesale gas supply arrangements. The report focuses on the operation of the East Coast Gas Market, where there are continuing immediate and longer-term concerns.

Apart from these Inquiries, Mr Sims also referred to the Review into Open Banking in Australia – Final Report and its application of a consumer data right to the banking industry. The Chairman was of the view that ‘ this review sets the blueprint for other sectors, and the government has announced that the Consumer Data Right (CDR) will apply initially in the banking, telecommunications and energy sectors’. Both the ACCC and the Office of the Australian Information Commissioner (OAIC) will be tasked with regulating compliance with the right.

The CDR Fact Sheet sets out the following information for the energy sector:

What are the next steps for the energy sector?

A data right currently exists in the energy sector, allowing customers to direct that a data recipient can obtain their electricity consumption data. However, concerns have been raised regarding its effectiveness due to the absence of detailed rules relating to data provision, data transfer and customer consent.
As such, the Treasury is currently working with the Department of Energy and Environment to develop a model for implementation of the CDR in the energy sector.’

Given that the Australian Energy Regulator is reviewing the regulatory framework for Embedded Networks in 2018, it would seem that 2018 will be a busy year for those of us who work in energy and compliance. As ever, should you need support or wish to talk through the ACCC compliance and enforcement priorities or any of our articles and analysis, please get in touch with the team here.

Window safety devices in common areas

Consumer, Uncategorized

Window safety devices

By Anne Wardell, Compliance Quarter. 

Owners corporations must ensure that all windows fitted to common property, above the ground floor, comply with the window safety devices legislation by 13 March 2018. This is a mandatory requirement which is imposed on the Owners Corporation.

It is contained in the Strata Schemes Management Act 2015 (NSW) (SSMA) and the Strata Schemes Management Regulation 2016 (NSW) (SSMR).

Section 118 of the SSMA sets out the requirements for window safety devices – child safety. Rule 30 of SSMR provides information regarding what is a building, window and screen for the purposes of s 118.

Note that subsection 118(4) of the SSMA applies to an owner of a lot who installs a window safety device. If the owner installs the device then he or she will be responsible to repair any damage caused by the installation and ‘ensure that the device is installed in a competent and proper manner and has an appearance, after it has been installed, in keeping with the appearance of the building’ (s 118(4)(b)). The owner is also required to provide notice of the installation of the window safety device to the owners’ corporation within 7 days after completion of the installation.

Further information is available on the Window safety devices requirements page on the NSW Fair Trading website.

Webinars with the Energy Experts at Compliance Quarter

Webinars with the Energy Experts at Compliance Quarter

AU Energy Compliance, Uncategorized

In addition to our regular news updates and analysis, the regulatory energy experts at Compliance Quarter have been busy helping to educate our clients with free webinars. Over the last 8 months, we’ve engaged with over 500 people on our webinar series, allowing us to get free education, advice and news out to more people than we thought possible.

energy experts

 

Below is a summary of the webinars we’ve produced so far, along with links to our upcoming episodes:

 

Compliance Quarter “Energy Experts” Webinar Series

energy expertsUpdate on Embedded Networks

16 August 2017 – 11am AEDT – http://bit.ly/2FYmOtB

 

 

 

energy expertsEnergy Retail Update

24 August 2017 – 11am AEDT – http://bit.ly/2sjpdwD

 

 

 

energy expertsAEMC taking the axe to Embedded Network Exemptions

18 January – 11am AEDT – http://bit.ly/2BKscSU
Access Password: Energy001

 

 

energy expertsPower Purchase Agreements: Key legal concerns

31 January – 11am AEDT – http://bit.ly/2EN3CiS

 

 

 

energy expertsNavigating GDPR with Compliance Quarter

(not energy sector specific but does apply to companies capturing and using customer data)
29 November 2017 – 11am AEDT – https://compliancequarter.com.au/understanding-gdpr-opportunities-risks/

 

 

 

 

Compliance Quarter “Energy Experts” Upcoming Webinars

 

energy experts Explicit Informed Consent – What is it and why it’s important

14 February – 11am AEDT –

Sign up here: http://bit.ly/2BKGQcG

 

 

Energy expertsRegulatory Reporting – What is it, when is it due, and how is it done?

21 February – 11am AEDT –

Sign up here: http://bit.ly/2Ecuxnf

 

 

energy expertsCustomer Hardship Refresher – A look at this important area

6 March – 11am AEDT –

Sign up here: http://bit.ly/2E8Yk4b

 

 

 

Should you wish to arrange a discussion that is more specific to your business, please feel free to email us here. Our energy experts have worked on a range of engagements, including but not limited to:

  • Energy Retail Licences
  • Readiness Reviews for Energy Retail Licences
  • Power Purchase Agreements (PPA’s)
  • Embedded Network Manager Accreditation
  • Advice on Exemptions and Embedded Networks
  • Metering Provider Accreditation
  • Water Licences
  • Gas Licences
  • Joint Venture Agreements and Key Industry Introductions