Embedded Networks Under the Spotlight

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embedded-networks

By Connor James, Compliance Quarter.

The Australian Energy Market Commission (AEMC) is reviewing the regulatory arrangements for embedded networks.

Embedded networks operate in a unique space from the regulatory perspective. Common examples of embedded networks include shopping centres, retirement villages, apartment complexes and caravan parks. Embedded networks are also found in commercial buildings.

Below we discuss the AEMC review and the broad regulatory challenges with embedded networks.

What is an embedded network?

Embedded networks are private electricity networks connected to the distribution and transmission system of the national electricity market through a parent connection point (gate meter).

Consumers within embedded networks are typically individually metered and sold electricity from the ENO. ENOs own network infrastructure and on-sell electricity from the gate meter within the embedded network to the occupants.

There are significant potential benefits resulting from reduced network and connection costs. An ENO is able to purchase electricity at a reduced rate for the network as a whole and then on-sell it to customers. Those benefits can be (but are not always) passed on to consumers within an embedded network.

The AEMC notes that the number of embedded networks has grown significantly in recent years and that:

A range of business models to provide embedded network services are also emerging in the market and developments in technology, including distributed generation and energy storage also mean the configuration of, and arrangements within, embedded networks are increasingly complex.

Embedded network operators (ENOs) are not regulated in the same way as electricity retailers.  Many ENOs operate under an exemption and are not subject to the same obligations of a licensed electricity retailer.

Electricity retail licence and exemption framework

The eastern states (other than Victoria) are governed by the National Energy Retail Rules and National Energy Retail Law (Retail Law), implemented as part of the National Energy Consumer Framework.

Energy sellers in the eastern states of Australia must either operate under licence or an exemption. The sale of energy includes the sale of energy at cost, i.e. without profit.

ENOs usually operate under an exemption. The ownership, control or operation of a network brings in additional obligations for ENOs as a network operator. We will discuss the network obligations of an ENO in a later article.

The Regulatory Challenges

There are two broad regulatory challenges with embedded networks. These are:

  1. A lack of choice for embedded network consumers: As one ENO owns and operates the embedded network, a consumer within that network will purchase electricity from the ENO and may not know about, or may not be able to access, other energy sellers. This issue is being addressed by the Power of Choice reforms. We will discuss Power of Choice in a later article.
  2. Questions about what consumer protections should apply: As ENOs are not regulated in the same way as electricity retailers, ENO customers are not afforded the same level of protection. Yesterday, we looked at the AER’s review of the dispute resolution options available to exempt customers (including customers of embedded networks). The AEMC review also examines this area.

The AEMC Review

The AEMC review is a result of a request by the Council of Australian Government’s Energy Council to examine the regulatory arrangements for embedded networks under the National Energy Retail Law and the National Energy Retail Rules. The objective of the review is to ‘identify and assess issues for embedded network customers and identify appropriate solutions to any problems.’

The AEMC’s consultation paper sets out the scope of the review, with issues broken into four core questions for stakeholders:

  1. Is the regulatory framework for embedded networks fit for purpose?
  2. Can access to retail market offers be improved?
  3. What consumer protections should apply to embedded network customers?
  4. Are current regulatory arrangements for gas embedded networks appropriate?

Timeline

Submissions to the AEMC review have now closed. We will discuss the Australian Energy Regulator’s submission in a later article.

The AEMC’s draft report and recommendations are expected to be published by 15 September 2017.

 

If you require any assistance in reviewing your operations as an ENO please contact us.

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