Greater Regulation of Embedded Networks in 2018

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Today we look at two new publications that will impact the regulation of embedded networks in 2018.

This month saw the release of the Australian Energy Market Commission’s (AEMC) final report on the Regulation of Embedded Networks along with the publication of Version 6 of the Electricity Network Service Provider Exemption Guideline (draft) by the Australian Energy Regulator (AER).

regulation of embedded networks
Photo by Seb Zurcher on Unsplash
By Connor James, Compliance Quarter.

Electricity Network Service Provider Guideline

As readers will be aware, in the Eastern States, anyone who engages in an electricity distribution activity must either be registered with the Australian Energy Market Operator as an electricity network service provider or must gain an exemption from that requirement. Exemptions are granted by the AER.

On 17 November 2017, the AER published a new exemption guideline, version 6. This new draft guideline should be read by all existing exempt operators.

The new draft guideline goes into further detail about microgrids and local energy sales:

“The AER is supportive of the concepts of microgrids and private trading but we caution there are significant regulatory hurdles which must be overcome before a microgrid or private selling of excess electricity can be implemented. We will work with proponents to develop models that respect and enhance the rights of customers to access new energy options but our ability to facilitate microgrids is limited by the constraints of the current regulatory framework.”

Other changes within version 6 include clarification about the requirement of exempt sellers with respect to life-support customers (which goes without saying as being important), clarification about who pays for a metering upgrade or installation, and clarification about embedded networks that include embedded generation.

With respect to embedded generation, version 6 notes that additional requirements will apply to a generator, battery or inverter type installation where there is an aggregate capacity measured at the connection point of greater than 5MW output. All such systems require review by the Australian Energy Market Operator (AEMO).

Submissions can be made on the draft guideline prior to COB Monday 15 January 2018.

The AEMC Final Report

The AEMC notes that there are now over 200,000 embedded network customers and a growing number of exempt energy sellers.

These energy sellers are bringing innovation that has not been seen previously. Energy sellers within embedded networks often include embedded generation and energy storage as part of their product. Overall, this has resulted in increased complexity and difficulty for the regulator in determining the appropriate regulatory setting.

The AEMC examined the existing regulatory framework against issues faced by consumers and the benefits of embedded networks:

“These benefits can include the promotion of innovation in products and services that can help manage energy costs in embedded networks such as embedded generation and demand management services.”

Consistent with the AER’s submission to the AEMC review, the AEMC found the existing regulatory framework is not fit for purpose.

“However, the current regulatory arrangements for embedded networks are resulting in some customers not being able to access competitive prices or important consumer protections. There are also insufficient monitoring and enforcement powers for the Australian Energy Regulator (AER), leading to a lack of clarity that embedded network operators are meeting their obligations as suppliers of an essential service. While some embedded networks are providing benefits to energy consumers they may not receive in a standard supply arrangement, often they do not.”

The recommendations in the final report are wide-ranging. Recommendations are focused on three areas: a. Improving access to competition, b. Elevating embedded networks into the national framework, and c. Better regulation of new and legacy embedded networks.

regulation of embedded networks

The implementation of these recommendations will be significant from the perspective of embedded network operators. Embedded network operators should be considering the changes coming in 2018 and acting now to ensure that they can continue to run their business.

We will publish a separate article in the coming days, going to further detail on the AEMC report, in the meantime please feel free to contact us if you wish to discuss the regulation of embedded networks.

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