It is an interesting time in the energy market. The energy market is currently characterised by structural change and policy uncertainty. For some, this need for change equals opportunity. Below, we talk about the State of the Energy Market and some of the key steps you would need to take to become an electricity retailer (in the eastern states other than Victoria). If you’re asking “How do I obtain an electricity retail licence?” then please feel free to contact us by clicking here and/or read on!
By Connor James and Anne Wardell, Compliance Quarter.
The Energy Market: Uncertainty and Change
The energy market in Australia is going through significant structural change (and a period of equally significant policy uncertainty).
Australia’s electricity prices are now above the OECD average; higher than the US, Canada, NZ, South Korea but lower than Japan, the UK and most of Europe. In response to rising prices, the Australian Government has directed the ACCC to hold an inquiry into retail electricity pricing, with the preliminary report due in September 2017.
Retail prices are made up of a number of components. The one that has been in the news lately is the wholesale pricing component.
The Australian Energy Regulator (AER) examines weekly wholesale prices in its 2017 State of the Energy Market report:
Distribution and Renewables: the Future?
Pricing pressure is forcing consumers to take matters into their own hands.
This is evidenced by the greater take-up of rooftop solar PV and interest in energy storage. Increases in retail pricing will also result in greater take up of embedded generation at a community level. The AER reports on the percentage contribution of various sources of renewable generation, showing the increasingly important role of rooftop solar:
There are now more energy retailers than ever. However, the market is still dominated by the ‘top three.’ In NSW, Origin Energy, EnergyAustralia and AGL Energy supply 90 per cent of retail customers and control 69 per cent of generation capacity. In South Australia, AGL Energy supply 48 per cent of retail customers. The largest three retailers are innovating themselves, to the benefit of consumers, and are lobbying for policy certainty that is badly needed. So, if you’re asking “How do I obtain an electricity retail licence?” then this article will consider some of the key steps to authorisation as a retailer.
How do I obtain an electricity retail licence?
So you have looked at the market and see an opportunity to offer an innovative service as an electricity retailer, but how do you get an electricity retail authorisation?
The sale of energy in Australia is governed by the National Energy Customer Framework (in eastern states other than Victoria). It includes the Retail Law, National Energy Retail Rules and National Energy Retail Regulations. In an article to follow we will look at the Victorian framework.
Under the Retail Law, anyone who wants to sell energy must hold either an authorization or an exemption.
Energy selling covers a broad range of activities and does not always have to be for profit. It can involve a landlord recovering energy costs from their tenants.
The AER requires that applicants for a retailer authorization meet a number of requirements as set out under the Retail Law. The AER must be satisfied that an applicant has the capacity to meet their obligations as an Energy Retailer under the Retail Law and Rules.
The AER must be satisfied that an applicant:
- has the necessary organisational and technical capacity to operate as a retailer;
- has the financial resources, or access to resources, to operate as a retailer; and
- is a suitable person to hold a retailer authorisation.
Your application will need to demonstrate the above.
The assessment by the AER is conducted at the point in time that an application is made. The application itself consists of a range of documents including a hardship policy, complaints management procedure, and compliance plan.
Financial requirements in obtaining an electricity retail licence
There are significant costs that need to be considered if you plan to establish an electricity retailer. You must have access to the cash you need to support your business until it is profitable and you must be able to meet the prudential requirements of AEMO. Your business and financial plan will be a key component of a licence application.
The type of costs that the AER will expect you to be able to cover include:
- business premises rent;
- purchasing capacity in wholesale energy markets;
- procurement and ongoing payments for network services including any credit support requirements;
- provision of retail supply services including customer support and billing services (if you are using a third party for these services you will need to show sufficient financial resources to meet the contract requirements for the supply of the service); and
- participation in ombudsman or similar schemes.
When calculating your available cash resources you must take into account the fluctuating prices which occur in the wholesale energy market.
Public Consultation and Confidentiality
As with other applications to AER, there is a public consultation process which is undertaken before the application is considered for approval. The consultation period runs for 20 business days.
If you want to keep some of your application information from public view then you will need to indicate this in the application. You are required to provide reasons as to why the information is to be kept confidential and submit both a public and a confidential version of your application.
The AER may not accept that the information is confidential and will consider disclosing it where the disclosure will not cause detriment to the applicant or it is in the interests of the public to disclose it.
Unless you are selling energy through an embedded network, you will be required to apply for registration with the Australian Energy Market Operator (AEMO). The AER will expect an application for registration with AEMO to have been lodged at the same time as making an application for retail authorization.
Australian Financial Services Licence
You should consider any requirement to obtain an Australian Financial Services Licence (AFSL). Without an AFSL, you cannot carry on a financial services business.
The Corporations Act 2001 and its associated regulatory framework covers a range of financial products including securities, derivates, insurance products, superannuation, carbon units, and deposit accounts.
Electricity retailers typically deal in OTC derivatives. This is a complex area, one that we will discuss in articles to follow, and one where you must obtain specialist advice.
It is an offence under section 915C(2) of the Corporations Act 2001 to provide false or misleading information to ASIC.
Where to Now?
The energy market is highly regulated and one that is undergoing rapid change. The above is a very high-level summary issues in the market and the authorisation process.
If you would like to discuss your ideas and get detailed information on how to become an electricity retailer, please contact us.