Is embedded generation right for your business? Three questions to ask

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Supporting compliance in embedded networks is an important focus here at Compliance Quarter. Embedded networks are private electricity networks or distribution systems connected to the grid, but not operated by a Network Service Provider.Today we are looking at embedded generation.

embedded generation

By Dr Drew Donnelly, Compliance Quarter. 

An embedded generator is an electricity generator that is connected to the ‘local’ distribution network but is not connected to the transmission network (as conventional power plants are). Embedded Generation can take many forms including:

  • Reciprocating engines (gas, oil);
  • Hydro (especially small-scale);
  • Wind turbines;
  • Solar photovoltaic (Solar PV).

In today’s article we look at three preliminary questions worth asking if you are considering moving into embedded generation.

The benefits of embedded generation

The benefits of embedded generation to electricity provision in Australia are clear. Last month the Australian Energy Market Operator (AEMO) commented on how distributed energy resources (such as embedded generation) that support “more elastic and flexible price responsive demand, can become an asset for supporting reliability in a more efficient manner”.[1] For example, a diesel generator used in the day-to-day running of a business, if connected to the distribution network, can act as a reserve power source to feed into the network at times of peak demand. Similar grid benefits apply to renewable embedded generation such as rooftop solar PV which can be configured to feed into the grid during the high demand of a heatwave (where solar PV is also capable of operating at peak capacity).

The benefits of embedded generation mean that distribution network service providers actively seek embedded generation for connection to the network and build this capacity into their network investment decisions.

Of course, benefits to the grid do not translate directly into benefits for a business looking at moving into embedded generation. Below we consider matters a business must consider before making this decision.

  1. What price will the business get for its energy?

The price for energy produced will be determined through either one of two ways.

  • The price offered in the wholesale energy market. To access this market the business must either register with AEMO and be classified as a market generator or, if a small generator, sell via a ‘small generation aggregator’.[2]
  • A price offered by a retailer or registered large customer at that connection point.[3] In this case, an embedded generator is classified as a non-market generator under the National Electricity Rules (2.2.5). In this situation a power purchase agreement can then be used to achieve an effective ‘fixed price’ for the electricity.[4]

Which option is chosen will depend on the nature of the business and the nature of its generation. For example, if a business does not have significant electricity needs itself, it won’t be appropriate to purchase all the energy back as a large customer.

Note that Feed-in tariffs, a credit on a retail bill for sending energy back into the grid, are usually only available to residential, not commercial solar generators.[5]

Other financial matters to consider before investing in embedded generation include:

  • Whether any subsidy might be available such as through a funded demand response initiative;[6]
  • The ability to sell Renewable Energy Certificates in the case of solar and other renewable generation.
  1. What regulatory and compliance requirements would apply to my business?

At a national level, the regulation of embedded generation is governed by the National Electricity Law (NEL) and National Electricity Rules (NER). Under section 11(1) of the NEL, a generator connected to the National Electricity Market (NEM) must be registered unless exempted by the Australian Energy Market Operator (AEMO).

AEMO’s current policy is that:

  • ‘standing’ exemptions are available to persons who own, operate or control a generating system with a nameplate rating of less than 5MW;
  • applications for exemption may be made by persons who own, operate or control generating systems (other than those that include battery storage facilities) with a nameplate rating of more than 5MW but less than 30MW.[7]

As mentioned above, depending on whether the business is selling energy to the wholesale market, or directly to the local retailer or customer will determine how it is classified and treated by AEMO (See NER, 2.2.2 and 2.2.5).

Depending on the state or territory the business operates in, the embedded generator may also need a generator licence in that jurisdiction. Currently, within NEM jurisdictions, Victoria, South Australia, Tasmania and Queensland have generator licensing requirements (though exemptions are sometimes available), whereas NSW and ACT do not.[8]

Many of the more detailed regulatory provisions and technical standards are set by the Distributed Network Service Provider for the area in which the embedded generator would operate, and compliance with those will be a requirement of the connection agreement between the two parties.

3.Are there any technical challenges to embedded generation for your business?

There are a range of technical challenges that can arise when connecting an embedded generator to the grid and will affect the feasibility and cost of connecting to the grid. Some examples include:

  • Voltage fluctuation. Voltage fluctuation at the embedded generator can affect voltage in the network. Embedded generators may need to put measures in place to mitigate this impact;
  • Fault level. Embedded generating systems may raise the fault levels of the distribution network beyond the safe operating level. This can be a pressing issue in built-up areas which already have high fault incidence. Depending on location, the generator may need to select an appropriate generator, step up transformers, grounding options and approved fault mitigation equipment in order to reduce the contribution to faults;
  • Communications for inter-tripping. In regional areas, an embedded generator may need dedicated fibre optic cable communication for an intertrip signal from the generator to the control centre.[9]

The technical challenges that apply in the case of your particular business should be discussed with the Distributed Network Service Provider that operates in your area.

If you think we could be of any assistance in the embedded generation compliance and licensing process, please get in contact with us hear at Compliance Quarter.

[1] See AEMO observations: Operational and market challenges to reliability and security in the NEM -March 2018, p9.

[2] For more information about small generation aggregators see

[3] See AEMO Generator Exemption and Classification Guide, 3.6 at

[4] To read more about power purchase agreements see

[5] See for recent tariffs of this sort proposed in NSW.

[6] See

[7] See AEMO Generator Exemption and Classification Guide, 2.1. at


[8] For more information see the Clean Energy Council’s Embedded Generation Connection Guide, p12.

[9] Ibid., p16.

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