At a recent event for energy executives in Sydney, Compliance Quarter lawyer and regulatory specialist Anne Wardell delivered a presentation looking at updates to the retail market and corresponding regulation during the last quarter titled NEM Quarterly Retail Market & Regulation Update. For our Compliance Quarter clients we have provided access to the presentation slides below – should you wish to discuss this presentation please feel free to contact us.
NEM Quarterly Retail Market & Regulation Update Summary
Background on Compliance Quarter and sister law firm, Law Quarter. Recently announced Westpac Top 200 Businesses of Tomorrow, focused on the intersection between technology, sound advice, and great service across the sector. Compliance Quarter is also a bronze member of the Australian Solar Council.
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- We are supporting the vast majority of new entrant retailers.
- We provide external Compliance Management.
- We have developed Compliance and Legal Service Software
- Via Law Quarter we provide Legal Services.
- We have been around for One Year.
Energy Sector Transformation
A Seismic shift driven by technology and consumer preference
(Paula Conboy, AER Chair, 25 July 2018).
Because of the technology revolution, families and businesses are not just electricity consumers, they can also be power producers
(AEMC, Sydney Morning Herald, 26 July 2018)
Traditional forms of producing energy are making way for energy created and supported by renewable energy
In our work, we have supported the majority of new entrant retailers over the last year. What are we seeing?
- Rising energy prices
- Lack of Competition
- Power of Choice reforms
- Regulatory complexity
- Alternative energy
- Rise of the embedded network
Rising Energy Prices
- The rise in energy prices for customers is due to a number of factors
- Retailers do not control or influence many of these factors
- Most consumers believe that their retailer has control over the entire process and sets the prices
- Retailers, therefore, are the obvious target of consumer and government concerns about rising prices
Lack of Competition
- Big Three retailers still capture 70 percent of the retail market
- Rise of gentailers who own and operate generators and operate in the retail market
- (such as EnergyAustralia, AGL Energy and Origin Energy.)
- More customers entering embedded networks
- Limited energy only retail contracts on offer
Power of Choice Reforms
- Introduction of Embedded Network Manager and Metering Coordinator roles (December 2017)
- Increased access to dispute resolution/ombudsman schemes
- Smart meters
- New support for customers experiencing financial hardship.
- Increased audit action from the Australian Energy Regulator
- Increased enforcement action around disconnection and life support.
- New powers for AER.
- Price transparency. End of deceptive discounting and new pricing information requirements.
- Increasing divergence in regulatory regimes in different National Electricity Market (NEM) jurisdictions
- Increasing number of customers in embedded networks/outside the retail regulatory frameworks
- Review of the regulatory arrangements in place for embedded network operators
- Introduction of the National Energy Guarantee
- Impact on retailers and customers
AEMO Integrated System Plan July 2018 – see illustration
Rise of Embedded Networks
- Currently, there are 3-4000 embedded networks in Australia
- Recent rule changes have reduced the barriers to embedded network customers accessing offers from electricity retailers
- This does not resolve the issue of there being limited energy only offers available
- Regulatory obligations of exemption holders converging with retailers. i.e. Enhanced protections for embedded network customers.
- Mandatory retailer authorisation in embedded networks? (See AEMC Review of Embedded Networks, November 2017)
AEMC Review of regulatory arrangements for embedded networks 28 November 2017;
The number of embedded networks has grown significantly in recent years. A range of business models to provide embedded network services have emerged and developments in technology, including distributed generation and energy storage, also mean the configuration of, and arrangements within, embedded networks are increasingly complex. These developments have brought both opportunities for innovation and new risks for consumers.
Future Directions for the Retail Market
Unified Regulatory Framework;
- AEMC Final Report on the Review of regulatory arrangements for embedded networks;
- Increased regulation for embedded network operators to bring in line with authorised retailers;
- Framework is yet to be defined; and
- The reality will be that there will be four types of registration:
- Legacy embedded networks who held an exemption at the time of commencement of the new framework,
- New embedded networks who will be authorised under the new framework,
- Authorised retailers, and
- Exemption holders under the new framework.
National Energy Guarantee (NEG)
The NEG will impose an obligation on retailers to support, through their contracting, investment in low emission and dispatchable generation or demand response and hedge contracts will play an important part of this;
The National Greenhouse Energy Reporting Scheme (NGERS), which was legislated more than a decade ago, already requires generators in the NEM to report energy production and associated emissions. NGERs also includes zero-emissions renewable generation. Incorporating this data into a compliance registry and allowing a mechanism for retailers to have electricity generation and its associated emissions profile allocated to them would provide retailers with the infrastructure to demonstrate their compliance in an efficient manner.
Under this approach, retailers will continue to enter into financial contracts to hedge their position in the spot market and manage any obligations under the reliability requirement of the Guarantee. They can then use their existing contracts, or enter into new ones, to obtain the right to assign generation and any associated emissions for the purpose of the emissions reduction requirement.
- Consumer Data Right
- Re-introduction of price regulation?
NEM Quarterly Retail Market & Regulation Update Slides
Please contact the team if you would like to discuss any aspect of this presentation.