Update on Victoria’s proposal to ‘ban’ embedded networks

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In January we reported on updates to the Victorian Government’s proposal to ‘ban’ embedded networks within residential developments. The Expert Panel that was established by the Victorian Government to determine how to implement this ban has now produced a draft report. The Expert Panel is accepting submissions and the consultation period for the draft report closes on 6 August 2021 at 5 PM.

The Expert Panel is particularly interested in submissions on the following:

• The proposed requirement to have renewable or clean energy technologies and what this might look like in new residential private networks
• The most cost-effective approach to upgrading internal metering and associated infrastructure in legacy (existing) embedded networks to readily enable a transition for customers to an on-market retailer of their choice
• Reasonable timeframes for upgrading metering and/or internal infrastructure in legacy (existing) embedded networks, and
• Reasonable timelines for industry to transition to the new regulatory arrangements

Banning embedded networks

The Expert Panel has developed 16 draft recommendations. The first recommendation considers how the proposed ban should be implemented. The Expert Panel propose that the ban be implemented by amendments to the General Exemption Order (GEO). Amendments to the GEO will be easier to implement, provided that they are consistent with the Electricity Industry Act. Amendments to the Electricity Industry Act will be required nonetheless to implement other recommendations from the Expert Panel.

Currently, a variety of exemptions in Victoria are applied automatically i.e. same way that certain entities are deemed to be exempt from the requirement to hold an authorisation in those states that have adopted the National Energy Customer Framework. The Expert Panel has recommended that residential exemptions under the revised GEO should no longer be automatic. Instead, there should be an exemption approval process administered and regulated by the Essential Services Commission.

The revised GEO will have a focus on renewable energy. The Expert Panel note “to be able to meet the obligations under a revised GEO, all residential private networks will need to have renewable energy or other clean energy technologies that will deliver carbon emission reductions in line with Victorian Government policy, and to comply with the enhanced consumer protections.”

A new licence

The Expert Panel has recommended the establishment of a Local Energy Services Licence (LES). It is proposed that entities that currently sell or supply electricity pursuant to an exemption under the GEO should be transitioned to the LES licensing framework. We will consider the proposed LES scheme in detail in a future post.

The LES will be administered by the Essential Services Commission (ESC). Again, the Panel’s recommendation is that LES providers “sell electricity at sites in a way that fosters renewable energy uptake or other clean energy technologies where the benefits must be passed on to customers. This will need to be demonstrated to the ESC.”

The Expert Panel recognise that the LES Scheme will result in a smaller number of providers selling electricity within embedded networks than would have otherwise been the case (if the existing regime had continued).

It is unclear if the Expert Panel anticipates the requirements for an LES to be similar or comparable to the requirements that need to be met to obtain an electricity licence from the ESC. If similar requirements need to be met, then providers will need to demonstrate that they can meet stringent financial, technical and compliance standards.

Consumer protections

One area of key regulatory concern is to give customers within embedded networks, in so far as is practicable, the same consumer protections as are enjoyed by customers who do not live within embedded networks. The Expert Panel has recommended that “Consumers living in all types of residential private networks (including those living in social housing, retirement villages and residential parks) should have access to equal or equivalent consumer protections as on-market customers.”

Access to competition

The Expert Panel has recommended that “for private network customers should have access to the energy retail market and it should be easy for them to transfer to an on market energy retailer.” The practical difficulties of a customer going on-market have been examined by Compliance Quarter previously and were comprehensively considered by the Australian Energy Market Commission.

The Expert Panel recognises that the changes proposed to the GEO and by the implementation of the LES scheme are significant and that they will need to be phased in overtime.

You can read the Expert Panel’s report here: https://engage.vic.gov.au/embedded-networks-review

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