Networks say battery storage ring-fencing proposals “ludicrous”

A bitter fight between network operators and the major retailers over who should be able to provide solar and battery storage installations to consumers promises to escalate, with major implications for the business models of the incumbent utilities and their customers.

The turf war between the networks and the retailers is all about who should gain the right to the “behind the meter” market, to deliver products to households and businesses. Origin Energy and AGL Energy have both conceded this is key to the future of their retailer models.

The networks are also keen to play in that market, seeing it as vital to their ability to extract full value from the huge grid assets they have accumulated. Many major networks have rolled out trials in solar and battery storage, saying they could deliver major savings and efficiency on grid upgrades, but they have had to get special exemptions to do so.

The retailers are keen to keep the networks out of the behind the meter market, arguing that if they were allowed to use the power of the regulatory assets then others would not compete. They are supported by many in the solar industry who fear networks will use their vast employee numbers to shut them out of the market.

The networks, however, are livid over draft regulations released last week by the Australian Energy Regulator on the ring-fencing guidelines which are supposed to define the rules by which the networks can play in the market.

“We just think that is a ludicrous position to be in,” said Spark Infrastructure CEO Rick Francis in a call with analysts on Monday. He was particularly angry about proposals that networks would have to duplicate all their services in a new company, right down to depots.

Francis said the rules would be bad news for consumers, because it would mean higher costs. “We would be strongly challenging those guidelines,” he said.

Spark Infrastructure owns 49 per cent stakes in South Australian Power Network, which provides the monopoly distribution network in that state, the CitiPower and Powercor networks in Victoria, and recently bought a 15 per cent stake in Transgrid, the NSW-based high voltage network provider.

The ring-fencing guidelines are seen by some as critical to the future of the energy market in Australia. Many agree that most savings can be achieved by marrying retail operations with network capabilities, because of the savings this can deliver to both.

But in Australia, the vertical integration has occurred by marrying retailers and generators, which some argue gives a perverse outcome. Both sides of the energy industry exercise a huge amount of market power, the networks through the monopoly control of their assets, and the “gen-tailers” through their own market power, and consumers have been squeezed by both.