Power shifts to prosumers, but can regulator keep up?

The new head of the Australian Energy Regulator has again underlined the shift in power to the consumers, and the importance of setting returns that benefit consumers, rather than the incumbent network operators.

Paula Conboy, who was appointed chair of the AER late last year, said it was clear the energy market was changing rapidly. And particularly in Australia, she said, where the soaring costs of electricity had provided the impetus for growth in rooftop solar and other technologies.

“Energy markets worldwide are evolving,” she said in a speech to the Committee for Economic Development in Australia, her first speech as the chair of the AER. “The evolution is being driven by consumers and fuelled by new technologies. Consumers are becoming more active participants in the markets; making more informed choices about their energy consumption and investments.”

The question is what the AER – which stands between the networks and what many see as the insatiable appetite by networks to gold plate their assets – can and will do about it.

In the last 5 years, the AER waved through some $45 billion of network investment, of which more than on third might have been un-necessary. Now, the networks are back for another round of claims for the next 5-year period, and looking just as hungry to beef up their “regulated asset base”, which then allows them to lock in revenue from their consumers.

That might have worked for the last 100 years, when 99 per cent of consumers had no other option, but the advent of cost competitive solar, as well as storage and energy management devices, means that consumers do have a choice, as Conboy readily accepts.

The AER recently rejected the claims of some of the network operators, saying they were up to 50 per cent more than necessary. The networks, and their owners – such as the NSW state government – have responded by saying safety could be at risk. The unions have said jobs are at risk.

The stance by the AER has won some plaudits, although others suggest they could be smarter. Chris Dunstan, from the University of technology, can’t understand why the AER has downplayed the efforts by some network operators to include demand management in their schemes.

In a column written for Fairfax Media last week, Dunstan noted that Energy and Energex in Queensland have proposed to the AER “demand management” plans to work with customers to reduce energy bills and facilitate decentralised energy.

“Unfortunately, the AER seems more focused on “punishing” the network businesses for the past, than on rewarding them for embracing a cleaner, less costly future,” Dunstan wrote. “The AER has flagged its intention to disallow millions of dollars of funding for the networks’ energy savings plans, while still allowing tens of billions of dollars in network investment. This perpetuates the old model of networks making money out of building infrastructure and maximising electricity sales.”

He thinks that the influence of Conboy, who hails from the AER’s equivalent in the Canadian province of Ontario, where such demand management schemes have been implemented, could be influential.

Interestingly, in her speech to CEDA, Conboy cited the “Reforming the Energy Vision” program introduced by New York’s Public Services Commission.

As Conboy notes, that initiative will look at wider deployment of distributed energy resources and promoting greater use of advanced energy management products. Indeed, under that initial proposal, $150 million will be spent on local generation and another $50 million on storage. That, says the PUC, will offset more than $1 billion in grid upgrades.

That is when action matches words, and network costs can be properly managed. The next step will be what to do about the sums already invested, because consumers will be asked to pay for them for years to come, even as those new technologies cited by Conboy become cheaper and more prevalent. Because that is when consumers will take matters in their own hands, and the power really be with the people.