Regulator finally moves on network spending, but it may be too late

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Energy rule-maker finally moves on demand management, but changes may not take effect until after networks lock in another spending spree.

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The rule-maker for Australian electricity markets has finally released proposed changes that would encourage demand management schemes such as energy efficiency and battery storage to be adopted by network operators, but it may come too late to head off another major spree of expensive grid upgrades in the meantime.

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The Australian Energy Market Commission, which sets policy for the electricity markets, has released draft rules that it says will encourage network operators to find the lower cost solutions to managing their systems.

You’d think the network operators would be doing that anyway, but the nature of the regulatory system has encouraged networks to build bigger grids becaue the more assets they own, the higher the regulated returns.

This has led to some absurd situations where even remote towns are serviced by the traditional poles and wires, where a renewable-based local micro grid might be a much cheaper and more efficient option, not to mention cleaner.

This has led to accusations that one third of the $45 billion grid expenditure allowed in the last five year period might not have been necessary. Those costs have been the biggest cause of soaring electricity bills throughout the country.

The changes, however, have been a long time coming, and further delays may mean that it misses the next regulatory period altogether.

The AEMC first identified the problem in 2012, but has taken three years to come up with a draft proposal. It does not expect it to be finalised until Decevember, 2016, after the next five year regulatory periods and expenditures are set.

“That is not good enough,” said Chris Dunstan, from the Institute of Sustainable Future, a critic of excess expenditure on the network.

Dunstan wrote in March that the AEMC itself has estimated that “Demand management” – where a power company invests in helping consumers save energy or reduce demand, rather than building more capacity in the form of power stations, power lines and substations – could save consumers between A$4 billion and A$12 billion, or cuts to annual household bills of up to $500.

Dunstan said failure to act would likely cause fixed charges for network services to rise, and variable charges for energy to fall, creating another distortion in the market.

“There will be fewer incentives to support energy efficiency, peak load management and local generation,” he wrote at the time. “This will give consumers less control over their energy bills and make energy efficiency, solar panels and batteries less attractive.

“It will lock Australia into an outmoded, centralised model of electricity generation, at a time when technology and market trends all point towards more decentralised energy.”

The Total Environment Centre, the consumer advocacy group that has pushed the changes, says it was happy with the proposals, but concerned about the potential delays, and the fact that it could miss the next regulatory re-set.

Energy markets advocate Mark Byrne said the TEC is happy that the Australian Energy Regulator, which sets the revenue allowances for the networks, will be required to design a demand management incentive scheme (DMIS) and a separate innovation allowance (DMIA) mechanism.

He said it was the first time a consumer group has got largely what it asked for in a rule change request.

But the TEC still has concerns about the amount of discretion at the AER’s disposal, and the fact that the AER will not be required to publish the new scheme until December 2016.

That suggested that it won’t be implemented until the next round of revenue determinations in 2019, even though the AER flagged possible transitional rules in its NSW draft determination.

“When eventually implemented this reform should create a significantly greater incentive for networks to invest in demand management rather than capex,” Byrne said.

“But the AER’s discretion and the long timeframe could mean it’s a case of “Lord, give me demand management, but not yet…”

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4 Comments
  1. dhw 4 years ago

    Can’t say I agree with the idea that rising fixed costs and lower energy costs would be a distortion, quite the contrary! the current distortion is huge and this would reduce it! Currently 90% of our power bills are made up of energy fees when only 30% or less of the bill is for energy, with the other 70% network and overheads. I’m a bit tired of the suggestion that greening only means supporting domestic solar viability. To green our economy we must switch all energy use to electricity, then decarbonise generation. If you keep the energy use component of tariffs high, then this reduces the incentive to switch our heating and transport energy use to electricity, and until this switch is made we cannot fully de-carbonise.

    • Rikaishi Rikashi 4 years ago

      True, but there’s a bit of chicken-and-egg at play there. Switching heating and transport to electricity will be pointless unless most new generation is renewable. And for now the coal lobby still has a stranglehold on our politics.

    • JohnRD 4 years ago

      We would be paying a lot less for a power now if most of the grid upgrades had been replaced by strategically placed solar and/or storage that would have reduced peak demand.
      Keep in mind that, for large parts of Australia, peak demand kicks in when the air conditioners are turned on on sunny, very hot days.

  2. Paul Turnbull 4 years ago

    Intelligent forward thinking regulation of energy, water and air underpins responding to the impacts of climate change. Great to see the effective work down by the TEC and Chris Dunstan is correct – it is too little too slow – but at least the direction is good.

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