Regulator to push networks to consider alternatives to poles and wires

The Australian Energy Regulator has announced proposed rule changes that will force network operators to consider new technologies – presumably battery storage and local renewable energy – as an alternative to simply replacing ageing assets with new poles and wires.

The AER says the changes it is suggesting to the network planning frameworks in the National Electricity Rules will ensure that they keep pace with new technologies and other developments in energy markets.

It wants network businesses to be forced undertake a “thorough analysis” of all options before replacing existing electricity assets – such as poles and wires and transformers and other equipment – in order to consider whether new technologies or demand-side options offer a better deal for consumers.

It says that at present this economic assessment is required only for new assets which expand the electricity network. It could conceivable encourage more networks to follow the example set by South Australian Power Networks, which is looking at local micro-grid alternatives to replacing an ageing cable to Kangaroo Island.

Many in the industry agree – and some networks do too – that the cost of battery storage and renewable energy generation such as solar and wind are falling to the extent where it is cheaper to build local micro grids than to replace poles and wires. The same is true of battery storage alternatives to transformer upgrades.

“The AER believes that these reforms are necessary to deal with the rapid pace of technological change,” AER Chair Paula Conboy said.

“This reform package, if implemented, will provide greater confidence that consumers won’t be stuck with the bill for replacing network assets when this is not required or when more efficient options are available,” Conboy said.

The AER is trying to crack down on spending by networks, although its efforts have been frustrated by court appeals by government owners, particularly in NSW, which have forced it to waive through higher spending allowances, and therefore higher costs on consumers.

The AER says network businesses  now are required to undertake a cost benefit assessment, known as the regulatory investment test, only when they wish to augment the network.

Under the new proposal, network businesses would be required to signal early potential opportunities for new technologies or demand-side options which arise out of decisions to retire an asset.

“This is particularly important given that there are now potentially a range of alternatives to ‘like for like’ replacement of network assets, given the pace of technological change we are seeing in electricity markets,” it says.

The Australian Energy Market Commission (AEMC), which sets the rules, has published the rule change proposal and will shortly commence consultation on the proposals.