The grid is changing so quickly. Can the rules and regulations that protect consumers keep up?

“Not fit for purpose.” It’s a phrase that has used often to describe the state of regulations in Australia’s main electricity grid, the rules that govern it, the market design, the connection process, and the business models of the incumbents.

It’s hardly surprising given the scale and speed of change of energy grid, the switch from a system based around a centralised fossil-fuelled power supply to a distributed system where the consumer is also the producer, and the rapid advances in storage, smart controls and inverter technologies.

“Not fit for purpose” is not a phrase you will find in the Australian Energy Regulator’s latest document – you will find one reference to “not fit” – but it is clearly the driving force behind its existence, and the recognition that regulations are going to have to keep up with the grid and the need to drive emissions down.

The Future of Network Regulation is looking at at structures, tools and incentives of the country’s regulatory framework for network services in light of the transition to renewables and the growing complexity and inter-dependence of the grid components – generation, storage, efficiency, retail, and delivery.

Some progress has been achieved with the simple addition of an environmental consideration in the AER’s deliberations – something that had been deliberately excluded at the last minute by the then Howard government (and will be excluded again if Labor is outed by the new coalition of far right, anti-net zero parties).

“It is likely that the regulatory framework will need to respond to some changes,” the AER writes in its report, which canvasses a number of different transition futures.

“Across all futures, the system is expected to become more electrified, more decentralised, more digital and more exposed to climate, cyber and supply-chain risk.

“CER (consumer energy resources) capability is expected to continue growing, more network needs are likely to be driven by generation and storage as well as load, and there are likely to be more opportunities for NSP to procure services rather than building and owning assets directly.

“These common assumptions raise questions about whether the regulatory framework can continue to direct NSPs toward efficient outcomes in a system that is more dynamic, more uncertain and more dependent on coordination than in the past.”

The friction in regulatory boundaries and technology change is already being felt in issues such as who gets to install EV charging points, who gets to provide generation and storage in isolated and mini-grids, and who shares the benefits of cutting costs from unneeded network and replacing them with non-network alternatives.

On nearly a weekly basis, networks are seeking approval to play outside their “sandbox”, pushing into competitive services such as EV charging, demand response, battery storage and generation.

Those proposals are being met by a volley of submissions demanding they keep to their knitting – many driven by the big retailers and generators who fear that have most to lose.

But is that tenable? There is an argument that Australia has got its energy structure all wrong. Networks deliver power to the home, but are not allowed to engage. That’s the role of the retailer who sends the bill.

But if efficiencies are to be gained and costs lowered for consumers, how can that be achieved when the networks want to protect their asset base, and the generators and retailers want to protect their business models

“Existing tools such as service classification, ring-fencing, cost allocation, shared asset rules, pricing reform, investment tests and sandboxing will remain important, but they may increasingly need to be applied to services and delivery models that do not fit neatly within the assumptions of earlier network regulation,” the paper says.

The Australian Energy Market Commission, which helps set the rules that the AER regulates, and which the Australian Energy Market Operator must abide by, is dealing with similar issues in its review of the pricing structure.

Its latest report was released last week, but it is really only the start of a long drawn out process that will also include a look at the regulatory structures. And AEMC chief Anne Collyer said in the latest episode of the weekly Energy Insiders podcast that other jurisdictions, like California, are envious of the structure Australia has.

“They say our retailers are being more innovative and coming up with more interesting and valuable products for customers. I guess at the moment that’s the structure we have, we have network and retail and …. I guess that’s something we can’t unscramble very easily.”

See also: Energy Insiders Podcast: The problem with network tariffs

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