The Australian Energy Regulator has proposed changes to the network planning frameworks in the National Electricity Rules to ensure they keep pace with new technologies and other developments in energy markets.
These proposed reforms would require network businesses to undertake a thorough analysis of all options before replacing existing electricity assets in order to consider whether new technologies or demand-side options offer a better deal for consumers. At present this economic assessment is required only for new assets which expand the electricity network.
The AER says technological change means there is potentially a range of alternatives to ‘like for like’ replacement of network assets.
The proposal would also require network businesses to consider whether existing assets need to be replaced in the first place or whether they should continue in service.
“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,” Ms Conboy said.
As part of the proposed reforms, network businesses would also be required to consult widely including with providers of new technologies and demand side options.
Background
Currently, network businesses are required to undertake a cost benefit assessment, known as the regulatory investment test, when they wish to augment the network. This process is designed to find out whether a network augmentation is the best way of meeting a need (such as a reliability issue) or whether a non-network option is more efficient.
However, businesses are not currently required to conduct this assessment for replacement projects. The AER’s proposal would require network businesses to undertake this cost benefit assessment for replacement projects. Under the 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.
The AER undertook preliminary consultation with stakeholders before submitting the reform proposals to the energy market rule maker, the Australian Energy Market Commission (AEMC), for consideration.
The AEMC has published the rule change proposal and will shortly commence consultation on the proposals.
About the AER
The Australian Energy Regulator regulates energy markets and networks under national legislation and rules. The AER regulates energy markets and networks in eastern and southern Australia, as well as networks in the Northern Territory. Its functions include:
- monitoring wholesale electricity and gas markets to ensure energy businesses comply with the legislation and rules, and taking enforcement action where necessary;
- setting the amount of revenue that network businesses can recover from customers for using networks (electricity poles and wires and gas pipelines) that transport energy;
- regulating retail energy markets in Queensland, New South Wales, South Australia, Tasmania (electricity only), and the ACT;
- operating the Energy Made Easy website, which provides a retail price comparator and other information for energy consumers;
- publishing information on energy markets, including the annual State of the energy market report, to assist participants and the wider community.
About the AEMC
The Australian Energy Market Commission makes rules under the National Electricity Law, the National Gas Law and the National Energy Retail Law. These rules effect how companies can operate and participate in the competitive generation and retail sectors. They also govern the economic regulation of electricity transmission and distribution network services and gas pipelines.
The AEMC does not initiate rule change requests other than where the proposal is to correct minor errors or is non-material. The AEMC’s role is to manage the rule change process and to consult and decide on rule change requests made by others.