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Australia | Publication | June 2020
The Australian Energy Market Commission (AEMC) in a final report1 (Rule-Change Report) has announced a major national package of detailed reforms which will allow distribution businesses in the National Energy Market (NEM) to use stand-alone power systems (SAPS) where they are an economically efficient alternative to traditional grid infrastructure. SAPS include both microgrids (which service multiple customers) and individual power systems (which service a single customer). This is a significant step, providing clarity on the manner in which distributors will be able to use SAPS to avoid significant capital expenditure in order to make their operations more efficient.
Also, the Australian Energy Regulator (AER) has published guidance on the interaction between ring-fencing and the proposed rule changes and options for distributors to obtain waivers (or meet the conditions of exemption) where needed.2 Stakeholder consultation will occur on this guidance as part of the AER’s broader review of its Ring-Fencing Guideline later this year.
While it will still be at least 12 months until distributors can start using SAPS, distributors can now consider and plan their SAPS implementation and usage strategy with greater certainty.
The SAPS reforms have been the subject of long-standing consideration3 by a range of bodies including the AEMC, ACCC4 and an independent expert panel.5
The new rule package gives effect to an AEMC recommendations report,6 which was approved by COAG in November 2019. Key recommendations were to:
The amendments set out in the Rule-Change Report address four focus areas:
Annexure A contains a summary of the changes to each chapter of the NER and NERR.
The Rule-Change Report only deals with distributor-led SAPS. A final report which sets out the AEMC’s recommendations for the regulatory framework that should apply to third-party SAPS was published on 31 October 2019. The final rule change drafting for third party-led SAPS has not yet been published.
The changes to law are expected to be agreed by the COAG Energy Council and put to the South Australian parliament later this year. The rule changes will be made after that legislation has been passed.
Jurisdictions will then have the ability to opt-in to the national regulatory framework. Once a jurisdiction has made appropriate changes to any relevant jurisdictional instruments (for instance the coverage of their NERL application acts), the opt-in could be triggered and the national arrangements to support the deployment of SAPS by distributors in that jurisdiction would then be enabled.
A final step before full implementation will give AEMO and the AER a transitional period of one year to consult on and update relevant procedures and guidelines. Based on current expectations, the full framework for the deployment of stand-alone systems could therefore take effect in mid- to late-2021.
The following table broadly outlines the changes to the NER and NERR set out in the Final Rule-Change Report. More detail on the proposed changes can be found at Appendix D to the Final Rule-Change Report.
Reference | Explanatory comments |
NER Chapter 2 (Registered Participants and Registration) |
Amendments to Chapter 2 address four key activities.
|
NER Chapter 3 (Market Rules) |
Chapter 3 will apply in relation to a regulated SAPS as follows:
|
NER Chapter 4 (Power System Security) | Will not apply to regulated SAPS. |
NER Chapter 4A (Retailer Reliability Obligation) | Amendments to Chapter 4A consider that electricity supplied to a customer in a regulated SAPS should not be taken into account for the purposes of the Retailer Reliability Obligation, as the Retailer Reliability Obligation is principally concerned with reliability for customers connected to the interconnected national grid. |
NER Chapter 5 (Network Connection, Planning and Expansion) |
The connection framework in Parts B and C of Chapter 5 will not apply to any SAPS connection. Only Chapter 5A will apply. Part D will be amended to:
|
NER Chapter 5A (Electricity Connection for Retail Customers) | Chapter 5A will apply where a Registered Participant or Intending Participant is seeking connection to a regulated SAPS. For connection charging purposes, Registered Participants and Intending Participants will be treated in the same category as real estate developers. |
NER Chapter 6 (Economic Regulation of Distribution Service) | The proposed new clause distinguishes between services (which the NER permits to be classified) and inputs (which are not classified under the NER) such as the capital and operating inputs that contribute to the provision of a service. A distributor who proposes to own, operate or control a generating system in a regulated SAPS (instead of using a related entity or a third party to provide a generation service) will need to have regard to the ring fencing rules in the Distribution Ring-Fencing Guidelines. |
NER Chapter 7 (Metering) | Changes to this chapter expand the role of Metering Data Providers to encompass the actions required in relation to SAPS. |
NERR | Minor changes to the NERR will also be made – for example, to make clear that the temporary curtailment of the supply of energy to a customer's premises to implement a regulated SAPS conversion is an interruption rather than a disconnection. |
AEMC Final Report: Updating the regulatory frameworks for distributor-led stand-alone power systems, 28 May 2020.
The reforms were triggered by a rule change request relating to SAPS by Western Power in 2017.
As part of the retail electricity pricing inquiry.
As part of the 2017 Independent Review into the Future Security of the National Electricity Market, led by Dr Alan Finkel AO.
AEMC Final Report: Review of the regulatory frameworks for stand-alone power systems – Priority 1, 30 May 2019.
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