New energy technologies like household solar, storage and large-scale renewable energy are transforming our energy system. These and other disruptive technologies are driving significant reform, creating both risks and opportunities for various industry stakeholders.

The challenge

The rapid uptake of these new technologies in our traditional electricity supply system is changing the context of current policy settings, and may be leading to significant lost opportunities.

Analysis and engagement is required to determine whether our current market conditions and policy settings are effective for the future of Australia’s energy system, and where the issues and opportunities lie.

Australia’s electricity markets do not operate in a vacuum and it is critical that this work draws on experiences from overseas markets to ensure a fully informed debate.

The response

A review and critical evaluation of Australian policies is important to determine how best to address the challenges ahead and to identify measures that maximise benefits to all stakeholders. While immediate challenges can be easily identifiable, they can manifest in the market in several ways. In some instances, the rules already in place may be able to provide solutions while others may require challenging structural market reforms.

For this work the Clean Energy Council engaged Marchment Hill Consulting to undertake extensive and broad stakeholder engagement and analysis. They consulted with 43 industry stakeholders from across the electricity industry and reviewed numerous reports. Marchment Hill also partnered with European distributed energy think-tank VaasaETT to reveal details of how key overseas markets have adapted to the shifting consumer expectations, also identifying lessons learned in those markets.

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Outcomes for various industry stakeholders

This study has considered the following questions.

  • What, if any, market conditions are problematic under increasing use of renewable energy, storage and demand management?
  • How have overseas markets enabled, and maximised the benefits of deployment of these technologies?
  • How can policy settings and market arrangements be adjusted or developed to enable the uptake of these technologies, while maximising the benefits they can offer?

The work's findings should be viewed in light of an industry working toward shared goals. Its seventeen recommendations centre on four key themes that interact with the objectives of most industry stakeholders:

  • Renewable energy sources are becoming an increasingly significant contributor to our electricity supply system. Rapid cost declines are expected to continue to empower consumer decisions on how they generate and consume energy.

    The focus of this report’s recommendations is on mid-scale generation, generally rated below 5 MW including commercial and household solar PV and storage. Key opportunities for reform these stakeholders should consider going forward include:

    1. Utilise an appropriate valuation framework to introduce more cost reflective prices for embedded generation output. 
    2. Investigate opportunities for the development of policies and incentives supporting electric vehicle uptake as a means to increase grid utilisation. 
    3. Extension of Chapter 5 of the National Electricity Rules (or similar guiding principles and processes) for the connection of embedded generators below 5 MW which are not micro embedded generators to jurisdictions currently not covered by these regulations.
    4. Consider the development of a national online portal for all small-scale solar PV installations to improve efficiency, consistency and transparency of micro embedded generator connection processes. 
    5. Publication of details of localised network constraints across Australia to inform all stakeholders of issues on the grid. 
    6. Progress the continued development of enhanced inverter standards for all embedded generation rated up to 5 MW to address network concerns and enable greater penetration rates of embedded generation.
    7. Promote the sustainable and credible development of the Alternative Energy Seller status to enable the expanded use of solar power purchase agreements, the potential bundling of battery stage and the use of advanced demand management devices to support this business model. 
    8. Explore opportunities for extending and enhancing existing funding streams and mechanisms to support community energy projects in Australia.
  • Although some aspects of this report consider specific stakeholders, its recommendations are generally aimed for all energy industry stakeholders to consider, particularly under the current rapidly changing market conditions where emerging business models are likely to gain in the long term.

    While these stakeholders should consider the report’s full suite of recommendations, main considerations include:

    1. Utilise an appropriate valuation framework to introduce more cost reflective prices for embedded generation output. 
    2. Review the arrangement for Community Service Obligations and other similar subsidies for opportunities to divert part of this subsidy to the installation of emerging technologies.
    3. Review the role of the networks, and the opportunity for a contestable market, in relation to ownership of embedded generation and other distributed energy resources (such as storage) for the purpose of network support.
    4. Benchmark the expenditure on demand management solutions across the networks (and relevant international comparators). A best practice expectation could be set by the regulator for the use of non-network solutions which the networks could then be incentivised to outperform.
    5. Investigate opportunities for the development of policies and incentives supporting electric vehicle uptake as a means to increase grid utilisation. 
    6. Consider the development of a national online portal for all small-scale solar PV installations to improve efficiency, consistency and transparency of micro embedded generator connection processes. 
    7. Publication of details of localised network constraints across Australia to inform all stakeholders of issues on the grid. 
    8. Progress the further development and finalisation of Australian Standards for demand management devices to support the market for demand management services, particularly at a residential level.
    9. Given the significant economic, social and environmental impacts of our electricity supply system, undertake a review to investigate the evolution of the National Electricity Objective or other related instruments to reflect community expectations for sustainability.
    10. Review the processes, timeframes and governance of regulatory reform in the National Electricity Market to identify and assess opportunities to improve the efficiency of the reform process.
    11. Promote the sustainable and credible development of the Alternative Energy Seller status to enable the expanded use of solar power purchase agreements, the potential bundling of battery stage and the use of advanced demand management devices to support this business model. 
    12. Explore opportunities for extending and enhancing existing funding streams and mechanisms to support community energy projects in Australia.
  • As key decision makers in electricity market governance, governments, policy makers and regulators have a significant stake in the operation and evolution of electricity markets. It is critical that these same parties are able to understand these issues and opportunities in order to respond to rapidly changing consumer expectations.

    While these stakeholders should consider this report and its full suite of recommendations, main recommendations to consider going forward include:

    1. Utilise an appropriate valuation framework to introduce more cost reflective prices for embedded generation output. 
    2. Review the arrangement for Community Service Obligations and other similar subsidies for opportunities to divert part of this subsidy to the installation of emerging technologies.
    3. Review the role of the DNSP, and the opportunity for a contestable market, in relation to ownership of embedded generation and other distributed energy resources (such as storage) for the purpose of network support.
    4. Develop a set of best practice principles and a model process for planning network responses to constraints that could be used by DNSPs to improve the quality and consistency of their approach.
    5. Benchmark the expenditure on demand management solutions across the DNSPs (and relevant international comparators).  A best practice expectation could be set by the regulator for the use of non-network solutions which the DNSPs could then be incentivised to outperform.
    6. Investigate opportunities for the development of policies and incentives supporting electric vehicle uptake as a means to increase grid utilisation. 
    7. Extend the application of Chapter 5 of the National Electricity Rules (or similar guiding principles and processes) for the connection of embedded generators below 5 MW which are not micro embedded generators to jurisdictions currently not covered by these regulations.
    8. Publication of details of localised network constraints across Australia to inform all stakeholders of issues on the grid. 
    9. Progress the continued development of enhanced inverter standards for all embedded generation rated up to 5 MW to address network concerns and enable greater penetration rates of embedded generation.
    10. Progress the further development and finalisation of Australian Standards for demand management devices to support the market for demand management services, particularly at a residential level.
    11. Given the significant economic, social and environmental impacts of our electricity supply system, undertake a review to investigate the evolution of the National Electricity Objective or other related instruments to reflect community expectations for sustainability.
    12. Review the processes, timeframes and governance of regulatory reform in the National Electricity Market to identify and assess opportunities to improve the efficiency of the reform process.
    13. Promote the sustainable and credible development of the Alternative Energy Seller (AES) status to enable the expanded use of solar power purchase agreements, the potential bundling of battery stage and the use of advanced demand management devices to support this business model. 
    14. Maintain funding for key Federal agencies, specifically ARENA and the CEFC and where possible, encourage the use of these funds to pursue relevant recommendations from this review.
    15. Explore opportunities for extending and enhancing existing funding streams and mechanisms to support community energy projects in Australia.
    16. Encourage the Commonwealth Government to remove the fuel-tax credit scheme as it relates to diesel used for energy generation. Replacement of this scheme with direct subsidies for eligible remote communities which could be applied to any energy solution (e.g. solar plus storage) which would have the benefit of removing this relative price distortion favouring diesel.
  • As consumer expectations change Distribution Network Service Providers have a great deal at stake. The new challenges their businesses face require a re-think of conventional methods and approaches. In many cases however, regulatory limitations will prevent proactive responses. This work looks in detail at a number of ways in which networks businesses can engage with the issues with an aim to enhance their continued ability to meet consumer expectations.

    Main recommendations to consider going forward include:

    1. Utilise an appropriate valuation framework to introduce more cost reflective prices for embedded generation output. 
    2. Review the arrangement for Community Service Obligations and other similar subsidies for opportunities to divert part of this subsidy to the installation of emerging technologies.
    3. Review the role of the DNSP, and the opportunity for a contestable market, in relation to ownership of embedded generation and other distributed energy resources (such as storage) for the purpose of network support.
    4. Develop a set of best practice principles and a model process for planning network responses to constraints that could be used by DNSPs to improve the quality and consistency of their approach.
    5. Extend the application of Chapter 5 of the National Electricity Rules (or similar guiding principles and processes) for the connection of embedded generators below 5 MW which are not micro embedded generators to jurisdictions currently not covered by these regulations.
    6. Consider the development of a national online portal for all small scale solar PV installations to improve efficiency, consistency and transparency of micro embedded generator connection processes. 
    7. Publish details of localised network constraints across Australia to inform all stakeholders of issues on the grid. 
    8. Progress the continued development of enhanced inverter standards for all embedded generation rated up to 5MW to address network concerns and enable greater penetration rates of embedded generation.
    9. Progress the further development and finalisation of Australian Standards for demand management devices to support the market for demand management services, particularly at a residential level.
    10. Encourage the Commonwealth Government to remove the fuel-tax credit scheme as it relates to diesel used for energy generation. Replacement of this scheme with direct subsidies for eligible remote communities which could be applied to any energy solution (e.g. solar plus storage) which would have the benefit of removing this relative price distortion favouring diesel.

The role of this study in the FPDI program

This task fits within the FPDI project’s 'Regulatory and Economic Frameworks' work stream which has the objective of drawing together the perspectives of industry stakeholders to provide an accurate assessment of the regulatory challenges facing distributed generation or storage, and how current incentives and business models could be structured to achieve efficient deployment of the technologies.

It provides a comprehensive assessment of the policies and frameworks in the Australian context and benchmarks these against practice in overseas markets. In a first, this far-reaching review of policies has created a significant platform for the continued evolution of electricity markets in Australia. Its role in the FPDI program is also significant as, although falling within the Regulatory and Economic Frameworks work stream, it includes aspects which inform all FPDI work streams and the continued evolution of this and other key industry projects.