Embedded Networks

Australia’s energy future is challenged with uncertainties across supply and government policy that is driving energy prices to record levels. The rise of renewable energy is providing businesses with new options for energy supply. Supported by privately managed embedded networks, businesses are seeking out lowest-cost-first energy from within their embedded network, often from behind-the-meter renewables.

In response to the rise of embedded networks, the Australian Energy Market Commission (AEMC) have released a draft report covering changes in regulations. Due to be finalised by December 2017, This new report could be a crucial piece of the puzzle for a number of industries in providing a new framework for their energy consumption and ability to control the price of their electricity.

What is an embedded network and why are the regulations changing?

Embedded networks are private electricity networks established through maintaining a parent connection to the national grid with child or sub-meters serving multiple customers. A party, other than the registered local network service provider, owns and operates this private network and both purchases and on-sells electricity to its customers within the embedded network.

To date, coming applications for embedded networks has included shopping centres, large office buildings with multiple tenants, retirement villages and caravan parks where the owner operates the private network and then on-sells to their tenants.

The success of an embedded network arrangement is generally driven through lower-cost delivery to the tenant. This has historically been achieved as a result of aggregated volumes allowing greater buying power from energy retailers.

Embedded networks are now expanding their energy mix within the network through integration of renewables and other technologies. Solar technology can now deliver energy at a levelised cost lower than grid electricity. This increases the value proposition of an embedded network through offsetting grid energy price rises or lowering the overall cost within the network.

As a result, the emerging growth of embedded networks has spurred AEMC to release a draft report on regulatory requirements. The report focusses on ensuring there is an appropriate level of retail competition and consumer protection for embedded network participants. Put simply, the AEMC is seeking to achieve comparable regulatory requirements for all energy retailers, whether operating as a private embedded network, or as part of the National Energy Market.

What have they found?

With the information gathered, the AEMC have found that the current framework for embedded networks is no longer sufficient given the rapid growth in the number and scope of embedded networks. Currently, over 200,000 customers are supplied their electricity via an embedded network. The number of residential embedded networks has risen from 147 in 2012 to 1,358 in 2016 with this number only set to increase with a projected growth in both new and retrofit developments.

Currently, the majority of these networks operate under an exemption to hold a National Retail License from the Australian Energy Market Operator (AEMO) as they do not meet criteria requiring classification as an authorised energy retailer. Problems have arisen under this regime where not all tenants participate under the embedded network. Furthermore, certain consumer protections under the AEMO regulations may not apply under an embedded network.

What is the plan?

The report set out its recommendations in three main areas:

  1. Improve access to competition for customers who are already tied to an embedded network.
  2. Elevate embedded networks into the national framework, i.e. have minimum obligations and protections for new embedded networks regardless of size, rather than exemptions and have minimum consumer protection requirements for new embedded networks through more flexible retailer authorisation, rather than exemptions.
  3. Better regulate new and legacy exemptions through monitoring and metering.

What does this mean?

The new regulations seek to ensure both tenants and electricity sellers will have greater protection under embedded network relationships. This will also mean that tenancy agreements will not have to be amended to state their inclusion or exclusion within an embedded network as it will operate more closely to a typical retail electricity agreement. Ultimately tenants maintain the choice to be included in the embedded network, or to organise their own electricity as they see fit.

The proposed regulations are likely to highlight value-add opportunities for embedded networks rather than dilute their potential. Critically, a lower-cost energy mix from embedded networks than from alternative sources is key to their continued proliferation.

Longer-term, the establishment of micro-grids within the embedded network consisting of renewables, storage and other technologies will underpin ‘energy resilience’ as a key benefit to network participants.

With lower costs and the emergence of energy resilience as key attributes, there remains strong support for growth of embedded networks. Supported by appropriate regulation, embedded networks are likely to provide robust options for businesses seeking to control their energy costs well into the future.

To find out more about embedded networks or incorporating new supply technologies into existing networks, contact an embedded network expert at Solgen Energy Group.

 

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