The result of an Australian-first partnership between the CSIRO and the Energy Networks Association (ENA), the Electricity Network Transformation Roadmap, sets out to develop a 10-year transition plan for the electricity sector – one under increasing pressure to offer more customer choice and control, reduce costs and ensure fairness.
Conventional delivery of services is being upended across industry sectors by technology and customer preferences, including newspapers, postal services, telecommunications and taxis. In what has been called the “disruption generation” there has also been a major shift in the way Australians interact with electricity services and providers. While changes challenge traditional business models for the grid and the electricity system itself, they also create opportunities for alternative services that can unlock value for customers and businesses alike.
In this context, Australia’s national science agency CSIRO and the peak national body representing gas distribution and electricity transmission and distribution businesses in Australia, the ENA, have partnered to develop an Electricity Network Transformation Roadmap (the Roadmap). The ambitious program aims to develop pathways to navigate the critical change in Australia’s electricity networks during 2015–25, with the goal of fostering innovative electricity systems that focus on better serving the needs and aspirations of future customers.
CSIRO’s latest analysis shows more than $224 billion – or more than a quarter – of all electricity system expenditure to 2050 is likely to be made by consumers. The grid can enable that transformation while maintaining a highly reliable, quality service to meet the needs of Australian customers, according to the report.
The Interim Program Report outlines the findings of stage one, which ran from July to October 2015, and identifies the implications of distributed energy resources, potential business models and priority directions for policy and regulation. It also includes a refresh of the Future Grid Forum Scenarios.
Like the Future Grid Forum undertaken by the CSIRO in 2013, the Roadmap program emphasises broad stakeholder engagement to help ‘co-design’ and prioritise transition options and has benefited from the valuable participation of almost 200 customer representatives, supply chain stakeholders and discipline experts.
Key findings in the interim report include:
• In the next 10 years, storage costs could fall by approximately two-thirds and the cost of solar panels will fall by a third.
• The outlook for long-term electricity customer bills has improved since 2013 modelling and are expected to remain the same share of average household expenditure as they are today due partly to battery storage.
• The electricity sector could play a significant role in efforts to reduce greenhouse gas emissions with up to 51 per cent abatement in the sector by 2030.
• The electricity grid has a key enabling role in all scenarios although it may be used very differently, as a ‘platform’ for new energy services.
The technologies and role of the network are also set to change significantly, according to the research, with an increasingly ‘two-way’ network. Here, some scenarios see up to 45 per cent of electricity from onsite generation, such as solar panels on homes. Similarly the business model of the network could evolve fundamentally to a ‘platform provider’, enabling new energy services and uses, as opposed to the conventional ‘poles and wires’ service.
The entire program is a two-stage process running across approximately 18 months. The 2015-25 Industry Transformation Report and 2015-25 Network Transformation Roadmap are due to be released this October.
Proposed design principles for regulatory framework
Interim Program Report Summary identified appropriate future-ready economic regulatory framework should be:
• Focused on the long-term interests of customers. Regulatory decisions on remaining regulated services should account for the perspectives and priorities of both current and future customers. They should focus on providing a stable framework for investments that deliver the connectivity and access to bi-directional electricity services that customers value.
• Flexible and enabling for emerging technology, technology diffusion, new competition and marketplaces.
Efficient competition should be allowed to emerge, with flexible and dedicated processes to recalibrate or remove regulation where appropriate. Rules should be nimble and facilitative, enabling prompt market action.
• Able to align network incentives with long term customer value.
The regulatory framework should provide clear revenue and profit opportunities for delivering services that create value for customers and market actors.
• Proportional and bounded.
In an environment of increasing contestability and competition, regulatory intervention needs to be well justified and proportional to the risks of a clearly identified problem. Further, its application should account for the costs and benefits of intervention. Robust independent processes are needed for regularly evaluating the boundaries of competition, considering the full range of costs and benefits.
Network service providers should be free to deliver valued, efficient energy service solutions to each customer. The framework should not be reactive or ‘permission’ based. It should provide a competitively neutral platform that does not pre-define a single ‘ideal’ network business model.
• Consistent, coherent and knowable for all participants.
Regulatory rules should continue to be consistent across Australia, and they should be predictable, simple, precise and knowable in advance, to facilitate least cost market participation and efficient investment. Regulatory decisions that share risks across networks, debt and equity providers, and customers need to be conscious, consistent with the risk compensation provided in the framework and predictably implemented. Similarly, cost recovery should align with those customers that initiate the system cost.
• Independent and accountable.
Regulatory rules should be applied and enforced independently, commonly, transparently and accountably (including the rights to reasons and appeal for consumers and businesses whose interests are materially affected).