The Australian Energy Regulator (AER) 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.
The 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. Currently, this economic assessment is required only for new assets that expand the electricity network.
The AER said 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 reforms are necessary to deal with the rapid pace of technological change, according to AER chair Paula Conboy.
“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.
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.