redesigning a 20 regulatory framework to century energy technology by tim... · consumption has...

Presented by Tim Nelson

Date August 2016

Redesigning a 20th century regulatory framework to match 21st century energy technology

ACCC/AER Regulatory Conference 2016

Tim Nelson August 2016

Some context Roles and responsibilities

Principles to guide reform

Agenda.

1 3 4

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2 What’s changed and what hasn’t

1 Some context.

A forecastable world has changed. Demand was once predictable – will it be predictable in the future?

| 4 ACCC/AER Regulatory Conference 2016


Electricity prices have risen. One consumer once stated: ‘The price has gone up but the lights aren’t shining any brighter’



Consumption has responded to higher prices. Average household electricity bills are a function of both price and consumption

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5.0

5.5

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6.5

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7.5

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800

1,000

1,200

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2,000

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Average bill - $2015 (LHS)

Average Consumption (RHS)

Average bill ($ p.a.)

Average consumption

(MWh)

Carbon price removal



Electricity prices and capacity utilisation. Bills could have been materially higher without consumption response

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42

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0

500

1,000

1,500

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2002 (Abbott) 2009 (Simshauser et al) 2014 (Grattan)

Generation (LHS)

Distribution (LHS)

Retail, Green Schemes,

Other (LHS)

2014 savings from

lower consumption

(LHS)

Capacity Utilisation

(RHS)

Annual average household electricity costs ($)

System capacity utilisation (%)



Embedded solar has grown significantly. One in four households have solar in some jurisdictions

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2007 2008 2009 2010 2011 2012 2013 2014 2015

ACT NSWNT QLDSA TASVIC WACumulative installations (RHS)

MW installed pa. MW cumulative installation



2 What’s changed and what hasn’t.

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› Consumer sentiment and technology have changed

› Solar – firms must keep pace with rapidly changing generation technologies

› Digital – consumers are now able to respond more quickly to pricing/information

› Batteries just around the corner?

› In some ways, the regulatory framework has been lagging behind

› Pricing is still largely regulated and non-cost reflective (c.a. 50% of the bill)

› Roles and responsibilities – prescribed by regulation

› Metering

› Solar

› Intersection between regulation and financial markets

What has changed? Technology and consumer preferences have evolved – homogenous product to a suite of heterogeneous products/services



Some things won’t change.

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› Stakeholders driving change, not just technology and consumers

› Investors (divestment), governments (policy), NGOs (political pressure)

› Issues of focus unlikely to change and are sometimes in conflict

› Reliability – unlikely consumers will accept lower reliability

› Consumer choice – partial grid substitute

› Affordability – electricity considered an essential service, should other services (e.g. solar, batteries) be thought of in the same way?

› Environmental – increased focus on reducing emissions

› With all of this to be considered, it is little wonder the regulatory framework is lagging in some areas!

Customer and community expectations about policy



Grid defection is unlikely. Very few customers will be able to ‘self-satisfy’



3 Roles and responsibilities.

Competitive neutrality for new products and services.

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› Customers are best served by competitive markets where they can select products and services that suit their circumstances from a wide range of options

› A level playing field for different technologies, different suppliers and between existing and new energy resources

› Robust ring-fencing is required - regulated entities should not derive competitive advantage from their position as a monopoly service provider

› Regulated revenue should strictly be for monopoly services

› Services provided ‘beyond the meter’ should be contestable

› A customer-led approach to distributed resources will allow households to capture personal value from new technologies (i.e. for managing in-home comfort), as well as offer services to networks or in the wholesale market – sharing in the value created along the supply chain



4 Principles to guide reform.

Regulatory support for a modern energy system.

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› Integration of climate change and energy policy

› Customer-led uptake of new technologies and services, based on contestability rather than regulation (in the absence of market failure)

› Competitive neutrality as a cornerstone for vibrant competitive markets

› National consistency

› Allocative efficient (cost-reflective) pricing for regulated entities

› Appropriate consumer protections reflecting society’s expectations that energy is an essential service, applied in a consistent way

› Technology standards to guarantee safe use of energy within the home, and minimum performance levels



For more information: AGL Blog – aglblog.com.au Twitter - @tanelsonaus This presentation has been based upon:

Nelson (2016) Redesigning a 20th century regulatory framework to deliver 21st century technology, as published in the Journal of Bioeconomics

Thank you.

redesigning a 20 regulatory framework to century energy technology by tim... · consumption has...

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