Presented by Tim Nelson Date August 2016 ACCC/AER Regulatory - PowerPoint PPT Presentation

Redesigning a 20 th century regulatory framework to match 21 st century energy technology Presented by Tim Nelson Date August 2016

ACCC/AER Regulatory Conference 2016 | 2 Agenda. 1 2 3 4 Some context What’s changed Roles and Principles to and what hasn’t responsibilities guide reform Tim Nelson August 2016

Some 1 context.

ACCC/AER Regulatory Conference 2016 | 4 A forecastable world has changed. Demand was once predictable – will it be predictable in the future? Tim Nelson August 2016

ACCC/AER Regulatory Conference 2016 | 5 Electricity prices have risen. One consumer once stated: ‘The price has gone up but the lights aren’t shining any brighter’ Tim Nelson August 2016

ACCC/AER Regulatory Conference 2016 | 6 Consumption has responded to higher prices. Average household electricity bills are a function of both price and consumption Average bill Average Carbon price ($ p.a.) consumption Average bill - $2015 (LHS) removal 2,000 8.0 (MWh) Average Consumption (RHS) 1,800 7.5 1,600 7.0 1,400 6.5 1,200 6.0 1,000 5.5 800 5.0 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Tim Nelson August 2016

ACCC/AER Regulatory Conference 2016 | 7 Electricity prices and capacity utilisation. Bills could have been materially higher without consumption response System capacity Annual average household utilisation (%) electricity costs ($) 2,500 56 Generation (LHS) 54 2,000 Distribution (LHS) 52 1,500 50 Retail, Green Schemes, Other (LHS) 48 1,000 2014 savings from 46 lower consumption 500 (LHS) 44 Capacity Utilisation (RHS) 0 42 2002 (Abbott) 2009 (Simshauser et al) 2014 (Grattan) Tim Nelson August 2016

ACCC/AER Regulatory Conference 2016 | 8 Embedded solar has grown significantly. One in four households have solar in some jurisdictions ACT NSW MW cumulative installation MW installed pa. NT QLD SA TAS 1200 5000 VIC WA Cumulative installations (RHS) 1000 4000 800 3000 600 2000 400 1000 200 0 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 Tim Nelson August 2016

What’s 2 changed and what hasn’t.

ACCC/AER Regulatory Conference 2016 | 10 What has changed? Technology and consumer preferences have evolved – homogenous product to a suite of heterogeneous products/services › 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 Tim Nelson August 2016

ACCC/AER Regulatory Conference 2016 | 11 Some things won’t change. Customer and community expectations about policy › 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! Tim Nelson August 2016

ACCC/AER Regulatory Conference 2016 | 12 Grid defection is unlikely. Very few customers will be able to ‘self - satisfy’ Tim Nelson August 2016

Roles and 3 responsibilities.

ACCC/AER Regulatory Conference 2016 | 14 Competitive neutrality for new products and services. › 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 Tim Nelson August 2016

Principles to 4 guide reform.

ACCC/AER Regulatory Conference 2016 | 16 Regulatory support for a modern energy system. › 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 Tim Nelson August 2016

For more information: Thank you. AGL Blog – aglblog.com.au Twitter - @tanelsonaus This presentation has been based upon: Nelson (2016) Redesigning a 20 th century regulatory framework to deliver 21 st century technology , as published in the Journal of Bioeconomics