John Bradley, Chief Executive Officer – Energy Networks Association
As American comedian John Oliver, the host of Last Week Tonight, said recently: “The problem is when our infrastructure is not being destroyed by robots and/or saved by Bruce Willis, we tend to find it a bit boring.” Oliver bemoaned America’s lack of interest in an infrastructure maintenance backlog, wondering if it was because “no one has made a blockbuster movie about the importance of routine maintenance and repair”. His own movie trailer, complete with A-list actors, is worth googling, if only for the tagline, “Infrastructure: if anything exciting happens, we’ve done it wrong”.Utility professionals know how hard it can be to capture the public imagination when it comes to infrastructure regulation, planning and asset management.
There is a lot at stake. Australia’s utility industry provides essential public infrastructure that is the backbone of economic development, social cohesion and community services. Our electricity and downstream gas sectors contribute $24 billion to Australia’s GDP each year, enabled by almost one million kilometres of electricity network and 80,000km of gas pipelines.
Internationally, the Australian institutional and regulatory framework for energy has been well regarded, benefiting from transparent and independent institutions; evidence-based economic regulation without political influence; and a separate rule-making authority in the form of the Australian Energy Market Commission (AEMC). With some interruptions, Australia has maintained reasonably bipartisan support for competitive markets, prudent deregulation, and private capital investment which relies on investment certainty and low levels of sovereign risk.
It must also rank as one of the most constantly reviewed regimes in the world. A strength of the regime is that it has clear procedures for evaluating policy and regulatory changes by the AEMC and the Council of Australian Governments (COAG) Energy Council. At times though, the succession of overlapping reviews has resembled Trotsky’s dream of ‘permanent revolution’ – particularly in an industry which has five-year regulatory cycles and 50-year asset lives.
Australia has seen 17 major regulatory reviews in the energy network sector since 2010, including not only fundamental changes to electricity rules and guidelines by the responsible agencies but two Senate Committee inquiries, a Productivity Commission review and independent panels on key elements of regulation.
The incredible disruption in energy supply chains caused by technology, energy use and new markets will require policy and regulatory reforms that harness, and stimulate innovation. These trends are not only disrupting the business model of energy networks and other service providers – they are challenging policy and rule-making institutions like the AEMC and the COAG itself, the Australian Energy Regulator (AER) and Australian Energy Market Operator (AEMO).
Energy market governance will soon come under the spotlight in the long-planned review for energy ministers chaired by Dr Michael Vertigan AC, Euan Morton and Professor George Yarrow. It’s an important opportunity to ensure Australia’s energy institutions are fit for the disruptive challenges to come. These institutions will be influential in removing barriers to innovation in both new markets and in regulated services. They will also determine if Australia maintains investor confidence essential in an industry that remains capital intensive under all future scenarios.
Consumers have a direct interest in maintaining a stable investment environment for network infrastructure simply because it means a lower bill. Ongoing network infrastructure investment remains fundamental even in the most decentralised energy futures assessed by the CSIRO and others. A recent University of Sydney study by Khalilpour and Vassallo has again confirmed that widespread disconnection is not realistic in the future, even with falling technology costs, because of the value the grid provides to customers with distributed energy resources.
In this dynamic environment, a first priority for the Governance Review will be to preserve, in the AEMC, the capacity to provide a clear, coherent vision for energy reform, which is reflected with sufficient clarity in a rules framework supporting investment. In turn, AER and AEMO should be positioned to perform their distinct, complementary roles in applying the rules and implementing reform, rather than being expected to confront fundamental market design or competition policy issues in a reactive manner, responding to market trends.
Of course, if energy policy makers are scrambling to rethink policy and regulatory frameworks in the face of disruption, then they are certainly not alone. The Harper Review of Competition Policy released in March highlights that new services like Uber are not only disrupting the traditional taxi service but challenge conventions on what consumer protections are sought, or needed, by informed, consenting customers.
The ENA supports a consistent, principles-based approach to regulation of new business models, which avoids creating unnecessary barriers to entry and ensures a level playing field for providers of equivalent services. Consumer protection frameworks will require review to ensure they remain fit-for-purpose in the face of new sales models for solar, storage or other services. Not only do such services change the physical and financial features of a customer’s energy supply, the extent of choice itself may permit a re-evaluation of the need for consumer protection for consenting customers.
See our website www.ena.asn.au for recent submissions on The Regulation of New Products and Services and the publication, Evolving a Future Ready Regulatory Framework.